Centrelink’s new automated data-matching system is a source of ongoing controversy. It has resulted in a significant increase in the number of current and former welfare recipients assessed as having been overpaid and required to repay debts.

The shadow human services minister, Linda Burney, has requested the auditor-general investigate Centrelink’s procedures. And independent MP Andrew Wilkie asked the Commonwealth Ombudsman to step in after receiving more than 100 complaints to his electoral office about problems with the debt-recovery process. The Ombudsman subsequently launched an investigation.

But debt problems do not really appear to be the fault of IT failure or the inappropriate use of big data. Rather, they appear to reflect an over-simplistic application of policy to the complexity of workers’ lives in a flexible labour market.

How the issue reared its head

Human Services Minister Alan Tudge has claimed that Centrelink’s system “is working”.

Earlier, Social Services Minister Christian Porter, who is not directly responsible for Centrelink, described the approach as “about as reasonable a process as you could possibly derive”. He claimed the system was actually working “incredibly well”, with a complaint rate running at 0.16% – or only 276 complaints from 169,000 letters.

Porter also said that 20% of review letters were sent to people who did not owe anything. However, he claimed these were not debt letters, but simply asked for more information to explain a discrepancy between employment data held by Centrelink and the Australian Tax Office (ATO).

The former head of the government’s Digital Transformation Office, Paul Shetler, has described this error rate as “cataclysmic”.

Data-matching by Centrelink (or its predecessors) started in 1991. The automation of the system was increased in 2011.

The current controversy appears to arise from changes proposed by the Coalition during the 2016 election campaign, and related changes introduced in the 2016 Omnibus Budget Bill.

This bill, supported by Labor:

introduced an interest charge on the debts of former recipients of social welfare payments who were unwilling to enter repayment arrangements;

brought in Departure Prohibition Orders for people who were not in repayment arrangements for their social welfare debts; and

removed the six-year limitation on debt recovery for all social welfare debt.

Centrelink’s procedures appear to have several problems that can give rise to incorrect debt assessments. One problem is the names of employers provided to the ATO and Centrelink do not always match, and some people are having the same income counted twice. This is because the assessment process appears to match names rather than Australian Business Numbers.

A more significant problem is that when individuals are asked to confirm their annual income reported to the ATO, the formula used by Centrelink can produce false estimates of debts by dividing by 26 the annual wages employers report paying. This approach will only work correctly if individuals receive exactly the same income each fortnight.

For students, this is very unlikely. The beginning and end of the academic year do not coincide with the tax year, so someone who combines part-time work and study, and then graduates and moves into full-time work, is likely to have six months at a much higher wage – and therefore potentially incur a debt.

Similarly, people who move between different jobs, or who have short interruptions to work and claim sickness benefits because they are casuals and not entitled to paid leave, are also potentially exposed to debts under Centrelink’s approach.

So, apart from those who are deliberately understating their earnings, it is people who move from welfare to work who are most exposed to having debts miscalculated.

Systems don’t reflect the reality

A large share of Australians experience income changes over the course of a year. This reflects family and demographic changes – in partnership status or numbers of children – and labour market changes, such as starting, changing or stopping jobs.

Data for Australia suggest high levels of labour market flows. The most recent data show that in the 12 months to February 2011, more than 4 million people changed their work status. While the average number of unemployed people in each month of 2011 was around 600,000, overall 1.7 million people looked for work at some time during the year. But, of these, fewer than 150,000 (8%) spent the whole year looking for work.

The Australian Bureau of Statistics’ 2013 Labour Mobility Survey shows that in February 2013, there were 11.5 million people aged 15 years and above who were working. Of these, more than 2 million had worked for their employer for less than 12 months.

About half of these had changed their employer/business in the last 12 months. A further 1 million had not changed their employer because they either were not working 12 months earlier, or they had multiple jobs, or were temporary or seasonal workers.

The degree of mobility is related to the type of job people held. Those most likely to have been with their current employer/business for ten years or more were managers (38%), professionals (29%) and clerical and administrative workers (28%).

The occupation groups with the highest proportion of people who had worked with their current employer/business for less than 12 months were generally lower paid. They included sales workers, labourers and community and personal service workers (all 25%), and machinery operators and drivers (21%).

The industry with the highest proportion of people who had been with their current employer/business for less than 12 months – about one-third – was accommodation and food services. This is an area where young people and students are particularly likely to work.

Between 70% and 80% of the more than 1 million people who received Austudy, Newstart or various forms of Youth Allowance for study or apprenticeships in 2014-15 were not on any income-support payments in the following year.

Around half of the 375,000 people receiving either Youth Allowance (other) for the unemployed or Parenting Payment Single also completely left the income-support system in that year. This is because they had made the transition from welfare to work. This has been one of social security policy’s main objectives for all sides of politics for many years.

The debt controversy has sometimes been blamed on “faulty IT” or the application of inappropriate “big data” approaches. Rather, it is the assumption of regular and unchanging income that is a major problem. This shows a lack of knowledge of the actual working and family patterns of a large share of Australians.