The Department of Human Services is reviewing its controversial “robodebt” welfare debt collection system and will no longer rely entirely on automated processes to chase debts.

The controversial online compliance intervention system used a computer-based income averaging algorithm to match ATO data with welfare payments and delivered automated letters demanding repayment based on the result.

Critics say it resulted in errors,  incorrect debts and unnecessary hardship for welfare recipients. A class action claiming the system is illegal will be heard in the federal court next month.

Human Services Minister Stuart Robert said on Tuesday that the system will be “refined” and other proofs of debt would now be required.

An email to departmental staff said debt recovery will be frozen for all affected people while the department investigates.

“The refinement we commenced this morning is income averaging plus other proof points will be used as the final determinate for a debt to be crystallised or for a debt to be raised,” Mr Robert told reporters.

“We will still reach out to Australians to say that income averaging indicates they may possibly have a debt, and we’ll use other proof points as well, and we will ask them to engage with the department to identify through bank statements or through pay slips or other means, that indeed, they don’t have a debt.”

The department will also be contacting people who have been forced to pay a debt solely on income averaging, he said.

“I’ve also asked my department to go back and identify the small cohort of Australians who have a debt raised solely on the basis of income averaging, so we can commence discussions with them and seek further points of proof,” he said.

Class action

Victorian Legal Aid is running a test case due to be heard on December 2 which argues that using averaged income data and the reversal of the onus of proof to raise debts is unlawful.

‘The Federal Court is weeks away from considering the lawfulness of robo-debt. Today’s announcement is welcome news for our clients.’ laywer Rowan McRae said.

Labor said the backdown showed the robodebt scheme had been a “complete disaster”, resulting in more than 200,000 people receiving debt notices when there was never any debt.

“The Government has taken humans out of Human Services,” opposition leader Anthony Albanese said.

“This is an example of bad Government policy that’s occurred because it’s determined to remove people from the workforce and to have computers doing jobs that human beings should be analysing before they send people these debt notices.”

Mr Robert declined to say whether the government had made a mistake, insisting it had an “absolute legal obligation” to raise debts where they existed.

He also said there was no change to “the construct of the onus of proof”.

“We will still reach out to Australians to say that income averaging indicates they may possibly have a debt, and we’ll use other proof points as well,” he said.