It was really a result of the Liberal & National Party (LNP) who were in government at the time wanting to:
- look tough on welfare cheats for image/election purposes
- claim a potential massive source of income (that wasn't really there) for the next budget
Most of the wrong calculations were due to a result of income averaging fortnight or multiple fortnights worth of income and extrapolating them to an annual figure, which is the absolute wrong thing to do when a lot of people on welfare worked as casuals and/or had short term jobs and the fortnight(/s) were non-representative of their yearly income.
In some cases the first time the alleged debtee found out about the debt was via a demand from a debt collection agency.
When individual action was taken against them, the government was reducing debts to $0.00 and then claiming there was no longer a reason for a case against them and had it dropped. The only reason the debt recovery program was stopped was because lawyers acting upon someones behalf also claimed interest on a paid false debt, which meant they couldn't succeed using the same tactic at which point they rolled over and admitted the unlawfulness of the scheme, which had been going for many years at this point.
I recommend this youtube 3 part series to get a good understanding of what was involved:
[0] https://www.youtube.com/watch?v=OfsL9GAbl3M
It starts out mentioning that it resulted in the largest class action lawsuit in Australian history...