The huge wait list was revealed by an emotional Veterans' Affairs Minister Andrew Gee last month when he threatened to resign if the federal budget failed to deliver the full $96 million required to reduce the back log.
Douglas Humphreys, a Federal Court judge and former principal Member of the Veterans' Review Board, told the inquiry on Thursday the minister's concerns followed more than two decades of budget cuts to the Department of Veteran's Affairs.
This, he said, had only compounded the many challenges for veterans attempting to navigate the complex and deeply dysfunctional veteran compensation system.
"People need to get their claims processed and, indeed, I was somewhat surprised ... by the Minister for Veterans' Affairs that they haven't been allocated additional money in the budget in order to increase the rate of processing claims… That's shameful."
Mr Humphreys said the government's failure to properly fund the DVA over the past 20 years had resulted in "systemic failure".
He said until recently all claims processed through the DVA had been "entirely paper driven" until they were finally able to invest in an IT system.
Strained resources also had "pernicious effect" of the quality of the service delivered by the DVA, due to its heavy reliance on contract staff.
"The claims officers can be very junior, poorly paid and not tertiary trained," he said.
"You cannot take someone off the street and … give them a basic education on the claims process and expect them to get it right. They will make stupid errors."
The inquiry heard successive budget cuts had also resulted in the DVA reducing the VRB's office space, which forced the board to shut down its registries in Perth and Adelaide and run all its tribunal hearings out of Melbourne and Brisbane.
"I can remember some fairly large fights with DVA over the size of our tribunal premises … they would be happy for us to be in a broom closet if they could," Mr Humphreys said.
Pressed by counsel assisting Peter Singleton on a proposal to dismantle the VRB and have all veteran compensation claims managed by the Administrative Appeals Tribunal, Mr Humphreys told the inquiry: "I think that would be a disastrous mistake."
"What you've got is a specialist, small, highly veteran centric board that deals with veterans. The AAT is far more court like. That frightens veterans," he said.
Mr Humphreys said in 2021 the AAT had finalised only 210 veterans applications compared to 202,978 by the VRB.
Resolution of claims by the AAT was also much slower, with 43 per cent of veterans matters not finalised within 12 months, compared to the VRB where matters were finalised, on average, within 4.7 months.
He said while compensation payments made to veterans by the VRB were generally lower than the AAT, the VRB's use of alternative dispute resolution procedures resulted in "much better outcomes".
"The biggest thing is we don't call them liars, people who are malingering or trying things on," Mr Humphreys said.
"We respect the veteran, we respect their service. That's the important difference. We don't necessarily accept what they are telling us, but they're still entitled to respect for being a veteran and having served."
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