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Debt to MSD 2008-2018

Child Poverty Action Group backgrounder April 2020

The proportion of people receiving a main benefit who are in debt to MSD has been increasing over time. As at June 2008, 52% of people on a main benefit owed money to MSD (135,170 of 258,317). By June 2018, the proportion had risen to 68% (188,025 of 277,410).  

The Covid-19 crisis will show a greatly increased number on benefits for 2020; the proportion who have debt to MSD will depend crucially on how third-tier assistance is treated in the impending recession.   More recent quarterly statistics have been requested by CPAG under the Official Information Act for 2019 and 2020.

 

Data sources:

Debt repayments can leave households with insufficient money, unable to afford basic necessities.  Many households, living hand-to-mouth,  have insufficient  disposable income  after debt repayment to purchase basic necessities like food. While the maximum weekly recovery rate can be no higher than $40, the weekly shortfall can lock households into vicious cycles of debt as private loans are used to bridge the gap at high interest rates .

Beneficiaries may owe MSD debt due to overpayments, special needs grants benefit advances, recoverable assistance, or in some cases fraud.

Overpayments occur where households are paid more than they are entitled to, an issue that is exacerbated by the complexity of the welfare system. The Welfare Expert Advisory Group described the benefit and tax credit systems as “unmanageably complex”. At present, the layers of bureaucracy that users must navigate can make it difficult for people to ensure they are meeting requirements, resulting in overpayment due to, for instance, a change in someone’s work circumstances or transferring to another benefit. In order to minimize overpayments and reduce the negative impacts of debt repayments, the welfare system needs to be redesigned to be more accessible and user-friendly as per WEAG’s recommendations.

Recoverable assistance payments are interest-free loans taken out to pay for essential or emergency costs such as bonds/rent, car repairs, or school costs. The fact that beneficiaries are having to access these payments for basic needs speaks to the inadequacies of benefit levels in the first instance. Benefit levels must be raised in order to enable households to meet their basic needs without taking out loans from MSD, thus trapping them into cycles of debt.

CPAG has previously called for an independent review of the legitimacy of beneficiary debt and the operation of the investigation and prosecution unit of MSD. With evidence of significant write-offs of superannuitants’ overpayments, it is clear that beneficiaries are unduly punished in ways that pensioners are not. CPAG is therefore calling for MSD to cease collecting debts from beneficiaries in order to prevent exacerbating child poverty among the lowest-income households. As families face the devastating economic impacts of COVID-19, this call is now more urgent than ever.

Appendix - benefit fact sheet Dec 2019