The Veterans' Affairs Department has reported average wait times for compensation claims are reaching up to 235 days, with thousands of applications for assistance sitting unallocated for processing for more than a year.

Veterans lodging claims are being warned of major backlogs and long waits as the department scrambles to keep up with demand.

The delays have grown as the department spends tens of millions of dollars on labour hire staff in a bid to meet the growing workload.

Labor and the main public sector union say the government has let ex-services personnel down by chronically understaffing the department, where a staffing cap has limited employee numbers.

The new Veterans' Affairs Minister, Andrew Gee, admitted the wait times were unacceptable and said consultants would review the problem and recommend a plan for the department to best use $98.5 million in additional government funding to reduce delays.

New figures from the department, released to a parliamentary inquiry into the public service, show processing times climbed for most types of claims for compensation to veterans who have acquired injuries during military service.

The delays coincide with a massive rise in annual claim numbers, which grew 26 per cent in less than two years and reached 143,000 in March.

Labor senator Tim Ayres, on the committee of the inquiry into the public service, said the federal government had chronically understaffed the department by imposing a cap on public servant numbers.

It had failed to adjust staffing to meet growing demand following the Afghanistan and Iraq wars, he said.

Senator Ayres said the increase in staff announced in May's federal budget only provided fixed-term, non-ongoing staff and would not be enough to clear the backlogs.

"There's no commitment to veterans that goes beyond the political cycle," he said.

"Veterans should come back from their service confident that they've got bright futures, that they're going to find good jobs and get support from the community, from the private sector firms, but also from their government.

"This chronic understaffing of the Department of Veterans' Affairs has really let the veterans community down."

The department has grown its numbers of public servants by 230 since May, offering direct employment to labour hire workers brought in to process claims. About 200 of the additional employees are non-ongoing or temporary.

The Veterans' Affairs Department spent nearly $60 million on labour hire workers between July 2020 and May this year. About 40 per cent of the department's workforce were labour hire workers in May. Mr Gee said the number of labour hire staff dedicated to claims processing was falling from 50 to 23 per cent as the new staff came on board.

Senator Ayres said the use of labour hire had corroded the department's service delivery.

"The outcome of that in this department has meant that the people who deserve our care and respect are being let down," he said.

The government would not reduce the backlog until it abolished its staffing cap and stopped relying on contractors.

"The problem here is that these are people that are being rolled over and over and over again for 12 month and two year contracts, six month contracts, no security, and that just eats away at the confidence of the workforce, it eats away at the culture of the organisation and it means that they can't meet their commitment to Australian veterans," he said.

Community and Public Sector Union deputy national president Brooke Muscat said there was a direct link between staff shortages, the revolving door of labour hire in the department and waiting times for veterans.

"In an environment where services to clients can have life or death consequences, DVA needs more staff, and staff with experience to meet its clients' needs," she said.

Both Senator Ayres and Ms Muscat said the responsibility for the delays lay with the government, not the workers.

"Over the last few years workers have been increasingly stressed for veterans and families, as they try their hardest to get through the ever increasingly workloads with no help from the government," Ms Muscat said.

The government could fix the backlog today by redirecting the labour hire premium into public service jobs in Veterans' Affairs, she said.

"This simple action would see a net increase of up to 400 APS staff processing claims, who in turn would have secure jobs with better pay and conditions."

The federal budget included $98.5 million to reduce the claims backlog, as the government announced it would raise the cap on public servant numbers in Veterans' Affairs.

Minister for Veterans' Affairs and Defence Personnel Andrew Gee last week announced consultancy firm McKinsey would review the department's claims processing system and make recommendations. The decision drew criticism from the CPSU, which said the government was outsourcing its responsibility for veterans and their families.

McKinsey will deliver its recommendations in December.

Mr Gee on Friday said it was unacceptable for veterans and their families to have long waiting times.

"That is why McKinsey has been brought in to bring a fresh pair of eyes to look at claims processing, help fix the backlog, and make sure we get maximum results from the $98.5 million budget boost for hundreds of new claims processing officers," he said.

"McKinsey's work is not another review, it will deliver an action plan with immediate milestones to sort this out for our veterans and their families."

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Mr Gee said there had been an uptick in the number of claims in recent years as it had become simpler to lodge through the MyService portal.

"But more needs to be done, that's why I'm not waiting for the Royal Commission to get cracking on reforming the claims processing pipeline," he said.

Ms Muscat responded to the announcement early last week saying the government had known the cause of backlogs and processing issues for years, but had failed to act.

"This is just another empty announcement from a new minister desperate to neutralise a political issue," she said.

"Changing KPIs or renaming processes won't change the fact that wait times have ballooned and veterans are suffering as a result. What will change that is investing in enough staff to do the work."

Labor veterans' affairs spokesperson Shayne Neumann said the claims delays were a result of cuts to staffing at DVA over several years and high levels of poorly-trained labour hire workers.

"We don't need another expensive consultant review to tell us that," he said.

"What's more, this review will be duplicating the important work of the independent Royal Commission into defence and veteran suicide.

"It's not good enough and veterans deserve better."

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