An interesting analysis. If I could make some points:
(1) The AAT was able to sidestep the whole issue of whether apportionment is lawful. The Ombudsman's view that it was unlawful because it used s 1073B is now widely discounted. The apportionment methodology has nothing to do with s 1073B. I haven't seen an argument that convinces me apportionment is either unlawful or factually inaccurate. The idea that apportionment does not accurately reflect a person's fortnightly entitlement misses the point that apportionment is used to calculate debts, not fortnightly entitlement. In the AAT2 case of Lyall, the Department argued its 'receipt view' was correct. And yet in debts totalling $18,000 the difference between its calculations and apportionment was about $120. Hardly a basis for inferring that no decision-maker in their right mind could think apportionment was ok.
(2) At paragraph 130 the AAT seems to think its interpretation of the fortnight 'first earned, derived or received', i.e. earned, derived or received, whichever event comes first, is consistent with the view of the parties that it means first earned, first derived or first received. They are plainly not logically consistent as the AAT's interpretation logically identifies one fortnight, whereas the interpretation of the parties logically identifies three fortnights (which may or may not coincide). I think the parties got it right but the Applicant's attempt to identify the relevant fortnight according to available evidence is a conflation of construction with evidence need to make findings w.r.t a provision already construed. The AAT's interpretation also misses an opportunity to provide an analysis that would be useful in dealing with pension cases where the word 'first' does not appear.
(3) As you've pointed out, the radical notion that earnings are to be understood as crystallising when there is a legal entitlement certainly raises issues. In one sense, the idea that you can go to a work contract to work out when there is a legal entitlement to earnings begs the question. Work contracts typically aren't about earnings. They typically concern work conditions, work hours, rates of pay and frequency of payment. Nothing about earnings per se.
Thanks for the comments Alex. I will consider them and will see if I can incorporate them into future analysis. One wonders whether an appeal to the FCA or FCAFC would open this up a little more. Applying the FTXB holding may prove complicated and it may be desirable to have a court ruling if FTXB is to be applied to 100,000+ debt files.
Thanks Chris. An appeal would need to go to the Full Federal Court of course since the President sat on it. With all due respect to the panel, I didn't find the earnings argument that compelling. I imagine that, having argued together with the Respondent for the commonly held view that we earn when we do the toil and having had its preferred analysis of 'first earned, derived or received' dealt with rather summarily, the Department must be giving an appeal serious thought.
The 'peril' naturally is that, if the Court rejects the FTXB view on earnings and also rejects the Department's analysis (which in my opinion is very dodgy), then we are left with apportionment if days worked in a fortnight are not known. As I signalled, I don't see any problem with apportionment as a means of calculating debts on the best available evidence, although, despite having embraced it for so long, the Department seems committed to rejecting it.
Thanks Alex. Just want to note two things for your interest. Firstly, counsel for Amato made similar arguments in their submissions regarding s 1073B (see para 56.4):
56.4 Section 1073B provided for averaging of income earned by a person receiving social security payments over an “instalment period”. An “instalment period” could not exceed 14 days. The effect of s 1073B was to produce an average daily rate of income for each day in the instalment period. Section 1073C then provided that “(a) the rate of the person’s employment income on a fortnightly basis for that day may be worked out by multiplying that amount by 14; and (b) the rate of the person’s employment income on a yearly basis for that day may be worked out by multiplying that amount by 364”. Sections 1073B and 1073C do not authorise apportionment of the kind done under the EIC program. They simply provide a mechanism for working out “the rate of the person’s employment income on a yearly basis” where it is relevant, under the SS Act, to calculate the rate on a yearly basis. The relevant period for Austudy payments was a fortnight, not a year. As the relevant explanatory memorandum states, the main purpose of ss 1073B and 1073C was to facilitate the “working credit” rules in the SS Act, the function of which “is basically to allow a person’s ordinary income to be reduced before it is put through [the] income testing process”. The working credit rules provided for the calculation of “the participant‘s rate of employment income on a yearly basis” for the purpose of working out the effect on working credit balances of social security pensioners. The working credit rules did not apply to Austudy recipients.
Secondly, many AAT1 decisions said to be examples of robodebt decisions (ie, they set aside the debt) and published via the RRC explicitly cite the operation of s 1073B as being part of the problem that let to the set aside decision. I have quoted short passages from each of them at the bottom of this blog post:
Yes there's nothing there I would disagree with Chris. Although I think the Ombudsman was wrong about the connection between apportionment and s 1073B, he understood that apportionment is a different methodology to robo debt-type income averaging. By apportionment I'm strictly referring to the methodology of using the pay advices that cut across each benefit/pension fortnight. In the absence of evidence about daily earnings in casual employment cases, I'm of the view that it's plainly lawful *in debt calculations* as the best available evidence to apportion the earnings in each of those pay fortnights to work out an earnings figure in the benefit/pension fortnight. Although it would be useful to have done modelling, in my long experience in this area I've found comparisons of apportionment with later recalculations using actual earnings to produce very close results. There's a 'smoothing' or 'swings and roundabouts' effect whereby higher apportioned earnings in one benefit fortnight mean lower apportioned earnings in the next. The smoothing effect is illustrated in Lyall where 2 different approaches produced around a .6% difference. That said, one needs to look at the appropriateness of apportionment in the particular context of each case.
An interesting analysis. If I could make some points:
(1) The AAT was able to sidestep the whole issue of whether apportionment is lawful. The Ombudsman's view that it was unlawful because it used s 1073B is now widely discounted. The apportionment methodology has nothing to do with s 1073B. I haven't seen an argument that convinces me apportionment is either unlawful or factually inaccurate. The idea that apportionment does not accurately reflect a person's fortnightly entitlement misses the point that apportionment is used to calculate debts, not fortnightly entitlement. In the AAT2 case of Lyall, the Department argued its 'receipt view' was correct. And yet in debts totalling $18,000 the difference between its calculations and apportionment was about $120. Hardly a basis for inferring that no decision-maker in their right mind could think apportionment was ok.
(2) At paragraph 130 the AAT seems to think its interpretation of the fortnight 'first earned, derived or received', i.e. earned, derived or received, whichever event comes first, is consistent with the view of the parties that it means first earned, first derived or first received. They are plainly not logically consistent as the AAT's interpretation logically identifies one fortnight, whereas the interpretation of the parties logically identifies three fortnights (which may or may not coincide). I think the parties got it right but the Applicant's attempt to identify the relevant fortnight according to available evidence is a conflation of construction with evidence need to make findings w.r.t a provision already construed. The AAT's interpretation also misses an opportunity to provide an analysis that would be useful in dealing with pension cases where the word 'first' does not appear.
(3) As you've pointed out, the radical notion that earnings are to be understood as crystallising when there is a legal entitlement certainly raises issues. In one sense, the idea that you can go to a work contract to work out when there is a legal entitlement to earnings begs the question. Work contracts typically aren't about earnings. They typically concern work conditions, work hours, rates of pay and frequency of payment. Nothing about earnings per se.
Thanks for the comments Alex. I will consider them and will see if I can incorporate them into future analysis. One wonders whether an appeal to the FCA or FCAFC would open this up a little more. Applying the FTXB holding may prove complicated and it may be desirable to have a court ruling if FTXB is to be applied to 100,000+ debt files.
Thanks Chris. An appeal would need to go to the Full Federal Court of course since the President sat on it. With all due respect to the panel, I didn't find the earnings argument that compelling. I imagine that, having argued together with the Respondent for the commonly held view that we earn when we do the toil and having had its preferred analysis of 'first earned, derived or received' dealt with rather summarily, the Department must be giving an appeal serious thought.
The 'peril' naturally is that, if the Court rejects the FTXB view on earnings and also rejects the Department's analysis (which in my opinion is very dodgy), then we are left with apportionment if days worked in a fortnight are not known. As I signalled, I don't see any problem with apportionment as a means of calculating debts on the best available evidence, although, despite having embraced it for so long, the Department seems committed to rejecting it.
Thanks Alex. Just want to note two things for your interest. Firstly, counsel for Amato made similar arguments in their submissions regarding s 1073B (see para 56.4):
56.4 Section 1073B provided for averaging of income earned by a person receiving social security payments over an “instalment period”. An “instalment period” could not exceed 14 days. The effect of s 1073B was to produce an average daily rate of income for each day in the instalment period. Section 1073C then provided that “(a) the rate of the person’s employment income on a fortnightly basis for that day may be worked out by multiplying that amount by 14; and (b) the rate of the person’s employment income on a yearly basis for that day may be worked out by multiplying that amount by 364”. Sections 1073B and 1073C do not authorise apportionment of the kind done under the EIC program. They simply provide a mechanism for working out “the rate of the person’s employment income on a yearly basis” where it is relevant, under the SS Act, to calculate the rate on a yearly basis. The relevant period for Austudy payments was a fortnight, not a year. As the relevant explanatory memorandum states, the main purpose of ss 1073B and 1073C was to facilitate the “working credit” rules in the SS Act, the function of which “is basically to allow a person’s ordinary income to be reduced before it is put through [the] income testing process”. The working credit rules provided for the calculation of “the participant‘s rate of employment income on a yearly basis” for the purpose of working out the effect on working credit balances of social security pensioners. The working credit rules did not apply to Austudy recipients.
Secondly, many AAT1 decisions said to be examples of robodebt decisions (ie, they set aside the debt) and published via the RRC explicitly cite the operation of s 1073B as being part of the problem that let to the set aside decision. I have quoted short passages from each of them at the bottom of this blog post:
https://welfare.substack.com/p/lessons-in-lawfulness
Yes there's nothing there I would disagree with Chris. Although I think the Ombudsman was wrong about the connection between apportionment and s 1073B, he understood that apportionment is a different methodology to robo debt-type income averaging. By apportionment I'm strictly referring to the methodology of using the pay advices that cut across each benefit/pension fortnight. In the absence of evidence about daily earnings in casual employment cases, I'm of the view that it's plainly lawful *in debt calculations* as the best available evidence to apportion the earnings in each of those pay fortnights to work out an earnings figure in the benefit/pension fortnight. Although it would be useful to have done modelling, in my long experience in this area I've found comparisons of apportionment with later recalculations using actual earnings to produce very close results. There's a 'smoothing' or 'swings and roundabouts' effect whereby higher apportioned earnings in one benefit fortnight mean lower apportioned earnings in the next. The smoothing effect is illustrated in Lyall where 2 different approaches produced around a .6% difference. That said, one needs to look at the appropriateness of apportionment in the particular context of each case.