About 80,000 people now on sickness and invalid benefits could be shifted on to the unemployment benefit under radical welfare reforms proposed by the Treasury.

A Treasury report to the Government's welfare working group recommends reclassifying all 144,000 people on sickness and invalid benefits into three categories based on their ability to work, shifting those with some capacity to work in the near future on to the unemployment benefit.

It also recommends requiring sole parents to look for paid work before their youngest children turn 6, and contracting out most welfare services to private companies or charities.

But its hard line is softened by other proposals to extend sick leave and parental leave entitlements, and to let sickness beneficiaries earn more from part-time work before having their benefits cut.

The welfare working group, chaired by economist Paula Rebstock, has been given until next February to come up with proposals to reduce long-term benefit dependency.

Ms Rebstock said yesterday that the Treasury paper, presented at the group's latest meeting on September 3, was "just one of many inputs that the working group is getting".

"It was useful input but it would be premature as to what the welfare working group might be recommending," she said.

However, the 38-page paper provides the first concrete set of public proposals from any official source in the working group's review.

It draws heavily on recent reforms in Australia and Britain, which have both moved work-ready people off disability benefits on to the unemployment benefit. In Britain, the paper says, 69 per cent of previous disability beneficiaries were classified as "fit for work" and moved on to the dole.

"On the basis of the recent UK reforms, the reclassification of all sickness and invalid beneficiaries could result in more than 80,000 New Zealand beneficiaries moving on to the unemployment benefit," it says.

The move would make no difference to benefit rates for sickness beneficiaries because they already get the same as the dole. But the adult invalid's benefit of $243 a week is $49 higher than the $194 adult dole.

The paper also recommends moving sole parents who have skills and experience on to the dole - a move that has just come into force this month for sole parents with no children under 7 in Britain, where it is expected to cut sole parent unemployment by 30 per cent.

This would have no effect on the benefit level here but would mean requiring sole parents to look for full-time work instead of only part-time work as at present. The paper does not specify the youngest age of children at which their parents should be required to look for work, but notes that the new age of 6 which took effect here last week is still older than most other developed countries.

France, Germany, Switzerland and Norway all require sole parents to look for work when their youngest children turn 3, and some countries treat sole parents the same as any other unemployed person regardless of the children's ages.

The paper says Australia's decision to contract out job search services for the unemployed to private companies and charities in 1998 halved the cost for every job placement from A$12,000 to A$6000.

Welfare proposals
* Move work-ready people from sickness and invalid benefits on to dole.

* Make sole parents look for paid work before youngest child turns 6.

* Contract out welfare services to private companies and charities.

* Increase sick leave and parental leave to give employers incentives to help workers back to work.