Extortion is no way to fix the budget

In their rush to find money for next month's tax cuts, Turnbull and Morrison run the risk of making an awful mistake.

Like they did in 2016, and perhaps in 2017.

In 2016, needing to demonstrate that they could pay for their (modest) election promises, they unveiled a $2 billion fix days before the vote.

Social services minister Christian Porter's welfare budget was to be shaved by 0.3 per cent, and it wasn't going to hurt.

The saving would flow from the use of "technology, but also technology that we’ve applied and learnt from previous experience".

According to Porter, Centrelink would cross-match "in a very sophisticated and quick way" data from the Tax Office with data from the Department of Human Services.

The high-tech fix would provide "better and more accurate assessments of employment income and non-employment income".

Anyone found to have been overpaid on a Newstart, disability or other allowance would get their tax return garnisheed.

But it wouldn’t be a dragnet. Morrison spoke of it as a "more bespoke way of dealing with people’s arrangements". It would "cut red tape, and ensure that mistakes are minimised".

Porter promised "a whole range of safeguards" to ensure any repayments weren't onerous or crushing.

And that's where the ministers appear to have left it, leaving the bureaucracy to raise the $2 billion.

A new paper by Professor Terry Carney, at the time a member of the Administrative Appeals Tribunal, details what happened next.

Whereas previously Centrelink staff had satisfied themselves that there had been overpayments before issuing debt notices, if necessary by using their compulsory powers to require employers to provide pay slip records, from July 2016 they didn't bother, and instead raised debts whenever their clients were unable to disprove suspected overpayments.

And suspected overpayments were everywhere.

The Centrelink computer raised an alarm whenever it thought that someone had been working for more than allowed in a fortnight when they had been claiming benefits. But the Tax Office data wasn’t broken down into fortnights – employers report to the Tax Office annually or quarterly. So the computer guessed, by crudely averaging data for longer periods to produce what was often necessarily spurious data for individual fortnights.

The whole point of a program such as Newstart is that people get off it. It is implied by the name. Anyone who did get off it within a reporting period would have income that they gained in fortnights they were off Newstart necessarily attributed to fortnights they were on Newstart, guaranteed. It was a foreseeable error, and one that could have been avoided (at some cost), given that Centrelink had the power to obtain payslips.

Instead, clients were asked to obtain payslips or bank records themselves, dating back as much as seven years, even though the Centrelink website had only advised them to keep them for six months.

If they couldn't, automated "robo-debt" letters told them to pay up, in an inversion of the usual onus of proof. It worked like extortion. Some of the victims were vulnerable, some couldn’t cope.

Terry Carney is a professor of law. His paper says the practice was illegal, and it quotes as an authority former High Court justice Kenneth Hayne, now leading the royal commission into misconduct by banks.

He says it may have also been inconsistent with the Commonwealth’s "model decision making" and "model litigant" policies. The Commonwealth is meant to act fairly, even where there is temptation not to.

The temptation was $2 billion, most of which is as far away as ever. The department has told the Senate it wiped or cut one in five of the debts it issued. In the first 15 months it "raised" $350 million, but received just $84 million.

This week’s Fairfax Media and Four Corners investigation suggests the same sort of pressure came into play towards the end of the 2017 financial year. Staff in the Tax Office appear to have been told to seize funds from the bank accounts of taxpayers assessed to owe it money, regardless of whether they could pay.

One of the emails said: “The last hour of power is upon us ... that means you still have time to issue another five garnishees … right?”

It’s alleged the office targeted small businesses without the resources to fight it. Several collapsed. It is behaviour inconsistent with model decision making, and inconsistent with the role of the public service. Centrelink and Tax Office staff who had previously been trying to do the right thing found themselves demonised, in order to get dollars through the door.

I am fearful something like it will happen again, on May 8, even if the impact isn’t apparent on budget night.

Morrison, Turnbull and Cormann are under enormous pressure to find as many dollars as they can to fund tax cuts. They’ve been helped by lower than expected spending and a better than expected economy, but they’ll be searching for more. As in 2016, they’ll be tempted to do something whose consequences won’t become clear until after the election.

I am concerned that they won’t resist it, or won’t inquire enough. History suggests I’m right.

In The Age and Sydney Morning Herald

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Why have our ministers got it in for the unemployed?

What were they thinking? On Monday three members of cabinet called a press conference to pressure the Senate to cut the dole. That's right, to cut the dole. At just $13,750 per year plus an $8.80 per fortnight energy allowance, it's already so low the Business Council believes it "presents a barrier to employment and risks entrenching poverty." The Organisation for Economic Co-operation and Development, the research arm of the world's richest economies, says Australia's unemployment benefit has reached the point where it may no longer be effective in "enabling someone to look for a suitable job".

Even a Coalition-dominated inquiry found a "compelling case" for boosting it.

But the three ministers wanted to deny the energy supplement to new entrants on the spurious ground that this would merely remove "carbon tax compensation for a carbon tax that no longer exists". It wouldn't. The Newstart cost of living increase was cut 0.7 per cent when the energy supplement came in to avoid double counting. If the energy supplement went but the cut remained, new entrants to Newstart would be worse off than if the whole thing had never happened.

And they wanted to withhold Newstart from newly-unemployed Australians aged 22 to 25, paying them instead the lower $11,375 Youth Allowance. The under 25s would have to wait longer too – five weeks instead of the present one.

Rather than spend time arguing the merits of cutting a benefit already so low it can barely be lived on, Treasurer Scott Morrison, Social Services Minister Christian Porter and Education Minister Simon Birmingham delivered instead what amounted to a threat: if the Senate didn't cut the unemployment benefit, they might not fully fund the National Disability Insurance Scheme.

But not at first. In a burlesque twist, they opened the press conference spruiking the case for an unfunded massive company tax cut.

When they turned to the National Disability Insurance Scheme their message was that it had to be funded, that those funds would come from cuts to unemployment benefits, and that the Senate had to back them.

An astounded Nick Xenophon, who leads a team of three in the Senate, labelled it blackmail. "As a negotiating tactic, this is as subtle as a sledgehammer," he said. It was "dumb policy and even dumber politics".

Using the disabled as a human shield to defend cuts to other Australians in need is as dumb as it gets. The ministers seemed to think it would work because it was all welfare.

Later that day Porter relented, saying he hadn't really been holding the disabled hostage, and of course he would properly fund the national insurance scheme.

But that he and his colleagues thought the idea was smart at the time says something about their attitude to people they are meant to support.

Back in October Porter became convinced that they were getting more from staying at home than would if they worked.

"We have found these pockets," he told Sydney's 2GB, "and maybe that's being a bit generous, because they are very large pockets, of payment categories and rules that intersect in a way that mean you can earn as much through the welfare system, and I use the word 'earn' advisedly, you can earn as much as you do from working very hard".

It was evidence he pushed his department to find. "We have been asked to put together a cameo of a parenting payment recipient getting over $45k per year," one of his departmental staff explained in an email released to me under the Freedom of Information Act. "Unfortunately this urgent."

The department exceeded expectations. It came up with an unusual case of a single parent with four children aged 13, 10, 7 and 4 managing to pay $400 per week in rent. She would get $52,523.50 per year.

The next morning The Australian quoted the minister under a front page headline that read: "Parental welfare pays more than work". "Thousands of parents claiming government benefits are financially better off not getting a job" it said, which wasn't what the figure showed at all, as the flurry of departmental emails that followed made clear.

"The article is comparing apples and oranges," said one. "It seems like the author hasn't spent too much time thinking about how the payments actually work, and what their intent is."

Most of the $52,523 quoted was the Family Tax Benefit, which would be paid to a parent with that many children even if she did work, meaning she or he would be much better off working than not.

But in the round of media interviews that followed the Social Services Minister passed up the opportunity to correct the false report, and Morrison backed him, saying it was "a crying shame that some Australians would have to take a pay cut to get a job in this country because of the way our welfare system works".

Asked via Freedom of Information to provide material created in the previous four months that supported the minister's claim, the department could not.

Inept in their dealings with the Senate, Porter, Morrison and other ministers might have also misread the public. Many of of us know someone who has needed Newstart. Almost all of us knows someone who's been monstered by Centrelink. Those Freedom of Information requests are just beginning.

In The Age and Sydney Morning Herald

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Centrelink debacle much worse than thought

It has become the most widely cited figure in the Centrelink robo-debt debate: that 20 per cent of the debts identified by its data-matching machine are wrong.

But the figure itself is wrong. The true number of mistakes is almost certainly higher, perhaps as high as 90 per cent.

Twenty per cent has become the accepted truth in part because the figure is big - big enough for critics to use to condemn the data-matching program and big enough for Centrelink to use to fob off requests for the truth.

Even Malcolm Turnbull's disenchanted former digital transformation chief Paul Shelter embraced it.

"All I can say is, if they were a commercial company, you would go out of business with a 20 per cent failure rate, a known 20 per cent failure rate, you would go out of business," he told The Guardian this month.

Labor frontbencher Anthony Albanese backed him up, wrongly saying that "on the government's own figures, 20 per cent of people who've been sent debt letters, often accompanied by threats of debt collection agencies being involved, have been sent them on a false basis".

The 20 per cent isn't the proportion of debt letters sent out that are false. We won't know that for a long time, if ever. Some people have been paying up even when the debt letters are wrong, sometimes because they don't have the records to argue otherwise, sometimes because they trust the government, and sometimes because they can't be bothered dealing with Centrelink.

A Centrelink whistleblower alleges that, disgracefully, staff have been ordered not to use information in Centrelink's possession to correct false debt notices. Another says that of hundreds of debt notices reviewed, only a few dozen (at a "generous estimate") turned out to be correct.

Here is where the 20 per cent figure comes from. Between July and December, Centrelink's computer sent out 232,000 letters asking people to log on to a website to confirm or update their income history. Around 169,000 did so. (An email to Fairfax Media from the office of Human Services Minister Alan Tudge implies that none of the 63,000 who did not log on have been issued with debt notices. Their cases are "are still active and in progress or require further review".)

When the 169,000 logged on and ticked a box or corrected the income information, they were presented with an instant, on-screen estimate of money owed. Despite weeks of requests, the minister's office has been unable to tell Fairfax Media the proportion who were told they owed money. It's likely to be extremely high. The software can't account for income that is exempted from the Centrelink tests and it averages annual income to often falsely conclude that the averaged income is received in the weeks when the recipients are on sickness or other benefits, among other flaws.

But the online estimate isn't a debt notice. That is sent later, after a human assesses the machine's conclusions. A whistleblower says staff are instructed to only lightly assess those conclusions, letting most of them through.

Eighty per cent is the proportion of the 169,000 who are eventually sent letters with demands to pay. Twenty per cent is the proportion who are not. There's no reason to think the proportions who have been wrongly assessed by the computer and wrongly issued debt notices are not much, much higher.

Fairfax Media asked the minister's office three weeks ago for the proportion of computer debt assessments that those who logged on objected to, but despite repeated reminders, still hasn't been told.

The error rate may be even higher than the objection rate. Given what's known about the design of the system, there's no reason to think it is not north of 90 per cent. Twenty per cent would be bad enough (as the Prime Minister's former digital chief says, enough to put a private sector firm out of business) but it's probably far short of the truth.

UPDATE: Department of Human Services spokesman Hank Jongen later responded and said the figure of 90 per cent was wrong. "There is no basis for suggesting the error rate is 90 per cent. This is a figure plucked out of the air that doesn't serve the public discussion well."

In The Age and Sydney Morning Herald

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How Centrelink unleashed a weapon of math destruction

The most frightening thing about the Centrelink malware debacle is the verve with which the government embraced it.

Malware is software designed to do damage under the cover of providing a service.

Unveiling the automated Centrelink debt recovery system mid-year treasurer Scott Morrison and social services minister Christian Porter promised more "accurate and appropriate income testing". They were going to work with the prime minister's Digital Transformation Office to "cut red tape and ensure that mistakes are minimised".

It's theoretically possible for machines to do complex things better than humans. These days chess-playing programs do it (at least they do it to me) but those programs are exquisitely designed and have goals that are properly specified.

What Morrison and Porter promised was an automated system that would issue Centrelink debt notices "better" than human beings.

Humans did the job extremely well. A former Centrelink worker with 30 years experience says they would "look at start dates for employment that customers had declared, see if it was the same for the employer [using Tax Office records] and roughly work out if it lined up."

"If it looked as if a person had possibly been overpaid they would write to the customer and ask them to call and tease out where the discrepancy was, and ask for proof, if it was still available, in the form of things such as payslips. If the customer didn't have them and it looked like there was a possibility of an overpayment, they would write to the employer to ask for the information. If evidence was collected that the customer had not declared the income correctly and a debt existed, then the debt calculator would raise the debt in accordance with the legislation and the customer would be written to."

What's important in this description is the humans charged with applying the law didn't issue debt notices unless they had evidence that a debt existed. To do so without evidence would be to break the law.

But a wrongly-programmed computer need have no such scruples. Even better, its decisions can be presented as objective, hard to overturn. Data scientist Cathy O'Neil outlines scores of examples in her new book Weapons of Math Destruction, from the systems used by credit rating agencies in the lead up to the global financial crisis, to systems that automatically select teachers for the sack on the basis of secret algorithms that grade performance, to systems that deny people job interviews on the basis of proxies for mental health, even though that's illegal.

They are used because they are quick rather than accurate. As an expert told O'Neil, the primary purpose of a workplace hiring system is "not to find the best employee, but to exclude as many people as possible as cheaply as possible".

By necessity, they do it unfairly. People who are wise to the systems will mention the right words in job applications to get to the top of the pile. As she says, they are usually not from racial and ethnic minorities. Here, it's the persistent and well-resourced people who get the better of Centrelink. They are unlikely to be the hardest up.

Many of the automated systems are malicious, created to do harm in the guise of providing a service. The formula used by Centrelink produces consistently false estimates of debts by dividing by 26 the annual wages employers report paying in order to overestimate income received during the smaller number of fortnights claimants get benefits.

The formulas used by for-profit colleges in the US to target internet advertising zero in on single mothers of colour who are poor enough to earn the colleges' valuable subsidies and ill-informed enough not to twig to debt. The formulas O'Neil herself worked on in financial markets presented securities as safe that weren't.

O'Neil says that to be a "weapon of math destruction" a formula has to be used en masse (as the Centrelink formula will be), it has to be difficult to question (as the Centrelink formula will be for many people) and it has to cause damage (as the Centrelink formula is doing).

That isn't to say that credit risk and Centrelink and other software can't be designed to do the job better than humans. It's a worthy aim, one Morrison and Porter apparently thought they had achieved.

The man Turnbull hired to prevent such stuff-ups describes what happened as as "cataclysmic". Paul Shetler left the prime minister's Digital Transformation Office in November as the Centrelink debt collection program gathered pace. 

In The Age and Sydney Morning Herald

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Centrelink's robo-debacle is a litany of inhuman errors

These days the butt of jokes, the Leyland P76 started out as a good car. The only one specifically designed for Australia, it had a roomy interior, good stability, excellent fuel economy for a car of its size and excellent prospects. In 1973 Wheels magazine named it car of the year.

In part that was because of the fanatical devotion of its quality control team. Nothing left the yard unless it was perfect. But then its parent, British Leyland, ran into financial troubles. It sent over a new Australian chief who over-ruled the quality control team and released onto the market a flood of cars with faults. British Leyland got the cash, destroyed the car's reputation, and wound up the entire operation, a year costing 5000 jobs.

The Centrelink robo-debt debacle won't cost as many jobs, but its impact will be worse. It'll dwarf that of the bungled census, for which the Prime Minister declared that heads would roll.

In the lead-up to Christmas tens of thousands of Australians received notes embossed with the Centrelink logo telling them the income their employer had reported to the Tax Office was different to the income they had reported to Centrelink. Unless they explained why within 14 to 21 days, they would have an assessment made against them and be hit by a 10 per cent recovery fee.

Some of the letters dealt with Newstart, sickness and other payments going back six years, beyond when most people keep records, and way beyond the six months the Centrelink website asks people to keep pay slips.

If they could get on to the right part of my.gov.au (which was difficult in the lead-up to Christmas) and if they entered the correct information, they were often still told they owed money, and sometimes told to pay it even if they disputed it in order to avoid debt collection.

In a reversal of the usual onus of proof, they were guilty and sentenced until later proven innocent.

Many are entirely innocent. An internal Centrelink check is said to have found that only 20 out of hundreds of cases reviewed are genuine debts. Social Services Minister Christian Porter uses a different metric to say that eight in every 10 letters has uncovered a legitimate debt. But they've done it by the equivalent of spamming, by sending out thousands of obviously wrong assessments in the hope of getting money while they are contested. They are assessments that never would have got past quality control had humans been in charge of the process, as they used to be until Centrelink put it in the hands of robots mid last year.

One of their stupidest mistakes is to calculate fortnightly income by dividing annual income by 26. If the figure is too high the robots say someone wasn't entitled to benefits during the weeks they received them, even if during those weeks the person earned nothing. In other words, they misapply the law. Another is that they are not too bright. If the name of an employer is spelt one way by the Tax Office and another way by Centrelink, the robots assume it's a different employer and that it's undeclared income. In other words, they shouldn't have been let loose.

How they came to be let loose, how they were allowed to shake down vulnerable people in the lead-up to Christmas, will doubtless be the subject of a Senate inquiry and probably an Audit Office inquiry.

There were clues on the Tuesday before the election. That's when Porter and Treasurer Scott Morrison said they had found billions to pay for their promises. Through "the smarter use of technology" they were going to "improve the capability for the identification and recovery of debt owed to taxpayers".

Automated compliance systems would "minimise red tape, and avoid mistakes that may adversely affect a recipient's payments".

It was a worthwhile aim. None of us should want either overpayments or underpayments. But the delivery was appalling. Morrison and Porter had promised all the P76 promised and somehow delivered what the P76 delivered.

One of the wilder theories is that they intended to. By inflicting a faulty debt recovery system on the public, they wanted to persuade ignorant, scared and busy people to hand over money they didn't owe and dissuade others from ever applying for benefits again.

A more likely explanation is that they didn't know what they were doing. Asked about the letters sent out by his department threatening a 10 per cent recovery fee, a surprised Human Services Minister Alan Tudge told the ABC: "A 10 per cent recovery fee is new to me, and I don't believe that does occur."

But they might not have reckoned on the extent to which people can fight back. Many of those wrongly hit up have in the intervening years qualifiedhave subsequently become lawyersare now as lawyers. They are talking about a class action. They are going to use the freedom of information process to document how robo-debt was set up and to get the medical and other records that the department already had but chose not to share with robo-debt.

Tudge, Morrison and Porter could do worse than look beyond our shores to Michigan in the US. It backed down after sending out tens of thousands of robo-debt notices in error and announced that in future assessments would be overseen by human beings.

In The Age and Sydney Morning Herald

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Alright for the rich. Double standards in welfare crackdown

Where will the police turn up next? They are already mixing it with the department of immigration in Operation Sovereign Borders. They're smartening up the place as well. I am told departmental staff have been asked to dress sharply and get haircuts. They've even been directed not to wear their photo IDs when they leave the building. They have to be careful.

Now it's Human Services' turn. Essentially a call centre and payments organisation, the department that runs Centrelink is about to get a "tough cop on the beat". A "senior police officer" is to lead its crackdown on welfare fraud, or so a Sunday newspaper tells us. Never mind that the department's annual report shows it already has nine federal police working with it, apparently appointing an extra one to lead a taskforce could claw back an extra $1.5 billion in overpayments. The minister says so.

It got me wondering what other government departments the police could help. Communications came to mind, although that would have been in the days when the government collected radio and television licence fees. Anyone caught listening or watching without a licence was fined.

Education and Health offer few opportunities - the Commonwealth runs neither hospitals nor schools. And then it struck me. Police could be embedded in the tax office.

But although that does happen for serious financial crime (the tax office is on a joint taskforce with the Federal Police), there are no plans to get police to crack down on ordinary taxpayers claiming deductions.

Instead the tax office has lost 10 per cent of its staff. The Coalition used its first budget to bring forward staff cuts planned by Labor in order to bring about "the largest reduction to public service jobs over the forward estimates".

It makes its crackdown on fraud unbalanced. Australians who misreport their incomes for the purpose of claiming benefits are about to get further hammered but not Australians who misreport their incomes for the purpose of escaping tax.

Even within the department of human services the crackdown will be unbalanced. Minister Marise Payne says it will apply to the recipients of Newstart unemployment benefits and age and disability pensions, but not to the recipients of family tax benefits. That's because family tax benefits are "supplementary payments". They are middle-class rather than life-sustaining welfare.

It's a distinction that is running through everything the Abbott government does.

Within weeks of taking office it set up a Commission of Audit. Its terms of reference required it to "eliminate wasteful spending" but said nothing about tightening up wasteful tax concessions. The commission took the instruction to heart, saying nothing about the wasteful concessions on super but plenty about how to wind back spending on pensions.

When asked why it had examined only one sort of waste - the waste in payments intended to help people survive - the commission said tax concessions would be the subject of a separate tax white paper to be delivered in 2015.

The Coalition's first budget tightened spending on pensions and Newstart as foreshadowed but left superannuation alone. Its turn would come, we were assured.

There were reasons to believe it would. The government had told the authors of the tax white paper that nothing was off limits. They were free to point out waste wherever they found it.

The Murray financial system inquiry found that super tax breaks were not "well targeted to achieve provision of retirement incomes", which is another way of saying much of the money was wasted. The discussion paper released to set off the tax white paper process reached much the same conclusion, finding that despite the tens of billions of dollars offered annually in super tax concessions, the total effect of taxes on savings was "uncertain".

Treasury calculations prepared for this year's budget show the cost of the concession on employer contributions is set to climb from $16.3 billion to $20.15 billion by 2018-19. The cost of the concession on super fund earnings is set to climb from $13.4 billion to $30.4 billion. By way of reference, the cost of the age pension is set to climb from $41.6 billion to $50.4 billion, meaning that by then super tax concessions will cost as much as the age pension and will overtake it unless reined in.

And the bulk of the concession goes to extraordinarily high earners, the type who would be saving anyway. The treasury believes the top 1 per cent of Australian earners, a mere 132,000 people, take home between them 9 per cent of Australia's super tax concessions.

And so Joe Hockey and his departmental head John Fraser began speaking out. On Jon Faine's program on faABC radio the Treasurer called for "a bipartisan approach". Whoever was in government, "whether it's a Liberal government or Labor government, whoever it is, we're going to have the same problems", he said. Fraser told a gathering at the Australian National University it was time for a "fundamental rethink about the interaction between superannuation and tax and the whole welfare system".

And then Abbott decided it was off. Eyes fixed on the next election, be declared there would no changes to the super tax concessions, not now, not ever.

I am just one who's been taken for a ride. Welfare lobbyists who cautiously supported the winding back of pension access in return for action on super; the super industry itself, which offered up modest savings; the opposition, which drew up its own proposals, believing the offer of bipartisanship was genuine - all of us have been waiting for something we are now told won't happen.

Except that it will. After the election whoever wins will (re)discover that tax concessions skewed to Australia's highest earners exceeding the cost of the pension are not sustainable.

In the meantime, welfare cheats on far lower incomes should expect to hear from the police.

In The Age and Sydney Morning Herald

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