So who knew? The inquiry into what ministers were told about $144m in illegal fees

NSW government agencies continued to unlawfully collect merchant fees from the public for four years despite a specific directive from Treasury warning they may have “no legal authority” to do so.

The NSW Ombudsman has confirmed it will investigate whether any ministers were warned about the unlawful scheme after the government on Wednesday revealed two state agencies – Service NSW and Revenue NSW – had collected at least $144 million in merchant fees from the public over several years despite legal advice from the Crown solicitor warning against the practice.

NSW Finance Minister Courtney Houssos and Customer Service Minister Jihad Dib revealing that $144 million in merchant fees had been unlawfully collected.Credit: Dominic Lorrimer

The revenue, which flowed from some 92 million customer transactions for government services, including driver’s licence renewals, marriage certificates and speeding fines, was collected between 2016 and this year.

Finance Minister Courtney Houssos said on Wednesday that an initial investigation after the breach was discovered by the auditor-general earlier this year revealed the Crown solicitor had issued three pieces of legal advice warning against the practice: in February 2016, October 2016 and again in December 2022.

Houssos said the government had referred the matter to the NSW Independent Commission Against Corruption and NSW Ombudsman, citing “possible serious maladministration” and the “apparent failure to act on the Crown solicitor’s advice” in 2016.

“I find these revelations extremely concerning, and I can’t see how there is an excuse for a government agency to be repeatedly advised that an activity is unlawful and to continue doing it,” Houssos said.

Two ministers in the former Coalition government – former customer services minister Victor Dominello and former finance minister Damien Tudehope – both said they did not recall receiving legal advice about merchant fees while in government.

Dominello, who helped oversee the creation of Service NSW, an agency which has been lauded for its digital-led customer service, said: “If I was ever informed of an unlawful practice I would have asked for it to cease immediately.”

But the Herald can reveal that, as well as the legal advice, the NSW Treasury Department issued explicit instructions to government agencies in 2018 which warned that they should only charge merchant fees “provided they are empowered to do so”.

The 2018 Treasury Circular – a document which instructs other government agencies on policy – said agencies could only recover merchant fees from the public “provided they are empowered to do so”. It also warned there may be some agencies “which provide services … where there is no legal authority for the recovery of merchant services charges”.

Former Treasury Secretary Mike Pratt, who headed up Treasury between 2017 and 2022, signed off on the circular. Pratt had previously been responsible for overseeing Service NSW in his role as customer service commissioner. He declined to comment.

The NSW Ombudsman on Wednesday confirmed it would launch an investigation into the fee charges, saying it would probe any “action or inaction in responding to legal advice obtained, in and since 2016” over the charges.

The investigation would include whether ministers had been informed of any legal advice about the scheme, it said.

The 2018 Treasury Circular obtained by the Herald replaced a 2012 missive which stated that the government “requires all agencies to recoup” merchant fees on payments.

But despite the newer document being circulated to all agencies – and the repeated legal advice – people continued to be unlawfully charged the fees until earlier this year.

The illegal charges issued by the agencies were mostly small in value. Renewing a driver’s licence for three years costs $162, but the merchant fee on that transaction would amount to about 71¢.

Houssos said government modelling had shown that over the eight years in which the charges were in place, the average person would have paid about $30 in unlawful fees.

But Customer Service Minister Jihad Dib said it was “about the principle”.

“How was this allowed to happen? How did this continue when there had been evidence of legal advice going back to 2016 where it was said this is not allowed?” he said.

Despite that, Dib said he could not commit to refunding the illegal payments, in part due to the complexity of identifying who had paid what as a result of privacy stopgaps in online payment systems. The government was “working on a number of different potential strategies”, he said.

“There are a number of different potential ways of addressing this, and we’re going to go through step by step. We would ask that people be patient with us,” he said.

The opposition called on the government to refund the money. “Don’t be the Christmas Grinch,” opposition customer service minister James Griffin said.

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