Veterans' Affairs secretary Liz Cosson confirmed the department employed 1750 public servants and 1246 employees were sourced from labour hire, or almost 42 per cent of of its workforce.

Labor's spokesman for veterans' affairs Shayne Neumann lambasted the government's use of the staffing level cap within the department as demand for its services continues to surge.

"The government's arbitrary staffing cap means taxpayer dollars are going to multinational companies through labour hire fees when it would be better spent at the frontline of service delivery for veterans and their families," he said.

"Our ex-service personnel deserve better from the Morrison government and it should axe its misguided staffing cap policy and allow Veterans' Affairs to hire the staff it needs to support veterans and address the backlog of claims."

A department spokesman said Veterans' Affairs used a blended workforce which was "an important strategy for DVA to manage its workload and deliver outcomes for our clients in-line with Government and community expectations."

"In response to fluctuations in workload, the department regularly makes adjustments to its workforce. This ensures it delivers services as efficiently as possible and within its operating budget."

The Canberra Times previously reported Veterans' Affairs had experienced a significant boost in productivity during the COVID-19 pandemic, resulting in significantly more claims being finalised than last year.

While this was true for permanent impairment claims, the department confirmed these had been treated as a priority and initial liability claims were not being processed as fast as they would like.

First assistant secretary of the client benefits division, Natasha Cole, told estimates the department received extra funding at the end of 2019 accompanying a deliberate strategy to target permanent impairment claims.

She said if the department had prioritised initial liability claims first it would have just added further backlog to permanent impairment.

Ms Cosson explained that part of the backlog was due to the department receiving more claims and engaging with more veterans and their families than ever anticipated.

In 2012 the department estimated it would have fewer than 250,000 clients in 2020 and that figure would decline. In actuality the department currently has more than 320,000 clients.

Ms Cosson said this was in part due to simplification of claims with online lodgement, streamlined questions and better communication with the defence force as veterans left the service.

This was a good outcome, she said, as it meant the department was engaging with more veterans.

CPSU deputy national president Brooke Muscat also criticised the reliance on labour hire for the department to complete its work.

She said the figures called into question Finance Minister Mathias Cormann's evidence in estimates last week that contractors were only for short term needs or highly specialised skills.

"The department said that as a direct result of the government's ASL cap policy, it is forced to use labour hire for core departmental work," she said.

"The ASL cap means that over 1000 labour hire workers do the same work as APS staff, and are employed on a long-term basis to meet the department's needs.

"It very much looks like we are seeing the creeping privatisation of Veterans' Affairs."