FactCheck: do welfare recipients owe the Australian government about $3.5 billion?

At any one time, there is around $3.5 billion of debt to the Commonwealth due to fraud, non-compliance or misreporting in the welfare system. In just 2014-15, a total of $2.5 billion in new debts was raised. Debts arise from very serious and complex fraud, such as identity fraud, through to accidental or inadvertent non-compliance or mistakes in reporting. – Coalition policy document published on the Liberal Party website, June 2016.

The federal government has announced a welfare crackdown it said would save taxpayers' money and reduce the overall budget burden of welfare.

The measures do not directly hit benefit rates or eligibility conditions, but are aimed at tackling non-compliance with regulations that result in over-payments to welfare recipients, for example, when people fail to declare income from employment.

The Coalition’s policy document said that at any one time, there is around $3.5 billion of debt to the Commonwealth due to fraud, non-compliance or misreporting in the welfare system, and that in 2014-15, a total of $2.5 billion in new debts was raised.

Is that right?

Checking the source

When asked for a source to support the statement, a Coalition media spokesperson said that:

The information concerning the social welfare debt base is sourced from Department of Human Services administrative data. The make-up of the debt is fluid as debt is raised and repaid on a regular basis. However the Australian National Audit Office found, for example, that around 80% of prosecuted welfare fraud in Australia related to a failure to declare or an under-declaration of employment income.

Newstart debt makes up approximately 18% of the value of the social welfare debt base, the Coalition spokesperson said.

When asked for more detail on how the $3.5 billion is calculated, a Department of Human Services spokesperson told The Conversation that:

The amount of outstanding welfare debt is a point in time figure, which at the moment is approximately $3.5 billion. This figure is comprised of the total cumulative debt, including any debts that have been raised over time, minus any debts that have been repaid or extinguished. This figure has been calculated using internal data, and these calculations are not currently publicly available.

Debt data

The 2014-15 annual report of the Department of Human Services says that $2.5 billion in debts were raised from 2,350,131 Centrelink customers in that year (p.103) – an average of a little over $1,000 per customer with a debt.

DHS The report shows that in the same year $1.43 billion in debts was recovered, although about 9% of this amount was paid to agents who assisted with debt recovery. DHS Social services minister Christian Porter told Parliament in March 2016 in support of a bill that boosted welfare debt recovery measures that: At the end of June 2015, there were over one million debts with a value of $3.04 billion. These debts have, sadly, increased by almost 10% in value since June 2014. Of this debt base, approximately $870 million worth of debt is held by around 270,000 former recipients of welfare who do not make sufficient or regular repayments. So with respect to total debts raised ($2.5 billion in 2014-15, or $3.5 billion at any one time), the claim is credible. Based on the sources outlined above, the statement is correct. Are we getting more efficient at recovering welfare debt? Checking through recent annual reports reveal that the average annual amounts of debt raised have recently increased on the Coalition’s watch, and percentage of debt recovered has fallen. There could be many reasons behind this. The Coalition government has invested extra resources in welfare compliance, which may have resulted in higher levels of debt being raised. This included resources for additional data matching from July 2014, and from July 2015, an extra “900,000 fraud investigations and compliance interventions over four years.” Where does welfare spending go? As noted in the 2016-17 budget, the most significant component of government spending relates to social security and welfare. About a third of total expenses provide support to the aged, families with children, people with disabilities, veterans, carers and unemployed people. Assistance to the aged is the biggest component of welfare spending, as this table from the 2016-17 budget shows. Federal Budget 2016-17 Welfare debt and welfare fraud Lastly, it is worth noting that while welfare fraud has been a long-term ongoing concern of Australian governments, it is unlikely that fraud is the major factor in over-payments to welfare customers. A 2011 analysis published by the Australian Institute of Criminology suggests that in the period 2006-07 to 2008-09, fraud was associated with about a quarter of the total amount of over-payments of welfare. In 2014-15, there were 1,366 referrals to the Commonwealth Director of Public Prosecutions related to customers receiving social security or family assistance payments. What does the Parliamentary Budget Office say? The Parliamentary Budget Office’s 2016 post-election report, which details the budget impacts of various election commitments, said of the three key welfare-related election promises made by the Coalition that: Parliamentary Budget Office 2016 post-election report Verdict Based on our reading of the available data, the claim that there is around $3.5 billion of debt to the Commonwealth due to fraud, non-compliance or misreporting in the welfare system is correct. – Gerry Redmond and Rodrigo Praino Review This analysis is based on data published by the Department of Human Services. It is as reliable as the department’s estimates. It would be good to see more detailed disclosures by the department about how the estimates are made. What is perhaps more interesting is why such large losses continue to be associated with fraud and error. Welfare fraud has been a political football for many decades and each side of politics, whether in opposition or government, claim they will crack down on fraud and reduce error. However, the estimates of large losses continue. There is a very large hidden human toll to all this: the tens of thousands of people already in poverty, mainly women, who are prosecuted for fraud or catapulted into debt. What we need is a dedicated research unit within the Department of Human Services that can analyse why fraud and error occur, and develop methods to more effectively close off opportunities for it to happen. At present, there is little or no evidence of a systematic and scientific approach to the issue. – Timothy Prenzler UPDATE: This article was updated at 2pm on Monday August 8 to include information from the Parliamentary Budget Office’s post-election report. Have you ever seen a “fact” worth checking? The Conversation’s FactCheck asks academic experts to test claims and see how true they are. We then ask a second academic to review an anonymous copy of the article. You can request a check at checkit@theconversation.edu.au. Please include the statement you would like us to check, the date it was made, and a link if possible.