The Australian Tax Office (ATO) has sought to distance itself from Centrelink's controversial debt recovery program, telling a Senate inquiry it cannot be held accountable for how its data is used.

ATO officials claim there were no detailed conversations about how the Department of Human Services (DHS) would compare the ATO's annual income records of welfare recipients with its own periodic records.

This data matching process formed the basis of Centrelink's controversial debt recovery program, which was automated in mid-2016 in a bid to unlock savings.

The automated scheme has produced nearly 170,000 notices of potential overpayments since July, with many Australians incorrectly told they have outstanding debts.

ATO officials made it clear they could not be blamed for the program's failings, given they were only responsible for providing data to DHS, rather than interpreting it.

Deputy commissioner Greg Williams said he did not anticipate problems with the program because DHS had been using ATO data for more than 20 years.

"Other than what we knew in the public arena, we had no direct conversations with them about the ramp up," Mr Williams said.

Mr Williams said the ATO contacted the DHS in December due to widespread public criticism of the program, but claimed it was told there was no need for assistance.

He said the ATO raised concerns to "maintain a level of integrity in the role the ATO played in this exercise".

"It was the volume of what was playing out and given, in our opinion, the ATO's involvement in the program was something we didn't think was technically correct," he said.

"We would say that we are involved in the identity matching and the provision of data, but we are not involved in the data matching that occurs on the DHS side."

People believe they don't owe money

DHS secretary Kathryn Campbell defended the program and dismissed calls for it to be immediately suspended.

"This is a complex payment system and often people don't understand the obligations that go with the payments and that they are required to update various pieces of information," she said.

"I do acknowledge that there will be people distressed."

Ms Campbell said media coverage of the system led many people to believe they did not owe money despite DHS records showing they did.

"I think in the lead-up to Christmas and into January, people became even more distressed because of the significant media attention around these issues," she said.

Ms Campbell said she would seek permission from her minister Alan Tudge before meeting with a key stakeholder amid accusations they briefed journalists after a previous meeting.

The secretary would not say whether she would meet with the Australian Council of Social Services (ACOSS) that represents welfare recipients and vulnerable Australians.

"When it gets to a heightened level of media attention I think it is always wise to talk to my Minister," she said.

"My experience is sometimes they operate in a heightened political environment ... and maybe sometimes, when it gets very partisan, it is very important talk with my Minister."

DHS officials told the inquiry they did not check whether people who agreed to repay debts actually did owe money, and whether it was the department who made the mistake.

Government accused of cultivating a 'climate of fear'

Earlier on Wednesday, ACOSS chief executive Cassandra Goldie said the Centrelink program had worried many Australians "sick", and accused the Government of cultivating a "climate of fear".

"We also know that because of the communications from the responsible minister in the lead-up to this program being unleashed, that there was a perception created that if you do not comply you may go to jail," she said.

"This has been completely unacceptable in terms of the tone associated with this exercise.

"We believe the actions of the Government has culminated in creating a serious climate of fear around this program."

ACOSS representative Susan Heylar said the program had undermined public confidence in the Government and left many welfare recipients worried about retribution.

"Some of our members have wondered whether partly what people are being encouraged to do is to stay out of the Centrelink system and discouraged from exercising their entitlements in the income support system," Ms Heylar said.

Union claims agency in crisis

Community and Public Sector Union (CPSU) secretary Nadine Flood said Centrelink was "an agency in crisis", with staff becoming expert in bandaid solutions to systemic policy failures.

"It is important we note there has been a disturbing cultural shift imposed on staff in Centrelink and the Department of Human Services," she said.

"It has increasingly gone from an agency focused on treating people like people, to one that focuses on treating people like numbers in a data set."

The union also claimed the department had been monitoring staff who were concerned about the program, with many hesitant to communicate by work email.