By Nick Bonyhady and David Estcourt
Victims of the botched "robo-debt" welfare debt recovery scheme will share in $112 million after the federal government settled a class action on the morning of a scheduled trial.
As part of the settlement the government has agreed to pay $112 million in compensation and legal costs to up to 400,000 people who were affected by the scheme and drop $398 million in debts it had claimed. It has not accepted any liability.
Gordon Legal's Peter Gordon (right) led the class action against the government on behalf of welfare recipients who were unlawfully forced to repay money.Credit: Justin McManus
Labor said it should not have taken a class action to trigger compensation and redoubled its push for a royal commission to establish who in the government knew about the scheme's flaws.
The "unlawful" robo-debt scheme forced welfare recipients to repay hundreds of millions in alleged debts that the government calculated they owed through what was ultimately revealed to be a flawed method.
In a brief hearing in the Federal Court in Melbourne on Monday, lawyers for Centrelink said the parties had reached an agreement, which will require the court's approval.
Law firm Gordon Legal, which is running the class action, said if the settlement was approved by the court then $1.2 billion in total would have been delivered to participants in the legal challenge since it started, including $112 million in compensation.
The government also agreed to drop $398 million in claimed debts, the firm said in a statement.
The robo-debt scheme was scrapped in May, with the Commonwealth announcing it would pay back $721 million to about 373,000 people, which is included in the $1.2 billion. It is not yet clear what portion of the $112 million will go to Gordon Legal's costs, which will be checked independently before being approved by the court.
Labor's government services spokesman Bill Shorten said the government had only "surrendered" because senior ministers and public servants may have had to give evidence during the planned trial.
"Now it is time for the Morrison government to fess up who knew what when," Mr Shorten said.
He said a Labor government would establish a royal commission to examine what knowledge government ministers had of the scheme's flaws.
Prime Minister Scott Morrison announced the scheme that became robo-debt ahead of the 2016 election as treasurer while senior ministers including now-acting Immigration Minister Alan Tudge and Minister for Government Services Stuart Robert oversaw its operation.
In June, Mr Morrison apologised for any "hurt or harm" people suffered as a result of the government's scheme after it announced it would refund every alleged overpayment it had collected under the discredited system of income averaging.
Mr Robert's office referred requests for comment to a joint statement from Services Australia, the government agency responsible for the scheme and Gordon Legal.
It said both sides "acknowledge that the Commonwealth’s agreement to settle the matter is not an admission of liability" and that the government did not accept allegations it knew the program was unlawful.
If the scheme is approved, payments are likely to be made by the end of the year.