Tuesday 02 June 2020
The Federal Government has announced it will refund more than $721 million dollars in wrongly issued Centrelink debts to over 373,000 Australians.
The inaccurate debt collections made between the 2015/2016 financial year and November 2019 targeted individuals who had supposedly received more welfare than their income entitled them to. The debts were calculated and issued without any human oversight and became known as robodebts.
It’s since come to light that the Australian Taxation Office (ATO) income averaging used to calculate the debts – which assessed a welfare recipient's income across a full financial year – created a false perception of income.
For example, within one financial year a person may have required income support while studying for six months, but then secured full-time employment and stopped receiving Centrelink payments. According to the robodebt collector, that entire year’s income should be used to assess whether or not the person was paid correctly in that first instance.
A period where a person wasn’t receiving welfare should not have bearing on past payments, and thus the entire basis of the scheme was flawed. As the class action into the program continues, Australia’s attorney general Christian Porter has said Centrelink debts issued through the income averaging method were deemed unlawful.
If you were issued and paid an incorrectly calculated debt related to income-compliance (aka the aforementioned inaccurate assessment of overpaid welfare) you will be refunded the full amount plus any additional fees or charges. You’ll also be repaid any funds which were hijacked from tax returns as part of the robodebt scheme.
If you’re currently contesting a robodebt or are yet to pay it, the debt will be cleared.
There are plenty of other reasons you may have been issued with a Centrelink debt. If it’s not related to incoming averaging, don’t expect a refund.
The current advice is to sit tight and wait. On Friday, Government Services Minister Stuart Robert said 190,000 individuals will be repaid starting from July 1. These will be the people with up to date details in the Services Australia system.
"The remainder, we'll be contacting to update their details to ensure we have their details, and will be proactively rectifying the record we have with them," Robert said.
There isn’t a set timeline for this process, but the Services Australia website does say any refunds will go directly to recipients and not be funneled into any other social security debts. So, once you have funds returned to your bank account, what’s the wisest way to use your recovered cash?
It may not be as fun as scoring new threads or shouting your family to a swanky dinner, but chipping away at loans or any lingering debt will make you happier in the long run. Think about making additional repayments on your home loan or personal loan if you’re able to, as this will reduce the amount of interest you pay across the life of the loan. Or, since you’ve got the funds right now, take advantage of the low or 0% interest rates on a balance transfer credit card by moving your debt across and paying it off in the interest-free period.
If the last few months have taught us anything, it’s that preparing for a financially rainy day is always a smart move. So, if you’re not currently facing financial hardship, consider using your robodebt refund to create or grow your emergency savings fund. Aim to build a three-month cost-covering safety net – Mozo’s research shows this is around $9,000 for the average Aussie.
It’s always a good time to start saving. Make sure you’re making your refunded dollars work for you by stashing them in a high interest savings account.