The Australian federal government has announced that approximately 3 million former and current welfare recipients will be eligible for compensation following a court ruling that found Centrelink’s historical debt calculation method to be unlawful. The government will issue payments of up to $600 per person, funded through a $300 million package designed to address the fallout.
The move follows a Federal Court decision in July, which ruled that the “income apportionment” method, used by Centrelink from the early 1990s until 2020, was legally invalid. The method involved making assumptions about a recipient’s income over a reporting period to determine their welfare eligibility, leading to potentially incorrect debt notices issued to vulnerable individuals.
Income Apportionment Deemed Invalid After Decades of Use
The income apportionment method, which had been in place since at least the early 1990s, was used to estimate welfare recipients’ earnings during a given period, often relying on incomplete or assumed data. This system was found to be legally unsound, casting doubt over more than $1 billion in historical debts, some dating back to the 1970s.
According to the Federal Court ruling, the method did not comply with legislative requirements for accurately calculating income support payments. While a revised system introduced in 2020 was confirmed as valid, the prior use of income apportionment has now been discredited.
As a result, individuals affected between 2003 and 2020 will be eligible for a one-off compensation payment of up to $600. Social Services Minister Tanya Plibersek described the move as an “important first step toward social security reform,” aiming to ensure that debt recovery processes are “fair and transparent.”
Threshold for Small Debts Raised as Part of Reform Package
Alongside the compensation scheme, the government announced a significant administrative reform by raising the threshold for small, accidental debts from $50 to $250. According to the Department of Social Services, this adjustment will result in around 1.2 million debts being either waived or not raised during the current financial year.
Economic Justice Australia, a longstanding critic of Centrelink’s debt collection processes, called the change a “gamechanger.” Chief Executive Kate Allingham highlighted the psychological toll of navigating appeals for small debts, noting that the same complex process applies regardless of the amount owed.
The Australian Council of Social Service and EJA will each receive $400,000 to assist claimants through the compensation process. The government acknowledged that pursuing small debts often cost more than they recovered, describing the practice as economically inefficient. Legislation to enact the reforms is expected to be introduced in Parliament in the coming weeks.
