Government Debt Collection After Robodebt
Lucinda O’Brien and Vivien Chen
20.8.2024
The Royal Commission into the Robodebt Scheme (Royal Commission) found that the scheme was ‘disastrous’, a ‘crude and cruel mechanism’ that systematically harassed and ‘traumatised’ many thousands of social security recipients. Yet consumer advocates assert that lessons from Robodebt have not been learnt and several public agencies, including the agency responsible for social security, continue to use inappropriate methods to recover debts. Our new research, conducted with colleagues at Melbourne Law School, highlights significant and enduring deficiencies in the legal frameworks concerning debt collection by government agencies. We propose reforms to improve the debt collection practices of public agencies and reduce the risk that government debt collection will cause further serious and unjustifiable harm.
1 The Royal Commission
a Background
Social security debts commonly arise when individuals are paid more than they are entitled to receive—for example, because they have earned money from employment. In May 2015, the former Department of Human Services (DHS) began to test a new automated process to detect and recover social security debts. The new scheme ‘matched’ the data from individuals’ tax returns with data they had reported to Centrelink (the agency responsible for administering social security payments). Under this new scheme, which later become known as ‘Robodebt’, debt notices were generated automatically whenever a discrepancy emerged between the Centrelink data and data obtained from the Australian Taxation Office (ATO).
The Robodebt scheme employed a new ‘averaging’ method to estimate individuals’ fortnightly incomes, using the ATO data. Early legal advice indicated that this aspect of the scheme would require legislative amendment, as it did not comply with the Social Security Act 1991 (Cth). Pilot testing also found that the ‘averaging’ method produced unreliable results. It showed that, in 95 per cent of cases, the method produced errors and that in most cases, these errors overstated the debts owed by social security recipients. These problems remained unresolved when DHS launched the Robodebt scheme in September 2016.
As the Royal Commission would later observe, the ‘disastrous’ impacts of the scheme emerged very soon after its commencement: ‘families struggling to make ends meet receiving a debt notice at Christmas, young people being driven to despair by demands for payment, and, horribly, an account of a young man’s suicide’. At this early stage, the scheme’s ‘unfairness, probable illegality and cruelty’ should have led to its termination or radical revision, according to the Royal Commission. Yet the agencies and Ministers responsible elected to ‘double down, to go on the attack’ and to maintain that the Government was ‘acting righteously to recoup taxpayers’ money from the undeserving’.
By January 2017, the Commonwealth Ombudsman had begun an ‘own motion’ investigation into the scheme, citing a sudden, dramatic increase in complaints relating to Centrelink. The Ombudsman noted a ‘recurring theme’ of ‘poor service delivery’:
Customers had problems getting a clear explanation about the debt decision and the reasoning behind it. As the compliance helpline number was initially excluded from letters and was not obvious in the system, customers called general customer service lines resulting in long wait times.
In February 2017, amidst a growing ‘chorus of criticism’ (as described by the Royal Commission), the Senate Community Affairs References Committee commenced its own inquiry into the scheme. The Senate Committee’s report noted that due to the ‘power imbalance’ between DHS and individual social security recipients, many individuals were ‘overwhelmed’ and lacked the confidence to challenge their purported debts.
The Senate Committee also described a ‘disturbing body of evidence’ regarding the recovery of purported debts, including the conduct of private debt collection firms engaged by DHS to recover the debts. It heard that some firms used ‘coercive practices’ to pursue payment from ‘vulnerable Australians’. These included repeated, threatening phone calls and threats to seize individuals’ assets or garnish their wages (actions beyond the power of private debt collectors).
In May 2020, against the backdrop of a second Senate Committee inquiry into the scheme, the Government announced that it would refund all debts raised in whole or part through ‘averaging’, conceding that the practice was ‘not sufficient under law’. The Royal Commission later found that this involved reimbursing some 381,000 affected individuals a total of $746 million, and writing off debts totalling $1.751 billion. In June 2021, the Government settled a class action brought by individuals caught up in the Robodebt scheme.
In August 2022, following a Federal election and a change of government, the Royal Commission was established. The Royal Commission received over one thousand submissions and heard oral evidence from 115 witnesses, including senior DHS personnel, former Cabinet ministers and two former Prime Ministers, as well as consumer advocates and individuals personally affected by the scheme.
b Findings
The Royal Commission’s Final Report, released in July 2023, identified profound flaws in the Robodebt scheme, the processes that led to its inception and the various ‘institutional checks and balances’ that failed to mitigate or even acknowledge its harmful impacts. It found that the architects of the scheme had repeatedly ignored advice that the ‘averaging’ method was illegal and unfair, at times colluding to hide this. These findings raised numerous significant legal and policy issues, including the independence of the Australian Public Service; the accountability of Ministers for the activities of their Departments; and the effectiveness of various oversight bodies, including the Commonwealth Ombudsman, the Office of Legal Services Coordination, the Office of the Australian Information Commissioner and the former Administrative Appeals Tribunal.
The Royal Commission also identified serious shortcomings in Centrelink’s debt recovery practices. These included crucial correspondence being sent to out-of-date addresses; persistent flaws in the online platform individuals were forced to use, to challenge their debts; and the fact that Centrelink placed the onus on individuals to produce evidence of their earnings from many years ago, despite its previous advice that they were only required to retain this information for six months. The Royal Commission noted that social security recipients include some ‘highly vulnerable groups’: people experiencing ‘physical or mental ill-health, financial distress, homelessness, family and domestic violence, or other forms of trauma’. It observed that many of these individuals had lost all faith in the Government and the social security system that was meant to support them. It quoted one individual who said in evidence, ‘I feel utterly betrayed by the government … [We] were treated like criminals and cheats, when all the while it was the department’s scheme that was illegal.’
The Final Report also criticised the role of private debt collectors in the Robodebt scheme. The Commonwealth paid a total of $11,609,795 to three private debt collection firms in connection with the scheme, between 2015 and 2021. The Royal Commission noted that the firms were paid on a commission basis, meaning that ‘they earned more money the more debt they recovered’. In this context, it identified a significant ‘conflict’ between the firms’ financial incentive to maximise debt recovery and their customer service obligations under their deeds of agreement with DHS.
The Royal Commission accepted that the outsourcing of government debt collection might be ‘appropriate’ in some circumstances. It observed, however, that private firms will always be ‘primarily motivated’ by commercial considerations. In light of the unique vulnerability of many social security recipients, it concluded that recovery of social security debts should always be ‘handled by properly trained government officers’.
During the course of the Royal Commission, the new Government announced that it would abandon the use of private debt collectors to recover social security debts. In November 2023, the Government released its formal response to the Royal Commission’s report. Describing the Robodebt scheme as a ‘human tragedy’, it accepted all 56 of the Royal Commission’s recommendations either in full or ‘in principle’. It pledged to ‘improve social security debt arrangements to ensure that debt raising and recovery practices are timely, fair and conducted with empathy and respect’. It made several specific commitments, including the provision of more ‘face-to-face’ customer service, to assist ‘vulnerable’ people in the social security system, and better consultation with consumer advocacy groups when making changes to the system. The Government has more recently created a new Administrative Review Tribunal, designed to be ‘user-focused, efficient, accessible, independent and fair’. Consumer advocates have welcomed this change, which they say will ‘help people appeal government decisions and enable effective independent review of social security decisions’.
Yet in some respects, the Government’s response fell short of the Royal Commission’s recommendations. It did not explicitly agree to create a new ‘comprehensive debt recovery management policy’ applicable to social security debts (as prescribed by Recommendation 18.1). At the same time, the Government acknowledged that the Royal Commission’s recommendations were ‘not—in and of themselves—enough to prevent another Robodebt Scheme’.
2 Ongoing risk of harm
Recent media reports bear out the ongoing risk posed by government debt collection practices. Some consumer advocates maintain that despite the findings of the Royal Commission, social security debt recovery continues to cause unnecessary and unwarranted distress. Services Australia (which now includes Centrelink) has sought to recover debts from up to 11,000 individuals who received special payments such as JobSeeker or JobKeeper during the COVID-19 pandemic. Those who have attempted to contact Services Australia to query these debts, or request more information, have encountered significant obstacles. In Senate Estimates in October 2023, Services Australia revealed that only 23 per cent of calls to Centrelink were answered in July and August 2023, with the rest either abandoned by the caller or answered with a recorded ‘congestion message’. Crossbench MPs have warned the Government that Services Australia’s failure to answer these calls leads to the callers’ situations becoming ‘increasingly urgent’, causing ‘unnecessary stress and hardship’. For some consumer advocates, these reports indicate that ‘Services Australia has not learnt … lessons’ from Robodebt and that ‘a more humane response to debt is urgently needed’.
Other Australian public agencies have also been accused of inappropriate debt collection practices, causing harm to vulnerable individuals. In 2021, the Victorian Ombudsman found evidence of harsh debt recovery practices by local councils and private firms acting on their behalf. Several councils imposed high penalty interest on debts, failed to provide effective support to people experiencing hardship, and brought legal action against ‘people in crisis’, including some with ‘histories of mental health problems and family violence’.
The ATO has also attracted criticism for its aggressive debt recovery methods. Like Services Australia, the ATO has extremely wide powers to recover debts. It can issue garnishee notices to employers and banks, unilaterally withhold government payments in order to recover tax debts, and initiate bankruptcy proceedings. Unlike other creditors, it does not need to obtain a judgment from a court to prove that a debt is owed. The Law Council of Australia has argued that the ‘powerful, invasive and extraordinary nature’ of the ATO’s powers mean that they should only be deployed ‘with the utmost care’. Yet in 2014 the ATO was accused of mounting ‘a campaign of intimidation’, threatening individuals with fines of up to $4,250, prosecution and imprisonment for failing to lodge timely tax returns.
In November 2023, the ATO attracted further criticism for its handling of a ‘debt awareness campaign’ relating to historic debts, ‘ranging from a few cents to thousands of dollars’. Targeting more than 28,000 taxpayers, the ‘campaign’ consisted of letters that ‘did not explain how or when the debts were incurred’, making it ‘difficult to verify or indeed challenge them’. Announcing the suspension of the program, the ATO acknowledged that it had caused ‘unnecessary distress’. It undertook to ‘review’ its ‘overall approach’ to pursuing such debts. The Commonwealth Ombudsman observed that the distress caused by the letters ‘may have been mitigated’ if the ATO had ‘had regard to lessons… learnt’ and had implemented previous recommendations put forward by the Ombudsman and Inspector-General of Taxation (IGT).
a Lack of transparency
There is very little public information regarding the debt collection practices of government agencies or the private firms acting on their behalf. The extant public data is largely the result of ad hoc inquiries, such as the Victorian Ombudsman’s report, inquiries by the IGT and, most notably, the Robodebt Royal Commission. The IGT has repeatedly called for the ATO to publish more data regarding its debt collection strategies, including its use of private debt collectors. Yet to date, this recommendation has not been implemented.
b Inconsistency
Based on the information available, the debt collection practices of government agencies appear to be highly inconsistent. The 2021 Victorian Ombudsman report found evidence of widely varying approaches to financial hardship, with some local councils being much more flexible than others. In New South Wales, local councils have been subject to a comprehensive and binding set of Debt Management and Hardship Guidelines since November 2018. In Victoria, however, such guidelines are only now being developed in response to the 2021 Victorian Ombudsman’s report.
The role of private firms in government debt collection is also inconsistent. Remuneration structures vary from one agency to another. The ATO has, in the past, engaged firms on a ‘flat fee’ basis, whereas DHS paid firms on a commission basis during the Robodebt period. The use of private debt collection firms is also subject to sudden changes of policy. This has been seen most recently in the ATO’s announcement that it has resumed the use of private firms, after a hiatus during the COVID-19 pandemic.
c Deficient safeguards
There are striking deficiencies in the safeguards and standards applicable to debt collection by government agencies and the private firms acting on their behalf. Commonwealth ‘model litigant’ obligations affect some aspects of debt collection practices by government agencies. However, these rules are not enforceable by individuals and are subject to very limited oversight. Moreover, they apply to ‘claims and litigation brought by or against the Commonwealth or a Commonwealth agency’, but not to debt collection conducted outside the courts. This means that they do not apply to the majority of government debt collection activities.
At present, the Debt Collection Guideline (Guideline), published by the Australian Securities and Investments Commission and the Australian Competition and Consumer Commission, provides the most comprehensive set of rules applicable to private firms acting for government agencies. It incorporates a range of binding legal obligations imposed upon firms by the Australian Consumer Law (ACL), including prohibitions on ‘misleading and deceptive’ conduct, ‘harassment’ and ‘coercion’. The ATO requires firms to comply with the Guideline, as well as the Australian Public Service Code of Conduct and its own internal debt collection guidelines. Yet, as the IGT has noted, such contractual provisions ‘are only meaningful to the extent there are consequences for any breaches’. The findings of the Royal Commission show that such contractual requirements can have very little impact in practice.
3 Reforming government debt collection
a Clear policies and guidelines
To address these serious deficiencies, the Commonwealth Government should develop an overarching debt collection policy applicable to all Commonwealth public agencies. The policy should be framed in broad terms, to enable it to serve as a model for adoption by state and local government bodies. It should incorporate the key principles enumerated by the Royal Commission (in Recommendation 18.1), including commitments that debt collection by public agencies will be ‘ethical, proportionate, consistent and transparent’; that agencies will treat individuals ‘fairly and with dignity, taking each person’s circumstances into account before commencing recovery action’; that they will ‘refrain from commencing or continuing recovery action while a debt is being reviewed or disputed’, subject to any ‘express legal authority to do so’; and that they will ‘consider and respond appropriately and proportionately to cases of hardship’.
The overarching policy should also include specific provisions relating to the use of private firms by government agencies. It should require agencies to recall debts from private firms promptly, when they are disputed or undergoing review; to publish regular data regarding their use of such firms; and to monitor, enforce and report on the firms’ compliance with the ACL, the Guideline and the key principles outlined above.
Each public agency should also be required to develop more specific, tailored debt collection guidelines. These agency-level guidelines should address unique issues that arise in relation to the particular kinds of debt or cohorts (for example, social security recipients) with which the agency deals. They should respond to problems identified by previous reviews, particularly those carried out by external oversight bodies such as the Commonwealth Ombudsman and the IGT.
b Accountability
To be effective, these debt collection policies and guidelines must be subject to oversight and an effective complaints mechanism. This could be achieved by empowering the Commonwealth Ombudsman to investigate complaints regarding alleged breaches, both by agencies themselves and by private firms acting on their behalf. The Commonwealth Ombudsman could be required to publish information about these complaints and inquiries in its annual reports. If similar policies and guidelines are adopted by state or local governments, equivalent powers should be conferred upon the relevant State Ombudsman.
Requiring private debt collectors to be members of the Australian Financial Complaints Authority would also provide an alternative means of review and redress for individuals, where debt collectors breach the ACL or the Guideline.
c Robust advocacy groups
Financial counselling services and community legal centres play a critical role in supporting individuals pursued for debts by public agencies. The Royal Commission highlighted the importance of these organisations in a ‘society that champions the concept of equality before the law’. The Royal Commission also observed that these organisations play a vital advocacy role, providing ‘feedback and constructive criticism’ to Government agencies, based upon their case work.
Sharp increases in the cost of living have led to a surge in demand for financial counselling and community legal services. Some individuals wait months for an initial appointment. Services say that they are ‘forced to turn hundreds of thousands of people away’ due to funding constraints. Unless public funding for these services increases to meet demand, many individuals will be forced to negotiate with government creditors on their own, without a clear understanding of their rights. Overburdened by case work, financial counsellors and community lawyers will find it increasingly difficult to provide expert, high-level policy advice to government agencies.
Concerningly, in June 2024, community legal centres offering specialist advice on social security law said they were ‘facing collapse’, after the Commonwealth Government failed to extend their funding in its latest Budget. One service announced that it would be forced to ‘wind down’ its services from 1 July 2024, due to funding shortfalls, despite the fact that it is ‘still inundated’ with requests for help relating to social security debts.
4 An urgent need for reform
The social security system is intended to provide a safety net for people in need. The Robodebt scheme severely damaged public trust in this safety net and the agencies responsible for its provision. The debt collection practices of other government agencies continue to cause significant concern. While the Robodebt Royal Commission has led to some important changes, we need further, more ambitious reforms to improve debt collection practices at all levels of government. The measures we propose would offer better protection to individuals, when they are pursued for debts by government agencies, and reduce the risk that the ‘disastrous’ failures of Robodebt will be repeated.
Lucinda O’Brien is a Postdoctoral Fellow at Melbourne Law School, the University of Melbourne.
Vivien Chen is a Senior Lecturer at Monash University and an Honorary Research Fellow at Melbourne Law School, the University of Melbourne.
Suggested citation: Lucinda O’Brien and Vivien Chen, ‘Government Debt Collection After Robodebt’ (20 August 2024) <https://www.auspublaw.org/blog/2024/8/government-debt-collection-after-robodebt>