Historic welfare debts to be reassessed following Federal Court decision

Investigations by the Department of Social Services show 147,773 welfare debts may have been raised through an unlawful calculation method known as income apportionment.

A Centrelink office. Picture: NewsWire / Aaron Francis

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Reassessment of as many as 150,000 historic welfare debts raised through a controversial calculation method will resume following a Federal Court decision.

Justices Thomas Thawley, Lisa Hespe and Geoffrey Kennett dismissed an appeal of an Administrative Appeals Tribunal decision made by a former grocery store worker, who argued a debt raised through income apportionment was invalid because the method could not accurately determine when income was earned. “(The applicant) contends that the pay slips enabled the tribunal to do nothing more than identify the minimum and the maximum amounts that (the applicant) could possibly, as a statement of possibility, have earned in each fortnight and, critically, that range of possibilities is quite large,” Kateena O’Gorman SC, the barrister representing the grocery worker, known as FTXB, told the court in March.

Income apportionment averaged pay across two or more Centrelink reporting periods if a welfare recipient’s pay slip did not align with the department’s fortnightly reporting periods and/or did not specify the days worked during that period, and where no other information was available.

It’s different to the Online Compliance Intervention – or Robodebt – calculation method implemented by the former Coalition government in 2016, where income was averaged over 26 fortnights.

The historical practice ran from the early 1990s until December 2020, when new legislation designed to simplify the income reporting process was introduced.

Data from two Department of Social Services investigations showed 147,773 debts (relating to just over 100,000 people) may have been raised through income apportionment.

The debts came to light in questions on notice in late 2024, when it was revealed Services Australia is working to recoup almost $5bn in unpaid debt dating back decades in some cases. The DSS says the average age of the debts raised using the method is 19 years.

The Federal Court appeal focused on a Youth Allowance recipient, FTXB, whose pay slips did not specify which days he was paid for between June 2014 and July 2015. His original debt of $911.98, raised through income apportionment, was revised to $806.16 by Services Australia using the Albanese government’s revised structure of the legislation and upheld by the AAT in mid-2024.

Justices Thawley and Hespe said that, while the Tribunal “erred in the way it calculated (the applicant’s) entitlement”, its ultimate conclusion about the legitimacy of the debt was sound.

They said data obtained via the Australian Taxation Office suggested the applicant consistently under-reported his income, “but it was not suggested before the Tribunal that (the applicant) under-reported income with the intention of securing payments to which he was not entitled”.

“The only conclusion available to the Tribunal was to be satisfied that the applicant) was entitled … to less than he received,” they wrote.

Justice Kennett dissented, suggesting the AAT’s decision be set aside and the applicant’s benefits be recalculated “from scratch” to determine if a debt was owed.

The appeal was ultimately dismissed and DSS secretary Michael Lye ordered to pay the applicant’s legal costs relating to the Federal Court appeal.

Recovery of debts potentially affected by income apportionment were paused in October 2023, with a further pause implemented in April 2024 following the department’s investigations.

“The court considered the meaning of the term ‘first earned, derived or received’ and accepted my preferred construction of the legislation,” Mr Lye said in a statement following Tuesday’s decision. “Now there is certainty to the legal position, assessment activities will recommence in line with the court’s decision and my obligations as secretary.”

Social Services Minister Tanya Plibersek, who took over the portfolio in May, said the Federal Court decision reaffirmed the government’s position that income apportionment was not lawful.

“(Income apportionment) has never been used by the Albanese Labor government,” Ms Plibersek said in a joint statement with Finance Minister Katy Gallagher.

“(The court decision) also confirmed that the process used to calculate debt since 2020 is valid.”

Ms Plibersek said the government will evaluate the decision and “develop a suitable response”.