APS super bill expected to hit $8b as Labor plans against fiscal hit

The landmark case, put forward by three department staff, argues superannuation payments are owed on rent-free housing provided by the government. It could set a precedent resulting in billions being paid to about 10,000 public servants.

Finance Minister Katy Gallagher said the Albanese government will introduce a bill on Wednesday to ensure Commonwealth entitlements "remain as they have been understood, by Commonwealth employees and employers, over a long period".

The court's ruling, once delivered, could result in "significant windfall increases" in superannuation benefits that are "well beyond community standards" due to some bureaucrats having received rent-free housing, Senator Gallagher said in the Tuesday statement.

"The bill protects against these potential unintended outcomes and ensures that the entitlements of Commonwealth employees remain fair and reasonable and, importantly, that they continue to represent a responsible use of taxpayers' money," she said.

"The bill is the most effective way of protecting against the unintended, and inequitable consequential impacts of a potential judgment that reverses long standing practice."

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Foreign Affairs Department staff Brendan Peace, Peter Fennell and Timothy Vistarini argued the Commonwealth did not pay them superannuation owed for a rent-free accommodation allowance they received on overseas postings and a "hardship" allowance as part of their salary on overseas postings.

The three public servants are fighting to include the allowances as part of their salary, which would result in additional superannuation payments being made available to their Public Sector Superannuation Scheme accounts on retirement.

The public servants' barrister Lachlan Edwards argued in April the senior officials, who had all worked within the public service for a number of years, had been provided with rent-free accommodation as part of their postings across cities considered "difficult".

The postings included Papa New Guinea's Port Moresby, Myanmar's Yangon and Solomon Islands' Honiara.

Mr Edwards said the officers were expected to stay in the government-arranged accommodation, which often came with round-the-clock security, following confirmation of their posting.

The allowances were compensation paid to them for the physical hardships and discomforts they faced due to the nature of the posting, and should be considered as part of their salary, he said.

But the Commonwealth, represented by Australian Government Solicitor representatives Tom Howe QC and David Hume, argued the three staff members were not entitled to any relief.

Mr Howe QC said the allowances given were provided solely based on the location of the role.

The payments were "not individual-centric, not position-centric, not duties-centric", Mr Howe QC said.

The government's lawyers claimed in their submission increasing the amount of the employees' salary for superannuation purposes would result in a shortfall in their contributions payable to the scheme.

Budget papers released in March identified the court proceedings as posing a "fiscal risk" to the federal government.

"Depending on the outcome of the case, there may be broader implications that represent a fiscal risk to the budget," the budget papers said.

If a ruling is made in favour of the DFAT employees, the federal government could be liable for billions in payments across various departments and agencies, including the Home Affairs and Finance departments, the Australian Federal Police, and the Australian Taxation Office.

Then-Finance Department deputy secretary Dr Stein Helgeby told an estimates hearing in 2019 it was going through records dating back to 1922 to determine the scale of potential superannuation repayments.

AFP alone in 2020 identified more than 9000 employees who were eligible for one of the allowances, estimated to cost the law enforcement agency $59 million at the time.