Commonwealth ombud Michael Manthorpe has raised concerns over Services Australia’s decision to continue to recover income-averaged debts despite knowing that many of those debts were likely “legally insufficient”.
In a report released on Tuesday, Manthorpe has examined the administration of Services Australia’s income compliance (IC) program since November 2019, to assess whether Services Australia’s processes for identifying and refunding debts raised using income averaging is “fair and transparent”.
Income averaging was a key aspect of the government’s ‘robodebt’ scheme, and had been based on the assumption that a person would earn income at an even rate over the course of a year.
In November 2019, the government announced that Services Australia would no longer raise debts solely based on averaged income information received from the Australian Taxation Office.
Then, in 2020, the government announced it would refund repayments made on debts based wholly or partially on income averaging of ATO data, and that any outstanding debts based wholly or partially on income averaging would be reduced to zero.
Manthorpe’s new report looks at the steps Services Australia has taken to address the issues that arose after the government announced that Services Australia would no longer raise debts solely based on the process of income averaging. However, the report does not assess the lawfulness of the income averaging methodology.
“Mindful that, since 2019, legal proceedings have been ongoing in relation to the income compliance program, including the Katherine Prygodicz & ORS v Commonwealth of Australia (VID1252/2019) class action, this report does not traverse the matters of law subject to those proceedings,” Manthorpe said in a statement.
“Rather, its focus is on how the debt refund process, impacting several hundred thousand Australians, has actually been administered.”
Manthorpe has criticised the steps — or lack thereof — that the agency took after the changes to the IC program were announced, and has raised concerns over the circumstances surrounding the agency’s approach.
The report has recounted how, last year, the Department of Social Services had publicly confirmed that it was “legally insufficient to use ATO income averaging either fully or partially” to raise debts. That legal insufficiency was why the government announced the changes to the program in November 2019, the department had said.
Following the announcement, Services Australia began a process of identifying and categorising all debts raised under the IC program, and froze recovery activities for any debt that was categorised as being wholly or partially raised on the basis of income averaging.
Meanwhile, recovery action continued on all income compliance debts until they were categorised, the report noted. The ombud’s office has raised concern over this aspect of the agency’s process, particularly that “there was a period of some months during which debt recovery action was continuing in relation to many debts which Services Australia knew had a high likelihood of being raised on ‘legally insufficient’ grounds”.
“We acknowledge that not all debts raised under the IC program relied wholly or partially on income averaging. However, in the absence of knowing which were and were not, we are concerned that Services Australia nevertheless continued to recover income averaged debts despite a high risk that many of those debts were ‘legally insufficient’,” the report said.
“We consider this created a high degree of risk for Services Australia and unnecessary hardship for individuals affected, which was compounded by Services Australia’s knowledge that the identification process would be largely manual and therefore take some time to complete.”
The report said Services Australia should have paused debt recovery action on all debts raised under the IC program, until it could confirm that a debt was not wholly or partially raised on the basis of income averaging.
“In light of the 19 November 2019 announcement by government that averaged ATO income information alone is ‘legally insufficient’ to raise a debt, the more appropriate approach would have been for Services Australia to be able to immediately freeze recovery on all income compliance debts while it conducted its identification process, only re-starting recovery once a debt was determined to have not been raised relying on income averaging,” it said.
“We consider the risk of temporarily pausing debt recovery action on a valid debt to be far less consequential than the risk associated with continuing to recover debts highly likely to be raised on a legally insufficient basis.”
When the ombud office raised concerns with Services Australia over the issue, the agency said it was not technically feasible to take that step, “as the design of its debt management system did not enable it to easily freeze only those debts raised under the IC program”.
The report argued that Services Australia’s systems should be designed to facilitate this approach, as “not being able to pause debt recovery action on all debts of a particular type, without slow and resource intensive manual intervention, creates significant risk of inappropriate debt recovery action”.
The ombud’s office has found that Services Australia has taken “appropriate steps” to communicate with individuals who are eligible to receive a refund since announcing the refund process in May 2020.
However, Manthorpe noted that Services Australia had not advised his office of any plans to communicate with people who were not considered eligible to have their debt refunded.
“We are concerned there may be a large number of individuals who are broadly aware of issues regarding the way Services Australia raised debts under the IC program, but do not know whether their particular debt is eligible for a refund,” the report said.
The ombud has recommended that Services Australia write directly to those who have not been assessed as eligible for a refund or removal of their debt, and should include clear advice about the individuals’ review rights.
It has also recommended that, in the event that Services Australia decides to potentially re-raise refunded debts, it should write to affected individuals explaining why, assure them that income averaging alone will not be used to re-raise debts, and provide information about individuals’ review rights.
If Services Australia decides it won’t re-raise any debts that have been refunded, “it should confirm this publicly at the earliest opportunity”, the report said.
“We acknowledge Services Australia has not yet determined whether it will revisit and potentially re-raise debts that have been refunded. However, we do not consider that Services Australia has been sufficiently transparent with individuals about the possibility that this may occur,” it said.
The report made a total of nine recommendations to Services Australia regarding communication, remediation of debts, reviews of debts, and possible future activities. Manthorpe said he was “pleased” that Services Australia had accepted seven of the recommendations.
“I acknowledge Services Australia’s effort to implement the government’s decisions and their cooperation with this investigation,” he said.
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