The Department of Human Services progressed its proposal for the robodebt scheme, despite serious legal doubts within another department, after it earned the backing of Scott Morrison, a royal commission has heard.

The royal commission is investigating the failed debt recovery scheme, which ran from July 2015 until November 2019 and culminated in a $1.8bn settlement between the government and hundreds of thousands of people issued unlawful Centrelink debts.

Despite the Department of Social Services providing damning legal advice on the proposal in late 2014, the inquiry heard on Wednesday that DHS drew up a brief for what became the scheme in early 2015.

On day three of hearings, the inquiry was told that was because Morrison, who was then the social services minister, wanted the proposals worked up for the 2015 budget process.

It heard this put significant time pressure on the same Department of Social Services officials who had already raised grave doubts about the proposal’s legality.

The royal commission has not heard any evidence the advice warning against the scheme reached Morrison. He has been granted leave to appear at the royal commission if he wishes.

The senior counsel assisting, Justin Greggery, said by late 2014 the Centrelink compliance proposal had “become part of the budget” and the Department of Human Services had indicated Morrison wanted the proposals progressed.

By early 2015, officials within DHS began drafting the “strengthening welfare integrity system” measures, which expected to save the budget $1.2bn.

The inquiry heard that one of the measures – which became the basis for the robodebt scheme – was “broadly consistent” with the proposal which the Department of Social Services had raised legal doubts about a few months earlier.

The inquiry heard while an initial draft for the policy proposal to be said the scheme would need “legislative change”, a later draft said this was not required. It is so far unclear what the final copy of the policy proposal said.

The royal commission heard this raised alarm within DSS, with one official, Catherine Dalton, asking for “urgent advice” on the proposals.

“And what we know now from the benefit of hindsight is that this particular proposal did become included in the 2015-16 budget … as the strengthening welfare integrity system,” Greggery said.

Under questioning, Anne Pulford, a lawyer at the Department of Social Services who warned against the plan in December 2014, agreed the minister’s support for the proposal limited the time available to provide “considered legal advice”.

While the DSS officials noted some of the assumptions used to form Pulford’s damning advice had “changed”, the royal commission heard that officials had only two days to review the policy proposal being considered for the budget.

Greggery asked: “It appeared that the very tight timeframe and the pressure was coming from a clearance by Minister Morrison to have a new policy proposal developed to the point that it might be submitted to the Department of Finance?”

Pulford replied: “Correct.”

The inquiry heard DSS lawyers then identified other potential legal problems, including over what data Centrelink might be able to “pull” from the tax office through data matching.

Under questioning, Pulford agreed that due to time pressure, from late 2014, the DSS legal team was only able to “identify” potential legislative problems without “providing meaningful advice on any of them”.

The inquiry heard legal questions were also raised over the imposition of a 10% recovery fee on robodebts.

The royal commission was told the Department of Human Services wanted to impose the fee as a “lever” to get welfare recipients to enter a payment plan with Centrelink.

That fee was the subject of heavy criticism from social service groups and legal groups once the robodebt scheme ramped up in 2016 through an online system.

Pulford and the internal lawyers at DSS were asked to give legal advice on the implementation of the recovery fee, the inquiry heard.

By then, the inquiry was told, this legal advice was given on the basis debts being raised in the robodebt program were legal.

Asked when her view changed about the legality of debts, Pulford said she could not recall.

Asked why Pulford or the legal team never “agitated” about the fact the scheme was legally flawed once it was up and running, she noted “a government decision had been made at that point”.

She said the “internal legal area continuing to query the legal underpinnings of the decision which had been made and presumably taken into account” would not have been “regarded as helpful”.

Pulford said in her view the role of the department’s legal team was to “make clear risks which government then decides”.

The royal commission continues.

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