Madeleine Masterton’s lawsuit faces new hurdle as commonwealth’s move allows it to argue it has no case to answer

This article is more than 1 year old

This article is more than 1 year old

The Department of Human Services has dropped a debt it raised against a Melbourne woman, who is challenging the Coalition’s robodebt program in the federal court.

In February, Victoria Legal Aid and Madeleine Masterton filed a challenge against the “cryptic” process by which Centrelink’s automated debt recovery scheme calculates alleged welfare overpayments.

But the test case faces a new hurdle following a decision by the department to drop its claim on the $4,000 it told Masterton she owed the government in July last year. The move allows the commonwealth to argue it has no case to answer.

It is now unclear whether the court will go on to examine the legality of a program under which the government has demanded about $1.5bn in overpayments from former and current welfare recipients, and which Labor has described as “shabbily conceived”.

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In February, it was revealed the government had spent at least $400m on the program, but received only $500m in repayments from welfare recipients. The department defended the initially low return of the scheme, which it said was also aimed at ensuring “the integrity” of the welfare system.

A decision by the court to rule the $3.7bn robodebt program unlawful could blow a hole in the federal budget worth millions each year.

Last month, the department told Masterton it had recalculated the alleged debt and found no money was owed.

But the decision emerged in a federal court hearing only last week, prompting her barrister, Peter Hanks QC, to accuse the department of acting in “bad faith”.

“That … is an illustration of the forensic advantage that the respondent has in these matters,” Hanks said.

“It can raise a debt. It can then recalculate, recalculate it in a way – and, of course, the recalculations are entirely cryptic at this stage; they’ve not been revealed – that destroys the debt, and by destroying the debt, they are then able to come to this court and say there’s no utility.”

Hanks maintained that the case should proceed because it was focused on the process used to calculate the debt rather than whether any money was owing.

The department’s lawyer, Zoe Maud, said there was “no basis for the [bad faith] allegation”.

Maud said the department had chosen to recalculate the debt after reviewing new information in court documents filed by Masterton’s lawyers, which revealed potential “double counting” of income from one of Masterton’s past employers.

The Melbourne nurse’s case hinges on the so-called “averaging” of a welfare recipient’s income over a period of time, which Legal Aid says leads Centrelink to miscalculate debts.

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Since the scheme was introduced, people have reported receiving letters indicating that Centrelink believes they owe a sum of money, sometimes tens of thousands of dollars, as a result of an “overpayment”. The letters do not provide evidence of how the debt has been calculated and places the onus of proof on the recipient.

The government responded to outrage about the scheme in 2016 by giving alleged debtors more options to prove their income, such as providing past bank statements. The department says the initial letters are not “debt notices” and people are instead simply asked to “clarify” a discrepancy between their income reported to the tax office and what they reported to Centrelink.

Earlier this year, Senate estimates figures revealed that Centrelink had now wiped out, reduced or written off 70,000 debts, about 17% of the 409,572 debts raised between July 2016 and October 2018.

Masterton, who was studying and receiving youth allowance during the period the now cancelled debt was incurred, said in February she was given “no information about how my debt was calculated”.

Justice Jennifer Davies is yet to rule on whether the case can proceed. It will return to court in August.