A Generational Miscalculation: Unpicking Centrelink’s Unlawful Income Apportionment

Today on Welfare Law in Australia, Darren O’ Donovan analyses an internal document released under the Freedom of Information Act 1982 (Cth) just a few days ago. That document reveals the inner working of Services Australia as it continues in its efforts to remediate a multi-decade calculation blunder likely affecting more than 100,000 people. What is more, the calculation blunder was also unlawful — well, at least according to the Commonwealth Ombudsman.

The post comes only a day after Charlesworth J of the Federal Court of Australia found, in Patrick v Attorney-General (Cth) [2024] FCA 268, that governments will no longer be able to deny information requests that are determined at a date after the relevant Minister’s term has expired because (among other things) a document will be viewed as an ‘official document’ as it exists as such at the time of the request rather than at the time of the determination [8].

Roundtable address at ‘Law and Class in the Twenty-First Century’ (La Trobe Law School)

I recently attended and made up one-third of a roundtable panel at the second annual meeting of the Australian Progressive Legal Studies collective, which was themed ‘Law and Class in the 21st Century: Australia and Beyond.’ The roundtable, comprising Scarlet Wilcock (University of Sydney Law School), Asher Wolf (independent activist) and me, was focused on robodebt.

The text of my address is below. After we three panellists gave our 10-minute addresses, some 90 minutes of questions and answers followed.


Thank you for having me and I want to pay respects to the First Peoples of Australia and of Naarm, the moieties of the Kulin nation, and First peoples here today.

Modern health and social welfare law was built on Prussian social policy, which was still conservative, but glimpsed that the states could exist for the people, rather than merely to glorify the king.

Bismarck introduced public health insurance in 1883, but it was restricted to the employed and working class, with employers paying two thirds of the premium.

Health insurance schemes and the creation of modern welfare states arose in France, the UK and the US and even in NZ (in 1937). All before Australia, of course, which made moves on the fumes of Curtin’s reconstruction after WWII. But it took a loss in the High Court for any serious change to occur. It was a blessing, really.

The first Pharmaceutical Benefits Case (no. 1) led the CJ, Latham, to say that a scheme for subsidised medicine was unconstitutional. The relevant law was ‘far more than appropriation Act’ and had sought to ‘control medicine,’ his Honour said. It was the Victorian Medical Association, which jealously guarded its right to practise medicine privately — as do all medical associations – which funded the litigation. Doctors and dentists, like lawyers, have never wanted their work to be state-controlled. It’s a class thing.

The 1946 referendum putatively overcame the problem by introducing the benefits power, provided doctors and dentists retained private profit rights (that was Menzies’ condition as opposition leader). It unambiguously gave the central Parliament a power to spend on health insurance, war widows’ pensions, which my grandmother received from 1960 until 1999, unemployment benefits, single parent pay, student pay, etc.

So welfare is legally incontrovertible following the referendum; there is no question that it is a legitimate feature of the Australian federation, albeit a constitutional afterthought. Controls on welfare may thus be always already suspect.

But of course the war rages in political economy. Inexplicably because, as Rohan said yesterday, the NAIRU exists. For government policy to hit this axiomatic KPI, around a million people must be unemployed across the country.

But today’s neoclassicals do not countenance the paradox: namely, that achieving 5% unemployment means you have to pay welfare — and that’s on their theory.

This is the neoclassical version of the Marxian reserve army of labour. In theory, any one of the 5% is supposed to be ready replace your job when you fail performance review. Shoudn’t the reserve army be well looked after, kept fit and healthy to make the substitution realistic, a real threat?

Modern mutual obligations qua ‘job-readiness’ admittedly tracks with this. But it makes no sense on the Friedmannian view for welfare payments to be meagre; a well-fed unemployed can take your job.

It’s neoclassical fiction, of course. Most recipients who find themselves with debts historically have tended to be the least job ready because they are single parents who are already engaged in demanding work, or people with disabilities, including psychosocial disabilities.

I want to propose that Robodebt arose out of a unspeakably brutal prosecution regime in the mid 2000s – a history Scarlett [Wilcock] has studied in detail.

My own historical study, both of public and private materials, persuades me that prosecuting welfare debtors under the Commonwealth Criminal Code was a winning strategy tied to a misconceived drive for cheap welfare. Two of the most experienced counsel in Sydney are known to have advised their clients that there was no advanceable legal defence in view of the section’s drafting. Those counsel, the legal profession, and the Justices that heard the cases, may well have misread the s 135.2(1)(a). They thought it was much stricter than it was, or even imposed something like absolute liability on a recipient of an overpayment.

As soon as a charge sheet and summons were served on a recipient who had been overpaid as little as $3000, often at 6am in the morning by uniformed police, they would have known they were in serious trouble.

Facing a recorded conviction and hearing uncontradicted legal wisdom that the offence was practically a strict liability, all accuseds — single mothers, students, and others of certain classes — pleaded guilty and paid up any way they could, lest the conviction consign them to unemployed class forever.

But welfare criminalisation faced foundational damage in 2011 when one recipient went to the apex court alleging she had no legal duty to report her income to Centrelink, and so the criminally offence was a nonsense. With the help of Vic Legal Aid, she won. She was a single mother and migrant who had been sexually harassed at the workplace she had been overpaid by.

The government introduced curative legislation to stop the estimated 15,000 people with the same conviction profile appealing. But in 2013, Victoria Legal Aid, instructing now Chief Justice of the Federal Court of Australia, her Honour Debbie Mortimer, appealed to the High Court for Kelli Anne Keating. The appellant argued in essence that the principle of legality made the retrospective affixation of a legal duty through curative laws a nonsense. And, at any rate, the convictions had not been secured through the adduction of evidence being led on any fault element of s 135.2(1)(a) — which would require knowledge. Keating also won, with the result that the 15,000 convictions in question before 2011 remain unsound. Not only that — around 99.75% of those convictions are unappealed and unremediated. Something like 25 have been actioned.

But when the government changed in 2014, everyone except Greens Senator Siewert forgot about it. No proposal for reviews have gathered steam.

By the time Keating was handed down, the Commonwealth Director of Public Prosecutions (CDPP) had grown wary of ‘welfare prosecution as usual.’ Their new practice instructions reported that, in essence, they would no longer prosecute people who failed to report their income. Only evidence of actual false statements would whet the bitter passion of the federal prosecutor. And so in circumstances where the possibility of recouping what had historically been 40% of asserted welfare debts had been squibbed through two High Court losses that had constrained the criminal system, the government found itself bereft of an alternative recoupment mechanism.

At the earliest stages of robodebt, negotiations between the CDPP and the agencies were attempted. They appear not to have gone far, despite veiled threats from the agency to the effect that the CDPP’s funding was tied to prosecution referral acceptances. And so, at around that time, in early 2015, the government identified a civil system of recoupment as the most efficient way to make welfare cheap again.

Debts, both historical and current, could be detected through automated processes whose essential flaws – both legal and mathematical — remain, even after the Royal Commission, underexplained. I can speak a lot more about this. (Consider the welfare concept of an ‘income bank’).

These erroneous debts were then asserted in threatening letters bearing AFP logos, which took the place of the uniformed police at the door. If no disproof of guilt was adduced, the asserted debts were then extracted via a contracted force of debt collectors or via tax garnishes without notice. The collectors bugged, nagged, nudged, and threatened debtors, always under a false aegis of a criminal threat, while the tax office just raided tax returns.

The eventual Royal Commission never told this backstory. It did some great things, but it also never touched on the technical problems with these debts. It tried, but it kept the legal problems high level. Commissioner Holmes did not examine the software that lay behind the statutory calculators. This is the automation problem. Apps cannot yet apply law.

And today it gets worse. Another legal misunderstanding by the agencies means that hundreds of thousands of debts going back to 2003 are unlawful. In the last few months, a person held in prison for one of these unlawful post-robodebts was quietly released. Another remains in prison, with the Ombudsman, CDPP, welfare agencies and government, all aware, and, in essence, unperturbed. In terms of class, misuse of welfare law has resulted in an effective bill of attainder, creating a criminal class through so many legal blunders

To reorient Max’s quote earlier from Althusser this morning – that the law makes the capitalist relations of production disappear – I think robodebt shows us how the law does not always succeed in ‘disappearing’ capitalist relations. And as law scholars, I think we can hope that the law can also bring them into relief. In our dreams, I guess.

November–December 2023 updates: AABHL presentation; thalidomide apology; unlawful welfare convictions

Just a quick blog post to note a few news items

  • In late November, I presented the following presentation remotely at the Australasian Association of Bioethics and Heath Law (AABHL) on ‘risk-based regulation.’ My abstract was as follows:

What risk? A critical analysis of risk-based regulation of therapeutic goods, from stem cell medicine to osseointegration devices

Therapeutic goods (medicines, biologicals and devices) are regulated both in Australia and globally via ‘risk-based regulation’ (RBR). Recently, the OECD has described RBR as rules that are ‘science-based, targeted, effective and efficient,’ invoking the paradigmatic ‘risk-benefit analysis.’ But, as this paper contends, this description is misleading. In essence, RBR is neither health-focused nor harm-minimising but about ‘less-is-more’ governance. As with other neoliberal creations, RBR’s aim has been to prioritise private sector remediation (eg, civil litigation) and self-regulation over centralised governmental control. While the impact of RBR in the financial sector has been studied in detail, scarce legal scholarship has examined the state’s devolution of responsibility and control over therapeutic goods law to private individuals and organisations, such as hospitals or private practitioners.

As this paper will illustrate, while therapeutic goods legislation does control risk and experimentation (‘innovation’), it does so only for high-risk therapies: ie, those ‘worth’ regulating. Two examples are on point: the practice of stem-cell medicine and the use of osseointegration devices. In pursuit of efficiency, RBR eschews ‘overregulation’ and avoids duplication of oversight and enforcement. In concert with the Australian Civil Liability Acts, RBR has arguably achieved its implicit goal of ‘deresponsibilisation.’ However, a regulatory vacuum for unregulated or unapproved experimentation, creating confusion among practitioners and leaving regulators open to accusations of arbitrary decision-making. While better ‘upfront’ guidance for practitioners may assist, I contend that better-publicised reasons by regulators will enhance standard-setting.

A video recording of the presentation is below:

  • On 7 December, I was quoted in the Guardian in a story written by Paul Karp about two people remain in jail for welfare fraud offences based on defective and unlawful evidence. That defectiveness and unlawfulness has been recognised by the Ombudsman and the welfare agencies, and even, seemingly, the Cth Director of Public Prosecutions. I make the point that more should be done to facilitate the review of these cases. The CDPP have disclosure obligations, but it appears to me that the nature of the disclosures may be narrow (notifying of a potential problem) or broad (giving detail as to the nature of the evidentiary issues). The story is here.

Updates on welfare law

I have been writing on welfare law over on my substack blog Welfare Law in Australia. One recent post and video deals with the question of ‘unlawfulness’ as it arises in respect of the former section 1073B of the Social Security Act 1989 (Cth). The way that that section was applied by the welfare departments between 2003 and 2020 was, as the Ombudsman has confirmed, unlawful. But what does unlawful mean here?

As I suggest, it essentially means that the departments acted in a way that was not expressly authorised by the legislation. But, perhaps more faultily than this, the departments misinterpreted or misconstrued their powers under the section; and, accordingly, they acted without power on an assumption that they did have power. As I note (perhaps somewhat agonisingly), this is a little like playing football with ‘boots on your hands’ — essentially doing something that is within the rules (‘kicking the ball’) but completely misunderstanding what the rules mean (ie, the rules require players to kick the ball with their feet; not simply ‘with boots on one’s limbs’). For mine, the lesson to arise from this (the Ombudsman’s statement, after all, is titled ‘Lessons in Lawfulness’) is that reading legislation carefully is absolutely indispensable. The more sophisticated version of that lesson is that:

  • internal calculators or automation tools in government departments need to be crafted in accordance with legislation to the letter;
  • the calculator in this case, the Earnings Apportionment Tool (within the Adex Debt Statement) should never have been permitted to create apportionments that went beyond the statutory limit of one ‘instalment period’; and
  • cross-disciplinary legal practitioners must be identified and employed, or alternatively trained — those who have skills in statutory interpretation as well as computer and software design — in order to avoid internal tools being run and applied that perform operations that are contrary to law.

The issue that arose in relation to the legal construction of the provision was simple enough — at least in hindsight. The provision provided as follows:

1073B Daily attribution of employment income

(1) If:

(a) a person is receiving a social security pension or a social security benefit; and

(b) the person’s rate of payment of the pension or benefit is worked out with regard to the income test module of a rate calculator in this Chapter; and

(d) the person earns, derives or receives, or is taken, either by virtue of the operation of section 1073A or any other provision of this Act, to earn, derive or receive, employment income during the whole or a part of a particular instalment period of the person;

the person is taken to earn, derive or receive, on each day in that instalment period, an amount of employment income worked out by dividing the total amount of the employment income referred to in paragraph (d) by the number of days in the period.

As I have noted in my analysis in this video, it was perfectly lawful for the agencies to apportion income, as the provision provides, by ‘dividing the total amount of the employment income… by the number of days in the [instalment] period.’ However, it was not lawful for the agencies to divide the ‘total amount of the employment income … by [a greater number] of days [than exist] in the [instalment] period,’ which is what they did. It’s all there in the last sentence of the provision.

The word ‘period’ as it is used in the last clause of the provision appears to have taken on an expanded meaning on the agencies’ construction so that it could apply to the entire payslip period; however, as is clear on a plain language reading of the provision, the term ‘period’ can only refer back to the word ‘instalment period’ that appears earlier in the provision. Otherwise it has no fixed meaning, which is clearly unbearable.

I was very disappointed by the Deputy Secretary of DSS, as well as by the Ombudsman, when they appeared recently in the Senate inquiry on poverty in Australia, because both these senior governmental figures bemoaned the ‘complexity’ of the matter, and stressed how difficult it was to explain. I was disappointed because it really need not be described in this way. It can be explained quite tersely and clearly. And if senators who are not legally trained have questions, they can be answered pretty well. What needs to be explained is that the agencies made a very rudimentary reading error. They identified the word ‘period’ in the provision as a word that has no fixed meaning but could potentially expand to any quantum. When one thinks about it, that was a very amateurish mistake. And one imagines, as in the case of robodebt, the mistake was bordering on one that used to be described, in the old actions on the case, as faulty for ‘want of due care.’

I will be aiming to write a more complete analysis later on why this is not an error that is wholly or even at all distinguishable from robodebt, as seems to be the message from all and sundry now, from the Ombudsman himself, through the department heads, through to the relevant ministers (Hons Shorten and Rishworth). But it is an untextured and, ultimately, untrue message. As the appendix to the robodebt Royal Commission clearly illustrates, more than twenty of the earliest robodebts that came before the AAT1 were subject to recalculation orders by AAT members who found them to be ‘unlawful’ precisely because they were calculated impermissibly under s 1073B.

This project to distinguish miscalculated debts under s 1073B from robodebts is something of a legal nonsense. Yes: robodebts involve debt letters that alleged debts based on ATO data. And, yes, the s 1073B problem predates the OIC and other version of the robodebt programs. But, in terms of the legal problems presented by robodebts, these debts were unlawful, in the end, for two reasons: first, they were insufficiently evidenced in terms of their quantum, as the Federal Court observed in its settlement orders. The Court (Davies J) put it this way (at paragraph 9):

there was no material before the decision-maker capable of supporting the conclusion that a debt had arisen pursuant to s 1223(1)(b) of the SS Act.

But the second and very much related reason why robodebts were unlawful is because they were calculated contrary to s 1073B. The fact that this second reason was not explored in the Royal Commission nor articulated in the reasons of Davies J in Amato, and had not been aired publicly before this month, does not make it any less true that robodebts were unlawful because of this problem. To be sure, the smoking gun in this respect is the fact that the Amato submissions made the s 1073B impermissibility argument (emphasis mine):

56.4 Section 1073B provided for averaging of income earned by a person receiving social security payments over an “instalment period”. An “instalment period” could not exceed 14 days. The effect of s 1073B was to produce an average daily rate of income for each day in the instalment period. Section 1073C then provided that “(a) the rate of the person’s employment income on a fortnightly basis for that day may be worked out by multiplying that amount by 14; and (b) the rate of the person’s employment income on a yearly basis for that day may be worked out by multiplying that amount by 364”. Sections 1073B and 1073C do not authorise apportionment of the kind done under the EIC program. They simply provide a mechanism for working out “the rate of the person’s employment income on a yearly basis” where it is relevant, under the SS Act, to calculate the rate on a yearly basis. The relevant period for Austudy payments was a fortnight, not a year. As the relevant explanatory memorandum states, the main purpose of ss 1073B and 1073C was to facilitate the “working credit” rules in the SS Act, the function of which “is basically to allow a person’s ordinary income to be reduced before it is put through [the] income testing process”. The working credit rules provided for the calculation of “the participant‘s rate of employment income on a yearly basis” for the purpose of working out the effect on working credit balances of social security pensioners. The working credit rules did not apply to Austudy recipients.

But, as I say, more on that later.

Another recent post deals with another issue that arose this month regarding historical errors on the part of the welfare agencies. Services Australia’s IT system committed errors that affected almost 50,000 child support payment recipients in an unspecified period prior to and around 2018. While the IT issue is said to have been resolved in 2020 (some two years after the agency had been consulted on the issue by the Ombudsman), only around 35,000 people had by that time had their assessments and entitlements re-assessed and remediated, while another roughly 15,000 recipients’ entitlements were not reassessed or remediated. Instead, they were simply ‘written off’ as inconsequential and unnecessary to address by the welfare delivery department.

This decision was made by the agency despite the fact that it had committed to reassessing all the affected files in 2019 in representations it had made to the Ombudsman. All of this, of course, was occurring during the robodebt settlement and through the Royal Commission. Clearly concerned that this backsliding on a prior commitment could result in unfair outcomes, the Ombudsman this year sought to re-engage with the department to ‘make things right’ — and that, as it happens, is the name of the statement published by the Commonwealth Ombusdman in respect of this matter.

This short statement is not to be confused with a report of the same name published by the Ombudsman with respect to the Department of Education back in 2015. (I suppose, when one is the Ombudsman, titles like Making things Right or Lessons in Lawfulness will probably need to be recycled every few years.) As I argue in the post, it is just another example of the recalcitrance of the agency among several that have emerged since the Robodebt Royal Commission.

If you have not been following my activity on Welfare Law in Australia, please do subscribe. Relatedly, my media appearances in recent times on welfare law are as follows: