Centrelink will no longer issue or recover welfare and childcare debts during lockdowns, including in parts of New South Wales and Queensland currently under stay-at-home orders.
The halt on debt recovery, announced by the government on Tuesday night, comes amid reports of families in locked-down suburbs of Sydney being hit with childcare subsidy debts worth thousands of dollars.
Linda Reynolds, the federal government services minister, said the government would pause Centrelink’s debt raising and recovery action in areas subject to a lockdown in NSW and Queensland.
It means Centrelink will not send out new debt letters to people in these areas, nor will it require people to pay back their debts during the pause.
Reynolds said the pause would also apply in any future lockdowns.
“We understand people are still doing it tough and that the pandemic continues to have an impact on family budgets,” she said.
“Services Australia is working as quickly as possible to implement this pause. If you’re in lockdown and receive a debt letter, you don’t need to take any action.”
People who are already paying back a debt will continue to do so but can request to amend these arrangements.
“Options include pausing repayments for up to three months or reducing repayments to a level that meets their needs,” Reynolds said.
The government suspended debt recovery and raising last year due to the impact of the pandemic, but these activities resumed in February.
One mother, Carla Keay, who lives in Sydney’s inner west, told Guardian Australia on Wednesday her family had got a “massive surprise” after receiving a $10,000 debt letter from Centrelink two weeks ago.
“It appears I had underestimated our income for 2019-20,” Keay said.
“But when I’ve tried to get more information to properly understand how this was calculated and make sure there is definitely no mistake it has been impossible to get to an answer. I was told over the phone that there was nothing they could give me and it is ‘just calculated based on what the tax office gives us.’”
News.com.au on Monday quoted another mother, Rebecca Coulson, as being “shocked” after she received two bills just weeks apart saying she owed $11,000.
The childcare subsidy is paid by Centrelink based on an estimate of the parents’ income.
Under a process known as “balancing”, Centrelink then compares that estimate provided by the parent with their actual earned income, recouping any overpaid money by raising a debt.
A similar process, which has been criticised as unfair and overly complex by some experts, applies to parents receiving family tax benefit payments and farm household allowance.
However, compounding debt recipients’ confusion in this case has been the fact that many of the debts, including one that Guardian Australia is aware of, date back to the 2018-19 financial year. Services Australia has said the debts date back this far because families have two years to confirm their income for the “balancing” process.
The Community and Public Sector Union , which represents Centrelink workers, welcomed the debt pause announced by Reynolds on Wednesday.
Before the announcement, Labor described reports of debts being issued to people in lockdown as “unbelievably cruel”, while the Greens said the debts should be waived.