Justice Bernard Murphy on Friday said the use of flawed income averaging tools to raise debts caused vulnerable people financial hardship, distress and anxiety.

Many felt shame and hurt at being wrongly branded "welfare cheats", he said, with some driven to take their own lives.

The settlement distribution scheme had also resulted in a "huge waste of public money".

"The proceeding has exposed a shameful chapter in the administration of the Commonwealth social security system and a massive failure of public administration," Justice Murphy told the Federal Court.

It should have been "obvious" to the government that many welfare recipients do not earn a stable or constant income, he said, and may only be employed on a part-time, casual or intermittent basis.

However, Justice Murphy was not convinced the federal government knew the robodebt scheme was unlawful from the start.

"I am reminded of the aphorism that, given a choice between a stuff-up and a conspiracy, one should usually choose a stuff-up," he said.

The 648,000-strong class action was led by Gordon Legal.

Justice Murphy approved $8.4 million in costs to the firm and said the 680 people who objected to the settlement would be given the opportunity to opt out.

Gordon Legal partner Andrew Grech said the settlement approval would bring closure to the victims of the robodebt scheme, which he described as a "callous" practice.

The automated matching of tax and Centrelink data to raise debts against welfare recipients the government claimed to have overpaid was ruled unlawful in 2019.

The Commonwealth has now settled the case without admitting legal liability.

Federal Treasurer Josh Frydenberg hosed down calls for a royal commission into the robodebt scheme after Justice Murphy approved the $1.2 billion settlement.

Mr Frydenberg apologised for the hurt caused, but argued that similar practices had been used by different governments in Australia over the last 20 years.

He also did not appear to accept that the robodebt scheme had been linked to suicides, describing mental health issues as "very complex".

"Suicides, when they occur, are absolute tragedies," Mr Frydenberg told reporters.

"We apologise for any hurt, harm, hardship, that has been caused by the administration of that scheme."

Jennifer Miller in May said robodebt played a "very prominent" role in her son Rhys Cauzzo taking his own life about four years ago after he was pursued by Centrelink and debt collectors.

Ms Miller objected to the settlement in a previous Federal Court hearing, arguing that no one in power had been held accountable.

"The only thing I've ever had is platitudes - I've been shown no respect," she told the court.

"There has been no accountability. This was proven to be an illegal process early in the piece."

Ms Miller said Centrelink pursued her son despite knowing he had mental health issues and also gave private information about him to the media.

Under the settlement, victims will receive $112 million in compensation, be repaid $720 million and have $400 million in unlawful debts wiped.

Justice Murphy earlier described it as a "good settlement", but also questioned how fair the ultimate distribution of funds would be among the group members.

Shadow minister for government services Bill Shorten said it was a "disgrace" that despite the settlement, no senior public servant or minister had been held to account.

Australian Council of Social Service chief executive Cassandra Goldie said the ruling revealed that there remained a long way to go to improve basic rights for people receiving social security.

"It is indefensible to assert that the government did not realise that robodebt had serious failings from the start, or that it was not alerted to the serious consequences on people including people with serious vulnerabilities," Dr Goldie said.

Lifeline 13 11 14

beyondblue 1300 22 4636

Australian Associated Press