The department of human services says it will review all existing alleged debts and freeze current debt recovery pending the review

This article is more than 10 months old

This article is more than 10 months old

The robodebt program will be completely renovated after the government committed to abandon a central plank of the program’s automation which has seen tens of thousands of welfare recipients overcharged for alleged debts.

In an email to staff on Tuesday the department of human services revealed it would abandon sole reliance on the controversial “income-averaging” method and instead require additional proof before demanding welfare recipients pay back alleged debts.

The department also revealed it would review all existing alleged debts and freeze existing debt recovery pending the review.

The dramatic overhaul of the program could result in hundreds of millions of dollars of debts waived as part of the $3.7bn program, and comes just months after Labor lent its support to a class action challenging the legality of the program.

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Bill Shorten, the shadow government services minister, declared that the government had taken robodebt “to the wreckers yard” by finally “junking the reverse onus of proof where victims have to prove they don’t owe the debts”.

The robodebt program operates by sending automatically generated notices to welfare recipients urging them to clarify alleged discrepancies in their income or pay back an alleged debt to the commonwealth.

The former Administrative Appeals Tribunal senior member Terry Carney has warned the alleged debts are unlawful – as income averaging is not a proper basis to claim a debt.

In an internal email, seen by Guardian Australia, the department promised to strengthen the program by “no longer raising a debt where the only information it relies on is [its] own averaging of Australian Taxation Office income data”.

In future, the department will seek more information to determine if a debt exists – even if the recipient of a notice refuses to respond – rather than proceed on the assumption it does.

“We will methodically work through previous debts identified as part of the online income compliance program,” the email by the general manager of the customer compliance division said.

“We will focus on debts where the person did not respond to our requests for clarification. We will look at each of those instances with a view to assessing whether further information is available to clarify what debt may still be owed.

“For customers who are affected, the department will freeze debt recovery as they are identified and will then look at each debt. The department will write to customers to let them know this will happen automatically.”

At a press conference in Sydney, the government services minister, Stuart Robert, played down the significance of the “refinement” of the program.

Robert repeatedly said that only a “small cohort” have a debt based solely on income-averaging, refusing to specify the number of people affected.

“There is no change to the construct of the onus of proof – we will still reach out to Australians to say that income-averaging indicates they may possibly have a debt,” he said.

“We use other proof points as well and we will ask them to engage with the department to identify, through bank statements or through payslips or other means, that they indeed don’t have a debt.”

Shorten said the changes amounted to an admission from Robert that “his pet scheme that terrorises innocent Australians – is not actually alright”.

“Mr Robert has repeatedly assured the public the scheme is fine, and that there is nothing immoral or illegal or overwhelmingly inaccurate about it,” he said.

“But now under immense pressure from Labor and with a looming class action he has hit the emergency brakes on this scheme.”

The Australian Council of Social Services chief executive, Cassandra Goldie, said it had “repeatedly warned the government that robodebt is grossly unfair and contrary to basic legal principles”.

“While we’re relieved to hear that the government is finally halting the use of averaging to calculate debts, we call on the government to replace the entire error-ridden program with a humane form of debt recovery,” she said.

The Community and Public Sector Union welcomed the “stunning reversal of its controversial robodebt program” but called on the department to lift its staffing cap to deal with the workload of reviewing debts.

The CPSU national secretary, Melissa Donnelly, said: “This is a really important shift and acknowledges the dedication and expertise of CPSU members working in DHS, as well as the community members and community advocates who spoke out to tell their stories and worked tirelessly to raise awareness of the issues.”

On Thursday Robert was asked at the National Press Club about the contention that robodebts are unlawful, and two-high profile cases in May and September when Centrelink waived the debt rather then defend the legality of the program.

Robert responded that “averaging as the basis to say to a citizen ‘there may be a debt, please engage with us’ was entirely appropriate”.

“As Australians engage with us and provide information to us, many times they can actually prove that they haven’t earned too much, and in fact in 19.9% of cases, Australians when they engage with us actually demonstrate through their bank account records or salary payslips that they don’t have a debt,” he said.