Australia’s peak welfare body has cautiously welcomed news the government will simplify income reporting for Centrelink recipients – a factor behind the multibillion-dollar robodebt debacle.

The social services minister, Anne Ruston, said on Tuesday the government would this week release draft legislation for the changes, which are slated to save $2.1bn over five years – the biggest single savings measure in last year’s budget.

But the overhaul comes as the government counts the cost of being forced to back down on the robodebt scheme, with thousands of welfare recipients waiting to find out how much they will be repaid after they were wrongly pursued for Centrelink debts.

Under the legislation, 1.2 million welfare recipients who are required to report their income each fortnight will now be able to enter the details recorded on their payslips, rather than being forced to calculate their earnings manually based on the number of shifts they have worked and their hourly pay rate.

The chief executive of the Australian Council of Social Service, Cassandra Goldie, said on Tuesday the changes were positive because Centrelink reporting periods often did not match workplace pay cycles, leaving people to estimate or predict their earnings.

“We welcome measures to improve accuracy of reporting income to reduce instances of people having to pay back overpayments,” she said.

“However, it’s important that the system is accurate, and that people can easily make corrections where pre-filled data is incorrect. Also, Centrelink must be properly staffed to help people correct their records.”

The legislation will also facilitate an $82.4m expansion of the single touch payroll system, which sends income data from employers direct to the tax office in real time.

From July, Centrelink recipients who worked for employers using the payroll system would have their income pre-filled, as already occurred with tax returns, the government said.

Ruston said the changes would improve the welfare system for recipients.

“We want to make sure that Australians who need financial support are able to get the support that they are eligible for – no less and no more,” she said.

“The current system of calculating earnings can be confusing and lead to misreporting especially when accounting for overtime or penalty rates.

“These changes will make accurate reporting much easier for people getting a social security payment.”

But Goldie warned that the robodebt experience showed the dangers of automation, particularly the averaging of welfare recipients’ income using tax office data.

In November, the government settled a federal court challenge to the scandal-plagued scheme, acknowledging that it was unlawful.

“We still don’t know how much the government owes people who have paid false robodebts over the past three years,” Goldie said.

Labor’s Bill Shorten and Linda Burney said in a joint statement they were yet to see the legislation, but that the government’s record on digital delivery “will not fill anyone with great confidence”.

Services Australia officials told a Senate estimates committee late last year that staff were in the process of contacting welfare recipients about a review of the debt.

They would not reveal how many debts might result in a refund to the welfare recipient, although staff have been told the figure is about 220,000. A total of 734,000 debts had been issued by August last year.

By the middle of last year, the debt recovery program had reaped $1.9bn in fiscal savings on paper since 2015, but with many of debts being paid back in instalments, only $642.7m has actually been recovered.

The government had banked further savings of $2.1bn over four years, which department officials acknowledged was likely to be possible only by expanding the scheme to include disability and age pensioners.