About 3 million Australians charged debts totalling $4.3bn by the Australian government may have been affected by an unlawful debt calculation practice.
The commonwealth ombudsman has said an “extremely large number of Australians [are] potentially significantly impacted” in response to the latest estimate released by the Department of Social Services.
The release under freedom of information laws raises questions about whether the government can properly remediate what it has previously described as an “unquantifiable” potential liability.
The true impact could be even higher, with debts owed by deceased persons excluded from the estimate; this has led welfare expert Dr Christopher Rudge to argue that convictions based on dodgy debts are a “miscarriage of justice that will probably never see the light of day”.
Income apportionment is where a recipient’s job income is divided over fortnightly periods in order to calculate support payments.
In August 2023 the ombudsman released a report revealing that since at least 2003 Services Australia had been “unlawfully apportioning customers’ income”.
In some cases, the payslips relied on by Services Australia to calculate welfare debts don’t align with the fortnightly income reporting periods. In these situations, the agency created a “daily” average.
The ombudsman found that under the process of “apportionment”, welfare recipients’ employment income was spread across two or more fortnightly periods, which are used to calculate entitlement to Centrelink payments such as jobseeker.
At that time it was estimated that just 100,000 debts or potential debts were incorrectly calculated. The report caused a pause in repayments for 86,000 people and dozens of criminal prosecutions.
According to the DSS estimate, “at least 5.3 million debts held by 2.9 million Australians, totalling $4.3 billion, may be impacted by income apportionment”.
It said the estimate, produced on 22 October, reflects “all debts” related to employment income and a payment and time period “in which it is likely income apportionment was used”.
However, the department noted the figure is “not an estimate of the number of debts affected”, merely those that “may be impacted”, because “it is not possible to know whether a debt is affected … without a manual investigation”.
Rudge told Guardian Australia the $4.3bn value of the debts is a “massive number”, roughly equal to the total number of coins in circulation in Australia.
“If this mistake costs billions of dollars, based on an internal preference to ensure people didn’t game the system … it’s a huge remediation project. You have to ask: was it worth it?”
The 5.3m debts potentially affected represent 10% of the total of 53m social security and family payment debts recorded over a similar period.
Sample tests conducted by Services Australia have found about 64% of employment income-related debts may be affected by income apportionment.
When the debts were recalculated without using income apportionment, debts still existed in over 90% of cases – although they were smaller in 64% of cases, and actually grew in size in 29% of cases.
Welfare expert Dr Darren O’Donovan posted to LinkedIn that the estimate was “a jaw dropping disclosure on the scale of income apportionment”.
O’Donovan said the upcoming FTXB full federal court decision – which will establish the correct method of calculation – “has to be the largest scale test case one has ever seen”.
The ombudsman said that the income apportionment issue was the result of a “genuinely” held belief by Services Australia that its method was accurate, unlike the robodebt scandal which was “initiated and continued without legislative changes the agencies knew were required”.
But Rudge said the income apportionment issue suggested the government should “pull back on the paranoia about the integrity of the welfare system, minimise enforcement and only go after those in the serious fraud category”.
A departmental spokesperson said: “The Australian government is committed to ensuring our social security system is sustainable, accessible and provides fair outcomes for all Australians.”
“Estimates of the number of debts potentially affected by income apportionment has changed over time as understanding of the historical use of the practice has evolved.”
A spokesperson for the ombudsman said as part of its two reports in August 2023 and December 2023 that it continues “to engage on the scope and scale of this issue with DSS and Services Australia”.
“We are aware that the scale of this issue has increased beyond that identified by the agencies at the time of our reports.
“We welcome the fact that the agencies continued to investigate the potential scale of affected debts after our reports, we note the extremely large number of Australians potentially significantly impacted by this issue and we will continue to monitor what steps are taken to remediate the issue.”
