The new federal government has officially called a royal commission into the former government's unlawful debt recovery scheme known as "Robodebt". 

Prime Minister Anthony Albanese has unveiled the terms of reference and the commissioner who will oversee the inquiry.

Former Queensland Supreme Court Justice Catherine Holmes will lead the commission, with the final report due by April 18, 2023.

The 2015 Robodebt program used an algorithm to work out whether Centrelink recipients had been overpaid, but unlawfully claimed almost $2 billion in payments from 433,000 people.

A total of $751 million was wrongly recovered from 381,000 people.

A $1.8 billion settlement was ordered last year for people who were wrongly pursued and government ministers were lambasted by Federal Court Justice Bernard Murphy over the "massive failure".

Election commitment

Labor committed to establishing the robodebt royal commission at the federal election.

Prime Minister Anthony Albanese has labelled the scheme a "human tragedy".

"The royal commission will examine the establishment of the scheme, who was responsible for it and why it was necessary, how concerns were handled, how the scheme affected individuals and the financial costs to government, and measures to prevent this ever happening again," he said.

Social Services Minister Amanda Rishworth said there were questions about why there was no action when complaints were raised.

"We know that as late back as 2016 there were members of public flagging concerns that these debts weren't right," she said.

"These were real flags the government should have listened to."

Government Services Minister Bill Shorten said Australians had never heard how the scheme could be conceived.

"The [former] government has never satisfactorily explained how this monster scheme got away from the system and got a life of its own," he said.

Scott Morrison, who was social services minister when the scheme was established, has said the problem was dealt with by his government when it was scrapped in 2020.

Labor said there were still questions over who held responsibility for the failed scheme and how much they knew.

The federal government said the full toll of the scheme had not been accounted for, including numerous claims of suicides linked to the unlawful program.

Opposition Leader Peter Dutton questioned the motivation behind the inquiry.

 "It's nothing more than a political 'get square with Scott Morrison'," he said.

"[They're] looking in the rear vision mirror rather than in front.

"He should be concentrating on families and less on how he can get square."

'A long time coming': class action plaintiffs celebrate announcement

Felicity de Somerville was a plaintiff in the Robodebt class action after she had $11,500 withdrawn from her account to service a debt.

Ms de Somerville, who had the money refunded but did not have her debt wiped, said she was elated by the announcement.

"It is an amazing step forward for our country," she said.

"The Australian public want to know how did this happen.

"Why did they stop thinking about people and start thinking about money.

"You're sitting on that debt for a long time which then flows into your relationship, the other decisions you make financially and personally."

Ms de Somerville said the royal commission would help restore her trust in the system.

"If I ever became unemployed I would not be accessing Centrelink and I'd rather live in my car," she said.

"The royal commission is going to lead to a real change in our human services sector."