Robodebt: the federal court ruling and what it means for targeted welfare recipients

Paul Karp
Photograph: Mick Tsikas/AAP

On Wednesday the federal government settled a landmark challenge to its robodebt program, conceding that income-averaging alone was not a proper basis to claim the plaintiff, Deanna Amato, owed it a debt.

The admission explains why last week the government services minister, Stuart Robert, was forced to dismantle a central plank of the robodebt program’s automation by abandoning sole reliance on income averaging to calculate debts.

But what do the federal court judgment and the changes mean for the 900,000 Australians who Centrelink has claimed owe it a debt?

Related: Government admits robodebt was unlawful as it settles legal challenge

What did the federal court say?

In orders made by consent on Wednesday – agreed by the commonwealth – the federal court declared Amato’s debt was “not validly made”, that an order to garnish her tax return was also invalid and there was no basis to add a 10% penalty to the debt.

In a statement explaining the orders, Justice Jennifer Davies noted the initial debt of $2,900 was calculated based on Australian Taxation Office income data averaged across fortnightly periods, as if this were Amato’s actual income in each period.

The court said the conclusion Amato had received social security benefits she was not entitled to was “not open on the material before the decision-maker” because there was “no probative material” that the average reflected Amato’s actual income.

“In the circumstances, there was no material before the decision-maker capable of supporting the conclusion that a debt had arisen … The conclusion that a debt had arisen was therefore irrational, in the requisite legal sense.”

The court ordered the commonwealth to pay Amato’s costs and $92 interest.

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What has this got to do with the overhaul of robodebt?

In an email to staff last week the Department of Human Services revealed it would abandon sole reliance on the controversial “income-averaging” method and instead require additional proof before demanding welfare recipients pay back alleged debts.

The judgment in Amato’s case explains why – if the commonwealth concedes that income-averaging is not a lawful basis to claim a debt – the same argument would apply to many others.

Although Robert has claimed only a “small cohort” is affected, human services staff have been told that up to 600,000 of the 900,000 robodebts that have been issued used income-averaging and will need to be reassessed, and more than 220,000 may require refunds or waivers.

What will happen now?

The department has already committed to reviewing existing robodebts – including those already paid back – to consider possible refunds for people whose debts were based solely on income-averaging.

The general manager of the customer compliance division said in an email to staff, seen by Guardian Australia:

“We will methodically work through previous debts identified as part of the online income compliance program.

“We will focus on debts where the person did not respond to our requests for clarification. We will look at each of those instances with a view to assessing whether further information is available to clarify what debt may still be owed.

“For customers who are affected, the department will freeze debt recovery as they are identified and will then look at each debt. The department will write to customers to let them know this will happen automatically.”

So not all people who have received robodebts will have their debts waived – and not everybody who has paid a debt back will get a full refund.

It depends whether the department can get extra information to show what welfare recipients’ actual income was, and whether a discrepancy still exists with the amount of income the recipient declared.

How much could the government be on the hook for?

It is still unclear how much of the $660m raised by the program so far will have to be repaid, because the government has refused to provide more detail on how many robodebts are affected. The cost is expected to be in the hundreds of millions of dollars.

The projection that the program would ultimately involve 1m robodebts and achieve savings of $2.1bn is also clearly in doubt.

What about the class action?

The Gordon Legal class action, supported by Labor, will continue. The case, formally launched last week, has so far attracted 4,000 expressions of interest.

But as Peter Gordon explained to Guardian Australia, people will have a right to participate if they are captured by the group description of affected welfare recipients, because of the opt-out nature of class actions in Australia. If successful, the case could trigger refunds for hundreds of thousands of people whose debts were calculated using income-averaging.

As well as seeking that debts be waived on the basis the government had unjustly enriched itself, the class action argues it owed vulnerable welfare recipients a duty of care, a duty that was breached through threatening notices claiming a debt was owed. It seeks damages for stress, anxiety and stigma.

The class action may not increase the number of people who ultimately receive refunds – because dodgy debts based solely on income-averaging should be repaid by the department anyway – but it holds the government’s feet to the fire, and provides a mechanism for court-enforcement if the case is successful.

It also increases the financial risk to the commonwealth, because if the class action wins on the negligence point, welfare recipients could be owed damages.