The federal government’s ambitious review of the $150 billion welfare system has been cautiously welcomed by both the disability sector and the Labor Party.

The report released on Wednesday proposes simplifying over 77 different payment types to just five, and flags major reform of unemployment and disability benefits.

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Major players warned, however, that work needs to be “worthwhile” for people with disabilities, with Social Services Minister Scott Morrison admitting certain payments were “isolating”.

“It tells someone on it ‘you can’t work because this is permanent situation for you and we’re isolating you from the economy’,” Mr Morrison said at the National Press Club.

“I think that’s a terrible thing for the welfare system to say to someone.

See how others reacted to the release of the report.

People with Disability Australia CEO Craig Wallace

People with Disability Australia CEO Craig Wallace said the review was ‘practical’ and ‘welcomed’, but new eligibility rules were a concern.

People with Disability Australia CEO Craig Wallace. Photo: AAP

“We are pleased by the call for a jobs plan for people with disability and mental health conditions. This is something we have recommended for some time,” Mr Wallace said.

“The outlines of this jobs plan – subsidies, targets, incentives and attitudinal change – seem practical and sensible.”

Sweeping changes to eligibility requirements, where payments will be assessed on people’s capacity to work, were less well-recieved.

“Requiring claimants to show they cannot work more than eight hours a week is a very high bar especially in the current labour market,” Mr Wallace said.

He also praised a “Passport for Work” plan which would allow people transitioning to work to return to welfare if their job ended or work hours were reduced.

“We do welcome the idea of a passport to work which could remove the fear involved in people taking up jobs … ,” Mr Wallace said.

Australian Youth Affairs Coalition director Leo Fieldgrass

The proposal of youth payments being given to parents until a person is 22 is particularly concerning, says Australian Youth Affairs Coalition (AYAC) director Leo Fieldgrass.

Australian Youth Affairs Coalition director Leo Fieldgrass.

“This really sends negative signals about young Australians’ capacity to look after themselves,” Mr Fieldgrass said.

“It doesn’t address why young people are living at home, such as how difficult it is to find a job or enter the housing market.

Mr Fieldgrass said payments going to parents would especially hurt young people with disabilities by reducing their dignity and autonomy.

“During his National Press Club address, Scott Morrison was talking about the youth challenge and wanting to engage young people, and we’ve been really disappointed with the government’s lack of engagement with young people since coming to power.”

Mr Fieldgrass said AYAC wanted to see a comprehensive youth employment strategy.

“If you want to solve a problem that involves young people, you need to involve young people.”

Social Services Minister Scott Morrison

Speaking at the National Press Club after the report’s release, Social Services Minister Scott Morrison said the disability support pension needed to change to encourage people to work.

Scott Morrison at the National Press Club. Photo: AAP

“The problem I have with the DSP is that it’s so final, so terribly final and condemning.

“There are people with mental illness where it won’t rule them out at all times from the workforce.

“This is an area where we can go further.

Mr Morrison said Australia also needed to change how it “culturally” approached the ageing process, with a soaring number of people on the age pension.

“The best incentive for someone to work longer is that it’s in their best interests.”

On the issue of payments being deferred to a young person’s parents until they are 22, Mr Morrison said they were proposals from Mr McClure, not him.

“Often the government is criticised for rushing too quickly to the solution without consulting the Australian people, and that’s what I’ve attempted to do today.”

Review lead author, former Mission Australia boss, Patrick McClure

Review author Patrick McClure. Photo: AAP

Review lead author Patrick McClure told Sky News the emphasis of the report was on people’s capacity to work and, where there was an opportunity, to “explore possibilities”.

“You want people to be able to realise their potential,” Mr McClure said.

He said reform was necessary to stop the cost of welfare from spiralling out of control, but assured those already on welfare would not received reduced payments.

“If we don’t do it it’s [the cost] just going to continue to increase.

“People who are currently in the system will not receive a reduced payment. It’s not going to affect people currently in the system.”

Opposition leader Bill Shorten

Opposition Leader Bill Shorten. Photo: AAP

Speaking on Wednesday morning, Labor leader Bill Shorten said he supported regular changes to welfare, but warned people not to get caught up in ‘blaming the victim’.

“Many people on the DSP [disability support pension] would desperately rather not be on the DSP but their disability prevents them from getting work,” Mr Shorten said.

He said it was important the country maintained its “safety net”, which had helped prevent a “vast disparity between rich and poor”.

“I believe the welfare system constantly needs to be improved, but I’m also not going to campaign for the vilification of people on welfare.

“We’ll work on welfare reform, but Labor will never sign up to harshly kicking people when they’re already down.”

Prime Minister Tony Abbott. Photo: AAP

Prime Minister Tony Abbott

Prime Minister Tony Abbott said the government was determined to encourage people to “have a go” and make Australia the “home of the fair go”.

“We want to encourage every Australian to have a go and a fair go,” Mr Abbott said.

“That’s what everything this government does is designed to encourage.

“It is important to be constantly looking at welfare system to ensure it is efficiently administered and properly targeted.

“We want to deliver a fair go to every Australian and a fair and generous welfare system is part of ensuring everyone gets a fair go.”