Centrelink’s ongoing debt drama is shaping up to remain a troublesome issue as politicians return from holiday and Parliament resumes in February.

The welfare provider has been in hot water in recent weeks as tens of thousands of Australians receive automated letters from Centrelink demanding they prove they did not defraud the system.

The letters – which are poorly targeted and have gone to thousands of people who did nothing wrong – warn a debt may be raised if the recipient does not provide the information in question. That may require finding payslips from employment periods four or five years ago.

Peter Horbury, from Social Security Rights Victoria, says the issue is merely bubbling along now, as people try to deal with Centrelink. But after a certain number of weeks have elapsed, the debts can be passed to debt collectors.

“If you think there’s a fuss now wait ’til the debt collectors go out,” Mr Horbury told The New Daily.

“We’ve really only had people start to contact us since that start of December … then we reckon it will be by February that the big debt collection will really start hitting.”

That could coincide with the first sitting of Parliament on February 7 and make the issue very visible for a government keen to get a fresh start to the year.

Centrelink issues are rarely the fuel for major political fires. Its clients are mostly Australia’s marginalised people – a group without much political clout.

But this time may be different. Mr Horbury says many people dragged into the Centrelink debt drama are not his usual clients.

“We are talking about a large number of middle-class people who have been ringing up … a lot of them. It was when they were a student and now they are professionals. We are not getting them same sort of people who normally ring us.”

The cause

The problem at the heart of the Centrelink debt issue seems to be a simple system that looks back at previous years of earnings and Centrelink payments.

The government has defended Centrelink’s new tool to recoup debt from those on welfare. Photo: AAP

It divides annual earnings over 12 months and assumes the same amount was earned each month.

That creates the appearance of money being earned in the same period that Centrelink payments were being received, and so a red flag is raised.

A letter is sent out placing the burden of proof on the recipient (a sample can be seen here).

Centrelink long used this system, but now its flaws have become far more apparent. The welfare office has invested in automation of letter sending processes and says it is now sending 20,000 letters a week, up from 20,000 a year.

Solving the problem

For some people the problem can be solved by going online and supplying the correct information – that the earnings occurred in a different month to the Centrelink payments.

In other cases, the issue requires going back to old employers and seeking payslips from years earlier. Easy if your employer was Coles. Hard though if it is a small business that no longer exists.

This latter group is at risk of having debts passed to debt collectors. So are people for whom Centrelink no longer has contact details.

Political fallout

With the large volumes of letters being sent, enough people are finding the issue tough to fix that it has become a national issue.

The Centrelink debacle could spell budget trouble for Treasurer Scott Morrison. Photo: AAP

It has caused a political fuss, even though most of Australia has been on leave and Labor is yet to engage with it meaningfully.

Social Services Minister Christian Porter – one of the government’s rising stars – has been forced onto the defensive.

The issue could cause problems for other ministers too.

Recovering debts from Centrelink recipients is a major strut in the government’s plan to prop up the budget.

They have pledged to win back $2 billion in cash terms, after spending $650 million on Centrelink’s “management of the social welfare system”.

Labor leader Bill Shorten will want his party to capitalise on the Coalition’s welfare woes. Photo: AAP

Is that budget figure based on the same faulty assumptions about the presence of debt that are inspiring the letters to Centrelink recipients?

If so, the government may discover its budget plans coming up short. That could create plenty of opportunities for Parliament and Senate Estimates to rake over the coals of this issue time and again throughout 2017.

The story could drag on all year and damage the standing of a government that is already lagging in the polls. Labor leads the Coalition 52-48 in two-party-preferred terms in the latest Newspoll.

For now, the burden is falling on social services. It is making Victoria’s Legal Aid service busy, according to Dan Nicholson, executive director of civil justice, access and equity at Victoria Legal Aid.

“One of our greatest concerns is the impact on the most disadvantaged people. People with mental illnesses or people for who English isn’t their first language might not be able to provide all of the information Centrelink needs, will potentially find it difficult to navigate Centrelink’s inaccessible systems and are less likely to seek legal help,” Mr Nicholson told The New Daily.

“These people are at most risk of having to pay an unwarranted debt.”