Centrelink is Australia’s welfare service, responsible for administering unemployment benefits, pensions, and other related programs. This includes making payments, checking compliance with the conditions of such programs, and collecting debts if payments were made when they shouldn’t have been.
So what’s the fuss about? Isn’t it expected that Centrelink will try to reclaim benefits that should never have been paid?
The problems arise from recent changes to how Centrelink detect incorrectly paid benefits. For a few years now, Centrelink have been using an automated system to check reported income against Australian Tax Office (ATO) data. The trouble is, it’s very error prone and makes a number of assumptions about income that don’t hold up.
To put it simply: a large percentage of these “debts” are not really debts, they’re mistakes in Centrelink’s data matching algorithm.
Until recently, Centrelink were issuing approximately 20,000 notices per year for debts calculated under this system, with a manual review process to account for errors. Even so, at least 20% of notices raised by this system did not correspond to a real debt. Now Centrelink have increased rate at which they apply this algorithm to 20,000 per week (roughly a 50-fold increase), while decreasing oversight and review for a process known to be flawed.
Here’s an example to illustrate the problems:
Let’s say you became unemployed on July 1st 2009. You claim a Centrelink benefit (eg. Youth Allowance) for a few weeks, at $430 per fortnight. (I don’t know what the Centrelink payments or thresholds were in 2009, so I’m estimating from this year’s numbers. It doesn’t really matter.) The rules for each fortnight are: if you earn $430 or below, you receive $430 from Centrelink. If you earn $430-$1173, your Centrelink payment is reduced by $0.50 for each $1 over $430. If you earn $1173 or more, you receive no Centrelink payment.
You eventually find a casual job, getting a couple of shifts some fortnights and none in other fortnights. In a good fortnight, you’ll earn $800. You report this income to Centrelink, and your payments are reduced to $245. In a bad fortnight, you’ll earn $0, so you receive your full payment of $430.
After a few months working at this job, you start to pick up many more shifts, more regularly. Now your income is $2000 per fortnight. You report this income, and since it’s over the threshold for Centrelink payments to cease, you receive no benefits any more.
When July 1st 2010 rolls around, you do your tax return. You’ve earnt $30800 over the year (13 fortnights of $2000, 6 of $800), and you report it as well as your Centrelink payments of $4480. From July 1st 2010 you continue to earn above the threshold and claim no more payments from Centerlink. End of story, you’d think.
Note that everything here is above board. Having reported your income totally honestly and accurately, you’ve only received what Centrelink say you’re entitled to: $430 in the fortnights you earn nothing, $245 in the fortnights you earn $800, and $0 for the fortnights you earn $2000.
Six and a half years later, in January 2017, you receive a notice that you owe Centrelink $4480 plus interest.