Submission to the Social Services Committee on the
Social Security (Fraud Measures and Debt Recovery) Amendment Bill
Auckland Action Against Poverty (AAAP) strongly opposes the passage of the Social Security (Fraud Measures and Debt Recovery) Amendment Bill (the Bill) in its current form for a number of general and specific reasons.
In general, AAAP is opposed in principle to the attributing of criminal liability to beneficiaries who receive benefits in excess of their entitlement. Criminal liability is not the best nor most cost-effective way of stopping benefit fraud.
AAAP also has general concerns about the attribution of criminal liability on the basis of determinations of conjugal status, due to its impinging on individual rights, and due to the difficulties in determining conjugal status– which already occurs in relation to the principal beneficiary and the significance of which will be augmented if this Bill is passed into legislation.
In particular, AAAP has concerns about the Bill to the extent that it enables debt recovery and criminal liability against the spouse or partner (partner) of a beneficiary on the basis of a reckless omission (clause 6 – section 83AA; clause 10 – section 86AA; and clause 12 – section 127A); and the removal of the ability to decide not recover debt in certain circumstances. The Bill also removes the right of the beneficiary to appeal against a decision in relation to another person even though that person may be liable for a debt because of the actions of the beneficiary (clause 5 – section 12J).
AAAP has concerns about the imposition of a duty on the chief executive of MSD to recover all debt, the corresponding removal of the discretion not to recover debt, and the prescription of ‘exceptional circumstances’ where the recovery of debt may be deferred (clause 9 – s86)). This shift has the potential to cause even greater hardship to beneficiaries and their families already experiencing significant hardship.
AAAP is also concerned about the structural and concrete discrimination that occurs between the approach of the state to ‘benefit fraud’ vis-à-vis tax evasion and other forms of white-collar crime.
Also, there are also many reasons why one may attempt to receive benefits in excess of their legal entitlement – chief amongst these is the insufficiency of benefit payments to provide beneficiaries with the income they need for things such as food, clothing, healthcare and so on. A solution to which would be an increase in benefit payment levels or the implementation of a Universal Basic Income.
In these ways, the bill:
Impinges on the rights of New Zealand citizens
Is likely to lead to greater stress and worse outcomes for vulnerable people
Is likely to contribute to situations of domestic violence and abuse
Does not contain appropriate, cost-effective mechanisms for addressing benefit fraud
Distracts government agencies from already imperfectly-delivered core business, such as informing beneficiaries of, and delivering, what they are entitled to
Adds to a culture of beneficiary stigmatizing and blame, while entrenching an underclass.
Given the enormously costly process of prosecution of benefit fraud, it is difficult to see this Bill as a money-saving mechanism. It is, rather, an ideological weapon aimed at the poor specifically because they are poor, to make them even poorer. Its stated target is ‘fraudsters’ but its effects – not only financial but emotional and social – will be most felt by those simply struggling to get by – many of whom will have done absolutely nothing wrong, even in the eyes of a complicated and vague welfare and legal system.
Alternatives to criminal prosecution
In general, AAAP is opposed in principle to the attributing of criminal liability to beneficiaries who receive benefits in excess of their entitlement. This appears to be counterproductive and an inefficient use of resources to pursue criminal prosecutions of such beneficiaries.
The process of investigating and prosecuting so-called ‘benefit fraud’ is resource intensive – this process involves Ministry of Social Development (MSD) investigators, information sharing between agencies, prosecution and defence counsel (usually Legal Aid funded), and Courts and Corrections resources. The sentences beneficiaries receive are a further drain on state resources, particularly if they received a custodial or electronically monitored sentence.
In most cases the re-payment of the debt will be by way of deductions from the beneficiaries’ ongoing benefit payments, and are likely to put further financial strain on the beneficiaries and their families, and make them more vulnerable to further ‘benefit fraud’ or crippling high interest loans. The saddling of the beneficiary with a criminal conviction for a dishonesty offence is likely to make it more difficult for the beneficiary to be able to obtain employment in the future, making it more likely that they will continue to receive a benefit.
AAAP is of the opinion that prevention is better than cure – or in this case, far better than punishment. In our experience, many beneficiaries are not receiving all they are entitled to because Work and Income case managers have not told them what they entitled to, or have used their discretion to deny their clients access to funds. It is possible for a beneficiary to be committing ‘benefit fraud’ and yet still be receiving less than their legal entitlements. Benefit fraud is in large part the result of an overly complex system with a closed culture of refusal and no transparency, full of hooks for even the most wary and well-meaning.
For these reasons AAAP supports the development and implementation of alternatives to criminal prosecution for ‘benefit fraud’. Firstly, the likelihood of benefit fraud can be removed before it is even started, by ensuring all beneficiaries get regular, up-to-date information about all their legal entitlements. When it is suspected that a beneficiary may be claiming more support they are not entitled to, Work and Income should review the support they are entitled to but are not receiving, and award any such support retrospectively to ‘cancel out’ unpermitted claims as much as possible.
Liability reliant on determination of conjugal status
AAAP is opposed to this on two grounds:
The difficulty of determining whether or not a relationship is in the nature of marriage
More importantly, the stripping away of fundamental individual rights including the right to be legally responsible solely for one’s own conduct
Determining the nature of a relationship
Determining whether a beneficiary is in a relationship in the nature of marriage for the purpose of primary criminal liability is already recognised as complex. The same issues of categorising relationships will arise in the context of holding spouses and partners criminally liable. The indeterminacy in this area will inevitably lead to partners facing civil and criminal liability where the relationship could not be properly classed as ‘a relationship in the nature of marriage’.
Some of these issues stem from the dynamism of human relationships that do not neatly fit into legislative definitions, including unsupportive and abusive relationships. Further, AAAP is aware of failures of Work and Income to correctly apply the test for determining whether someone is in a relationship in the nature of marriage.
It is problematic to make a partner liable for a civil debt on the basis that they did not know, but ought to have known, that their partner was receiving a benefit in excess of their entitlement by fraudulent means, because of the inherent difficulty in accurately establishing conjugal status.
The government and the Ministry of Social Development have acknowledged that determining conjugal status under s 63(b) is not a simple task. The Joychild Report that assessed Work and Income and the Ministry’s performance in administering this test in the wake of the Ruka decision and the Ruka Review found that many of decisions to categorise parties as being in a relationship in the nature of marriage were wrong. For example, a Ministry of Social Development review of benefit overpayments established due to relationships in the nature of marriage between 1 November 1996 and 31 December 2000 resulted in the reversal of over $35 million of debt wrongly held to be owed by almost 3000 beneficiaries.
In the context of this Bill erroneous determinations in relation to conjugal status will affect not only the principal beneficiary, but also their partners.
Even if the determination that a relationship is in the nature of a marriage is correct, making someone responsible for their spouse/partner’s actions is extremely problematic. Even if it can be proven that they knew about the over-claiming, it is problematic. Being responsible for somebody else’s money management – and having them be responsible for yours – can put stress on that relationship, to breaking point in some cases, and/or to the point where the relationship becomes violent and/or abusive.
Making partners liable even if they do not know is unreasonable in the extreme. It is unclear who decides whether they “ought” to have known. Not all marriage-like relationships include a financial relationship. Partners/spouses often do not share a bank account.
Debt recovery and criminal liability of partners of beneficiaries
Clause 10 of the Bill imposes monetary penalties on partners of beneficiaries who have obtained benefits in excess of their legal entitlement, if the partner benefited directly or indirectly, and whether they knew or ought to have known about the ‘benefit fraud’.
Clause 12 of the Bill establishes criminal liability of partners of beneficiaries who have obtained benefits in excess of their legal entitlement, if the partner benefited directly or indirectly, and whether they knew or ought to have known about the ‘benefit fraud’.
These clauses impose potentially significant monetary penalties or criminal liability and sanctions for a reckless state of mind. These clauses essentially impose a recklessness test in relation to knowledge, rather than a physical act. For example, recklessness in the criminal law generally requires that a person knew or ought to have known of the risks of their behaviour and they went ahead with that behaviour anyway.
In the context of ‘benefit fraud’ this would amount to holding a partner liable for a debt or criminally liable where they did not know about the fraud and did not do any act towards the commission of the fraud.
Fraud is categorised as ‘dishonesty’ offending, a dishonest state of mind is an integral element of criminal liability for dishonesty offences. This clause will have the effect of holding persons criminally liable where they have formed neither the dishonest state of mind or committed a dishonest act. The partner has not done anything apart from being expected to have known that somebody else was doing something.
Being reckless regarding knowledge as to whether somebody else is fraudulently receiving a benefit does not lend itself to the elements of a recklessness test because there is nothing the partner can reasonably be expected to do differently to void committing the “reckless” act.
In the proposed s127A there is no requirement to do anything apart from being expected to know about what someone else is doing. Recklessness ordinarily requires something more, usually an act involving a conscious decision and at least an expectation of knowing the risks involved with pursing that course of action. A recklessness test cannot be fairly or appropriately applied in circumstances where the reckless behavior relates solely to knowledge of someone else’s actions, rather than the actions of the person charged with the offence.
An opportunity to make a conscious decision not to go ahead with the reckless act, but doing it anyway is essential to an offence of recklessness. The person must have an appreciation or an ability to appreciate the risks of the act, an opportunity to choose not to commit the reckless act, but choose to commit the act anyway. This clause imposes criminal liability without giving the person the opportunity to choose not to go ahead with the reckless act.
Even with strict liability offences an action is required before a person is liable, for example displaying a warrant of fitness that is out of date. The only ‘act’ that the partner can do is to report their partner to the Police/Department or end the relationship. Both of these alternatives will have significant implications for families, communities, relationships, and issues such as domestic violence.
It is submitted that the imposition of a recklessness test in this context will lead to unfairness and, confusion, and would be unprincipled and unjust.
Criminal liability for omissions
Furthermore these clauses essentially impose significant monetary penalties or criminal liability for failing to act, for example failing to report the beneficiary to MSD or the Police. Criminal liability for omissions raises many issues. Two main concerns are whether a failure to act should be considered as conduct which can attract criminal liability; and whether the failure to act is causally related to the harm caused.
With respect to the first issue, generally a failure to act, an omission, only attracts criminal liability where there is a pre-existing legal duty to act. A beneficiary who completes a form in order to acquire benefit payments and omits to declare their income or relationship status (under the current law) attracts criminal liability for benefits obtained in excess of their entitlement because the form creates a legal duty to disclose this information.
However, the partner or spouse of a beneficiary who does not complete said form has not been hitherto subject to any legal duty to disclose information or to require their spouse or partner to disclose information. This Bill would create such a legal duty. AAAP objects in principle for the reasons set out in this submission to the creation of such a duty by this Bill. The State – which already has our bedrooms under surveillance – now wants to be party to, and compel, our conversations about money.
With respect to the second issue where a partner has been ‘reckless’ as to the beneficiary’s entitlement to the benefits received, there is no clear causal connection between the harm caused (defrauding the public purse) and the partner’s reckless omission, unless a general duty to report the beneficiary to the authorities is imposed. As mentioned above, such a duty impinges on individuals’ rights and could have significant and detrimental implications for families, relationships, psychological and physical domestic abuse.
Right to appeal decision with respect to partner
Clause 5 (s 12J(3)) precludes a beneficiary’s ability to appeal against a decision in relation to another person even though that person may be their partner who is liable for a debt or criminal liability because of the actions of the beneficiary. This is inconsistent. The beneficiary’s partner’s rights are further eroded. They can be found liable for something they did not even know was happening, but have no right of reply.
Removing discretion to recover debt and prescribing ‘exceptional circumstances’ where recovery may be deferred
Clause 9 of the Bill removes the discretion whether or not to recover debt and replaces it with a discretion to merely defer recovery in prescribed ‘exceptional circumstances’. The discretion not to recover debt allowed the law to respond to individual circumstances in a fair and measured way. It is alarming that the Bill will remove the ability of MSD to respond in this way. In particular, the emphasis on the responsibility of the chief executive to the New Zealand public to recover debt should be challenged on the basis that it is not necessarily in the public interest to pursue debt recovery where that will occur by way of deductions from future benefits, potentially putting beneficiaries under further financial strain. Clause 9(2) states that in terms of determining rates of recovery the CEO does not have to have regard to adequacy of living standards for example. This is deliberately allowing people to ‘slip through the net’.
The current proposal will inevitably mean that beneficiaries will be lumbered with debt in situations where it is clearly unfair for that to happen. Section 86(9A) still enables debt resulting from departmental error to be written off, but that section was tightened considerably in 2002. This has resulted in a far narrower set of circumstances where debt can be written off under that section. In addition, the same amendment back in 2002 removed beneficiaries’ recourse to relief under the general provision s 94B of the Judicature Act, and also all common law remedies that could apply in situations where s 86(9A) did not apply. This means that under the proposal the only remedy available to deal with unfairness will be s 86(9A). However, the case of Attrill highlighted that there are many circumstances where s 86(9A) is unable to be used leading to unfairness, particularly since that section was constricted in 2002. The current proposal will inevitably mean that beneficiaries will be lumbered with debt in situations where it is clearly unfair for that to happen.
This Bill provides for the introduction of regulations which prescribe the ‘exceptional circumstances’ and different rates and methods of recovery depending on the type of debt. The regulations to be issued setting out minimum levels of debt recovery depending on the type of debt and how it was incurred will compound the potential unfairness of mandatory debt recovery. Regulations are inherently prescriptive and rigid.
At present, recovery rates are set at amounts that will not put people into further hardship. Regulation will remove MSD’s ability to take beneficiaries’ circumstances into account when determining the rate at which the debt should be recovered. By removing the discretion and the flexibility those subject to debt recovery will be put in precarious positions and made more vulnerable by more money being taken out of weekly benefit payments than the beneficiary can afford.
The power of MSD to defer repayment in situations of hardship will be subject to an ‘exceptional circumstances’ test under the proposed legislation, which will be prescribed by regulation. The implication is that common, run- of- the- mill hardship will not qualify for a deferment – at a time when common hardship is becoming more extreme, and what would be considered ‘common’ now might have been ‘exceptional’ ten years ago. The more people in dire straits, the fewer will be helped by such a test.
Prescribing what will qualify as exceptional circumstances in regulation will make it even harder for the Department to take into account individual circumstances of hardship and provide relief by deferring repayment. The regulations will create a prescriptive set of criteria to meet to establish ‘exceptional circumstances’ – if these are not met the debt will have to be repaid at the prescribed amount regardless of the debtors’ circumstances and their ability to provide for the basic needs of themselves and their families. This will almost certainly lead to further hardship.
This is even more difficult to explain when compared to the leniency shown to tax debtors. Recent research by Victoria University accounting and commercial law associate professor Lisa Marriott shows that the approach to tax debtors is already much more merciful than for benefit debtors.1Marriott has found that the IRD more readily negotiates with debtors to collect core tax and to write-off penalties and interest, than MSD. Between July 1, 2011, and June 2012, IRD wrote off nearly 50 per cent of interest and penalties applied to overdue tax, amounting to $374 million. It wrote off $435m in core debt, reflecting 11.6 per cent of collectable debt. In contrast, MSD wrote off $8.7m in core debt, 2.1 per cent of collectable debt.
Benefit debt is just as stressful as tax debt, if not more so, due to likelihood of more entrenched poverty, and legislation should take this into account.
See media coverage: “Tax debtors get off lightly” http://www.stuff.co.nz/business/industries/9035181/Tax-debtors-get-off-lightly