Major elements of the automated debt recovery process known as robo-debt are unlawful, the federal government has conceded in a test case brought by Victoria Legal Aid and Deanna Amato in Federal Court.
On Monday, the government sent a letter to the Court stating its averaging process, 10% penalty fee, and seizing of tax returns were unlawful, Victoria Legal Aid said.
Issuing orders [PDF] by consent on Wednesday before a full hearing, the Federal Court ordered the government to pay costs and to pay Amato back AU$92 in interest, after Canberra previously returned the AU$1,710 it had seized from her entire tax return.
"My robo-debt should never have occurred in the first place. I feel pleased to have won my case but it's bittersweet to know so many people have paid money under this system," Amato said.
"I think it's important that people remember that they have legal rights to question decisions that get made about them."
The Online Compliance Intervention (OCI) program run by the Department of Human Services, also known as robo-debt, compares the income declared to the Australian Taxation Office (ATO) against income declared to Centrelink, resulting in debt notices, along with a 10% recovery fee.
One large error in the system was that it was incorrectly calculating a recipient's income, basing fortnightly pay on their annual salary rather than taking a cumulative 26-week snapshot of what an individual was paid.
As late as November 14, Minister for Government Services Stuart Robert continued to defend the use of averaging.
"Using averaging as the basis to say to a citizen, 'There may be a debt, can you please engage with us?' is entirely appropriate," Robert told the National Press Club.
"And that process of using averaging -- using ATO tax receipts or end of the year assessments -- to say to Australians, 'There may be a problem, please engage with us' is absolutely appropriate and we have responsibility to do that."
However, last week, the government paused the automated income assessment aspects of the system.
"The government has conceded that the unfair and inaccurate income-averaging process used to calculate Deanna's robo-debt was also unlawful. If a debt isn't calculated properly, Centrelink cannot go on and pursue a person to pay the money," Victoria Legal Aid executive director of civil justice access and equity Rowan McRae said.
"Deanna's case has helped to clarify the unlawfulness of the robo-debt system for hundreds of thousands of Australians in the same situation, who received or paid off a robo-debt based only on averaging."
In its attempts to reach Amato, Centrelink was sending letters to an old address, and raised a robo-debt of AU$2,754 when she did not respond.
Victoria Legal Aid said Amato only found out about her debt when the government seized her entire tax return, and added Amato had no obligation to update her address with Centrelink because she was no longer receiving welfare.
After the case was filed, Centrelink used its powers to contact employers and banks, only to find Amato owed AU$1.48 -- which it wiped.
Last month, Services Australia claimed its robo-debt error rate was around 1%.
Providing an update on the program during Senate Estimates, Services Australia general manager of debt and appeals division Anthony Seebach said robo-debt had contributed under 10% of all debt recovery that Centrelink has performed since it came into force.
"If we just look at debt recovered for the life of the income compliance program ... we've recovered about AU$0.64 billion through the income compliance program," he said.
"At the same time, or over the same period, we've collected AU$6.73 billion in the broader debt recovery program."
For overall debt recovery, as of August 30, approximately 1.47 million outstanding social welfare debts were identified with a value of AU$4.89 billion, Seebach said.
"In the 2018-19 financial year, the department recovered AU$1.85 billion in social welfare debts, up from AU$1.7 billion in 2017-18," he said.
"For the period 1 July  to 28 June , approximately 2.27 million debts with a value of approximately AU$3.36 billion was raised in connection to social welfare payments, in that year."
Victoria Legal Aid said anyone that has previously paid off an averaged robo-debt should contact Centrelink's compliance division and request a refund.
Last week, Gordon Legal announced it had 4,000 complainants in its robo-debt class action.
"The stoppage of further robo-debt claims by Centrelink and the government is just the beginning of the battle," said Gordon Legal senior partner Peter Gordon said at the time.
"Our mission now is to ensure that Australians harmed by this predatory scheme are returned to their original position."
Welcoming the decision, independent MP Andrew Wilkie said the government should review all debts raised under robo-debt, pay "adequate compensation" to the victims of it.
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- Robert defends robo-debt averaging as 'entirely appropriate'
- Services Australia reckons 'robo-debt' error rate sits at 1%
- Labor accuses Coalition of knowing 'robo-debt' is illegal
- Shorten likens 'robo-debt' to the logic and ethics of a mob standover