About 3 million Australians affected by Centrelink’s unlawful debt calculation method will be eligible for up to $600 in compensation after the federal government admitted the process was invalid.
The social services minister, Tanya Plibersek, announced on Wednesday the government would also raise the threshold for small, accidental debts to $250, meaning about 1.2 million debts are expected to be waived or not raised this financial year.
Economic Justice Australia (EJA), which has long campaigned for the threshold for waiving debts to be raised, described the decision as a “gamechanger”.
It is the first time the threshold has been increased for more than 30 years.
“The complex appeal process for a small debt is the same as that for a larger debt so this decision will remove a lot of unnecessary stress from people’s lives,” the organisation’s chief executive, Kate Allingham, said.
The decision follows a federal court ruling in July which found the method the social services department used to calculate a welfare participant’s payment – known as income apportionment – from the early 1990s to 2020 was invalid.
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During this period, Centrelink made assumptions about how much a welfare recipient earns during a reporting period to calculate their income support payments.
The method was used for decades but was ruled unlawful, placing a question mark over more than $1bn in debt owed by welfare recipients stretching back to the late 1970s.
The federal court’s July ruling confirmed the debt calculation method used since 2020 was valid.
As a result of Wednesday’s announcement, people with historic debts affected by income apportionment from 2003 to 2020 will be eligible for resolution payments of up to $600.
The payments will be funded through a new $300m package, which will also cover the cost of raising the threshold for small debts.
EJA and Australian Council of Social Service will each be given $400,000 to help recipients navigate the compensation process.
The government acknowledged the administrative cost of chasing small debts often cost more than the debt itself, making the process “uneconomical”.
It described the announcement as an “important first step toward social security reform”.
“Our social security system is designed to be there for Australians when they fall on hard times, which is why it’s important debt recovery processes must be fair and transparent,” Plibersek said.
“When the system provides good outcomes for both recipients and taxpayers, all Australians win.”
The finance minister, Katy Gallagher, said: “The last thing vulnerable people need is to be hounded over small debts that are not worth the time or the money to recover.”
Legislation will be introduced in coming weeks to implement the package.
The Greens welcomed the announcement as a “tremendous win” for advocates who have urged Labor to waive debts raised under the scheme.
“Like robodebt, the income apportionment scandal has shown the systemic issues with the way our welfare system brutalises people living in poverty over ridiculous errors,” the Greens social services spokesperson, Penny Allman-Payne, said.
“When you’re living week to week on poverty payments, a debt notice from the government can cause your whole life to spiral. Tragically for some it has led them to take their own lives.”
The Greens this week introduced legislation to impose a six-year limit on debt recovery – a recommendation from the robodebt royal commission.
EJA also backs the six-year limit.
