More than a hundred thousand Australians who are getting a share of nearly half a billion dollars in compensation over the Robodebt fiasco will not have to pay tax on the payout, or see it impact any existing welfare support. It means none of the historic $475 million class action payout will make its way back to the government.
Laws set to be introduced to federal parliament will pave the way for the Centrelink recipients who are entitled to the payout to be exempt from income testing and tax. It comes as payments will soon begin flowing to 125,000 people who were among those affected by the scheme.
The government described the move this week as an important step to ensuring the victims who were wrongly pursued for debts get the full compensation they deserve.
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Under normal circumstances, compensation payments like these can be subject to taxation and Commonwealth statutory recovery schemes, the department of Social Services said.
The change will also also ensure the settlement payments are not treated as income for class action members currently getting an income support payment from Services Australia.
“This will give certainty to Robodebt victims that the amount of compensation they’re entitled to won’t change,” Minister for Government Services Katy Gallagher said.
“Robodebt never should have happened, and it’s only fair these compensation payments be exempt from government recovery arrangements.”
Assistant Treasurer Daniel Mulino said the measures would ensure people affected by Robodebt would not have other welfare arrangements adversely impacted.
“The Albanese government has worked to ensure there are no adverse tax outcomes for those impacted by Robodebt,” he said.
Payments to start flowing
The legislation is set to be expedited in time for the law firm behind the class action lawsuit for victims, Gordon Legal, to start making settlement payments before the end of the year. However final payments for more complex claims are expected to be made as late as 2028.
The class action settlement was approved in June, making it the largest in Australian history.
Gordon Legal partner Andrew Grech said it was a “historic moment” for hundreds of thousands of Aussies who were impacted by the “most shameful chapter in public administration in Australian history”.
Lead plaintiffs received $20,000 for their role in the class action. Eligible members who chose a fixed payment will receive $1,000 or $1,750 depending on their category.
What was the Robodebt scheme?
Robodebt was an automated government scheme that ran under the Coalition government from 2015 to 2019. It used a faulty algorithm to incorrectly demand tens of thousands of welfare recipients to pay debts they did not owe.
The scandal caused widespread distress, pushing vulnerable Aussies into debt, with many taking out loans they could not afford to make payments. The scheme resulted in the suicide of at least two Australians.
Prime Minister Scott Morrison was the responsible minister during part of the time welfare recipients were wrongly asked to pay money back due to faulty income averaging. ยท Sam Mooy
A Royal Commission in 2023 labelled Robodebt a “crude and cruel mechanism” that was “neither fair nor legal”. It said it made “many people feel like criminals” and left people “traumatised on the off chance they might owe money”.
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