More than one million historical social service debts have been wiped by the federal government.
Welfare recipients whose debts were calculated by a method known as income apportionment, which was found to be unlawful, will have debts of up to $250 wiped.
The decision is expected to waive 1.2 million debts, with those affected also entitled to receive resolution payments of up to $600.
Income apportionment was used to calculate debts, which assumed a recipient's income each fortnight if their pay did not directly line up with their reporting period to the government.
The method was found to be unlawful in 2023.
Those who had debts calculated through the method between 2003 and 2020 will be eligible for the debts being waived.
Social Services Minister Tanya Plibersek said the waiving was taking place as the cost to recover the debt was often higher than the amount owed to the government.
"Our social security system is designed to be there for Australians when they fall on hard times, which is why it’s important debt recovery processes must be fair and transparent," she said.
"When the system provides good outcomes for both recipients and taxpayers, all Australians win."
Alongside the debt waiving, a $300 million package will be rolled out to bolster the social security system.
Laws will be introduced to parliament in coming weeks to provide certainty for methods used to calculate debt.
Greens social service spokeswoman Penny Allman-Payne welcomed the debt waiver.
"Like Robodebt, the income apportionment scandal has shown the systemic issues with the way our welfare system brutalises people living in poverty over ridiculous errors," Senator Allman-Payne said.
"When you’re living week-to-week on poverty payments, a debt notice from the government can cause your whole life to spiral. Tragically for some it has led them to take their own lives."
Antipoverty Centre spokesman Jay Coonan said while the measures were a relief, further supports were needed for welfare recipients.
"It should not have taken so long and it should not have taken so much work by welfare recipients and advocates for this progress to be made," he said.
"The government must work with welfare recipients to make bigger changes that will ensure we are safe and have stability and control over our lives."
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