New system set to reduce 'devastating' $1.5b beneficiary debt

A new system is tipped to prevent beneficiaries owing hundreds of millions of dollars to the government because they've been mistakenly paid too much.

The change should ensure they get the correct amount and see an end to the huge stress of being told they are in debt.

The system would automatically send income information from Inland Revenue to the Ministry of Social Development (MSD), which could then determine the correct benefit payment amount.

Beneficiaries have to declare any income from paid work as it affects their entitlements, but that's difficult to do accurately when wages fluctuate week to week.

That can result in overpayment, and eventual debt.

In the last financial year beneficiaries were paid on average $3040 more than they should have been, MSD's annual report showed.

Overpayment debt totalled $1.45 billion across 468,540 people as at 31 March, the ministry told RNZ.

Beneficiary advocate Kay Brereton said people were in debt through no fault of their own, and some did not find out until it had racked up.

"It's really devastating for people," she said.

A recent client had got off the benefit and soon after received a letter saying she owed $3500, Brereton said.

"She had no idea why, or how, or what had happened," Brereton said.

"She thought she'd been declaring her income, but apparently she'd been declaring it late. People don't understand the declaration system very well."

Social Development Minister Louise Upston said the new system would not wipe out overpayments completely, but it would improve accuracy.

"I know when people who are on welfare get a notice of a debt from MSD, it's incredibly stressful," she said.

"So, what we want to ensure is that there is more accurate payment of benefits based on real income to reduce overpayments and therefore debt."

The system would use what the ministry called automated decision-making (ADM) - without any human interaction. ADM is a form of artificial intelligence, but it's not generative like ChatGPT.

Opposition parties were alarmed when a law allowing MSD to extend its use of ADM was rushed through Parliament last month.

They argued the use of machines to make decisions about people's benefits was risky and a huge expansion of powers.

But MSD chief executive Debbie Power told a Parliament scrutiny hearing that for some pieces of work, including income matching, it was a "no-brainer".

"We've been before this committee a number of times where you've been concerned about debt levels and overpayments that we've put on clients, we have heard many times that clients artificially hold down their hours because they're worried about how it tips over in terms of the money that they get," she said.

The new income matching system would address that, Power said.

"It will save setting up hundreds of millions of dollars worth of debt, it will mean that clients will be better off in terms of knowing certainty about what they will get."

MSD said some income matching is currently carried out, but it's a manual process targeted towards detecting fraud and checking accuracy.

Advocate hopeful, warns of 'sticky details'

Brereton had high hopes for the new system.

"Especially for those people who work in casual jobs with their hours change every week, hopefully it will make things better and reduce those overpayments, because they're a real burden for the people who receive them," she said.

But she warned there were potential fish hooks, including for people who received lump sum payments - for example, holiday pay once they had finished a job, or backpay that could date back years and amount to a big chunk of change.

Inland Revenue treated such payments as income in the month it was paid to them, Brereton said.

"So that's stopping people's benefits and causing a lot of hardship."

Brereton said she would be more comfortable with a real person giving everything a once over.

"There are always sticky details, there are always people who don't quite fit the box that gets made."

MSD said it was hashing out how to deal with lump sum payments.

It noted people would be able to challenge the income information if they did not think it was right.

MSD said it was in regular contact with advocates like Brereton while it designed the new system.