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Standing Committee on Tax and Revenue
Australian Taxation Office annual report 2012-13
House of Reps
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Standing Committee on Tax and Revenue
Sukkar, Michael, MP
O'Neil, Clare, MP
Van Manen, Bert, MP
Jones, Stephen, MP
Mr Lee Walsh
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Standing Committee on Tax and Revenue
(House of Reps-Friday, 28 February 2014)
Content WindowStanding Committee on Tax and Revenue - 28/02/2014 - Australian Taxation Office annual report 2012-13
CASS, Mrs Barbara, Group Executive Director, Performance Audit Service Group, Australian National Audit Office
GLENN, Mr Richard, Deputy Ombudsman, Office of the Commonwealth Ombudsman
JORDAN, Mr Chris, Commissioner of Taxation, Australian Taxation Office
LEE WALSH, Mr Rodney, Senior Assistant Ombudsman, Office of the Commonwealth Ombudsman
LEEPER, Mr Geoff, Second Commissioner, People Systems and Services Group, Australian Taxation Office
LENDON, Ms Alison, A/g Second Commissioner, Law Design and Practice Group, Australian Taxation Office
McLOUGHLIN, Mr Andrew, Deputy Inspector-General of Taxation, Office of Inspector-General of Taxation
McPHEE, Mr Ian, Auditor-General, Australian National Audit Office
MORRIS, Mr Andrew, Executive Director, Performance Audit Service Group, Australian National Audit Office
NEAVE, Mr Colin, Commonwealth Ombudsman, Office of the Commonwealth Ombudsman
NOROOZI, Mr Ali, Inspector-General of Taxation, Office of Inspector-General of Taxation
OLESEN, Mr Neil, Second Commissioner, Compliance Group, Australian Taxation Office
SANDS, Mr Phillip, Executive Director Assurance, Audit Service Group, Australian National Audit Office
WHITE, Mr Michael, Executive Director, Assurance Audit Service Group, Australian National Audit Office
CHAIR: I would like to welcome the representatives from the Australian National Audit Office, the Office of the Commonwealth Ombudsman and the Inspector-General of Taxation to join the ATO at the table for the scrutiny bodies section of the hearing. Although the committee does not require you to give evidence under oath, I advise you that these hearings are formal proceedings of parliament and warrant the same respect as proceedings of the respective houses.
The giving of false or misleading evidence is a serious matter and may be regarded as a contempt of parliament. The evidence given today will be recorded by Hansard and attracts parliamentary privilege. Could we please have your opening statements to the committee and then we will proceed with questions.
Mr Noroozi : You already have our statement. There are a couple of updates I need to provide you with. I will start by just reiterating that the role of my office is to look at systemic tax administration issues only. We have a motto, which says, 'Consult, review, advise, improve.' It reflects our key functions: we consult publicly to identify areas of concern to stakeholders and where improvements would deliver the greatest benefits; a review is then conducted into those areas to explore the various issues and to advise the government or the ATO on how to improve the system.
In the written statement that we provided you with, I had listed reviews that had been publicly released, reviews that are completed but not released and reviews that are ongoing. The Assistant Treasurer, last Friday afternoon, released three of those reports. One of those reports was the review into ATO's compliance risk assessment tools. That is effectively how the ATO goes about identifying areas that they might carry out an audit into, for example. Based on my previous reviews, where we had looked at specific risk assessment tools, and also in this review, we looked at a range of them. We have suggested some improvements to the existing risk assessment tools, but we have also come up with a checklist for designing future risk assessment tools. That is one of the ones that was released.
The other two that were released were part of a package of three reviews directed at individual taxpayers. Of the two that have been released, one was to do with the income tax refund integrity program. A couple of years ago, there was some delay in the processing of returns and refunds. This review looked at that. In fact, the ombudsman had reported on it previously. This review looked at that and found that there had been considerable improvements after the initial round of issues. We have made some further suggestions for improvements. The last one was the ATO's use of data matching. Again, that is effectively another risk assessment tool. But you have been talking about pre-filling this morning and that is a particularly useful function of data matching. Those are the updates of what we provided you with, because—as I say—these were only released last Friday.
Just briefly, there are a couple of other reviews that have been completed or are awaiting public release. One of them is the third of the package of three that I mentioned earlier, which is about superannuation excess contribution tax. That is not completed, but it is about to be completed. The ATO's management of transfer pricing matters, which is a major review in its own right, is completed and with the minister. The ATO's administration of penalties has been completed and is with the minister, awaiting public release.
Then we also have a follow-up review that is not completed yet. It is looking at reviews that I have concluded between August 2009 and November 2010. Basically, it is looking at to what extent the agreed recommendations with the ATO have been implemented. That is roughly where we are at, in terms of current reviews. The other thing I would like to draw to the attention of the committee to is that I am in the process of developing a new program. I have already gone public and asked for submissions, which are due by 21 March. I would be very keen to hear from you, to the extent that there are areas that you think I should look into. If you have not come prepared to do that, we would be very happy to hear from you—preferably before 21 March.
Whilst I have generally called for people to come up with any issues, I have also listed some 10 areas where, since the last program, people have been raising issues with us or issues that have come up in the course of doing other reviews. Those 10 are also listed, which I am happy to share with you. I think that is all I need to say at this stage.
Mr McPhee : I have also provided an opening statement in advance to the committee, which I would be happy to have tabled. Broadly, our work shows that the ATO is well-governed, well-managed and responsive to the matters raised by my office for such a large organisation. I think it is a credit to the tax office.
We are nevertheless conscious of some the changes in governance, such as the staffing reductions and the resource pressures. We will necessarily need to keep these under review in our work as we go forward. We are happy to discuss our work program, regarding audits both completed and in prospect if the committee would like us to do that. I think at this stage I will just leave my opening statement at that. Thank you.
Mr Neave : Thank you for the opportunity to make my opening statement. We have made a submission to the committee, but there are just a few matters that I would like to highlight that comes out of that submission. The ATO is the third highest source of agency complaint for us, behind Centrelink and Australia Post. For the financial year to date, the total number of tax complaints received is 35 per cent lower than for the same period last year. We attribute this to a number of factors.
First of all, in our perception, the ATO has improved its timeliness in communication around tax time. We also like to think that the officers learned from the feedback that we have provided from time to time. Secondly, my office has taken steps to communicate its expectation that compliant handling is the primary responsibility of the ATO, not the ombudsmen. In other words, that is in line with our general philosophy, which is that complaints need to be handled by agencies and departments. The ombudsman is there as a safety net, a helper and an adviser. Under an arrangement called our second chance transfer program, we transfer complaints back to the ATO, which gives it another chance to resolve the issues when they come to us. That is obviously in the interests of the person complaining, because the ATO is well placed to offer a better outcome to the complainant relatively quickly rather than getting, at times, involved in some of the more complex procedures which, of course, happen when there is a written complaint and we have to open a file and consider it.
In many cases the outcome might in fact be very simple—that is, a better explanation of the action or decision taken by the ATO or a better explanation of the applicable legislation. In other cases, the outcome might be that the ATO has made a greater effort to expedite an action or a decision. This arrangement is possible because we consider that overall the ATO has a sound, well-established complaints management process. It works because it places the onus on the agency to identify what could have been done better and to contact the complainant within agreed time frames.
While I am pleased to note the reduction in complaints about delays, for example, with tax refunds, it remains a common cause of complaint. Other common causes of complaint to my office during the year included debt collection activities, audit actions and unpaid employer superannuation, but we provide regular feedback to the ATO on the issues identified through investigation. In 2012-13, my office provided feedback to the ATO regarding the need for better communication where the ATO identifies an issue or a problem that is likely to impact on taxpayers, a point acknowledged by the ATO in its annual report. During the year we raised with the ATO the issue of providing prompt advice to taxpayers about system errors or outages, particularly those which the ATO considers may lead to processing backlogs or unavoidable delays. Providing better information early to taxpayers can reduce the need for a complaint in the first place. We are engaging with the ATO on these and other issues as they arise. As I said before by implication, the ATO has been responsive and cooperative.
My office is currently conducting an own-motion investigation into complaint handling in all Australian government agencies, and this includes the ATO. The aim of the investigation is to improve agency complaint management by showing where improvements can be made in specific agencies and also to get on the record some excellent work which has been done in many agencies and departments; other agencies and departments that might not be performing quite as well can learn from that experience. My office has assisted the ANAO with its recent audit into the ATO's management of complaints and other feedback.
Finally, I would like to commend the ATO again on taking the initiative to provide comprehensive briefings and information to my office on emerging issues and initiatives. We are currently working with the ATO regarding the preparations for tax time. Such work not only enables my office to plan for a potential increase in complaints—hopefully not—on any particular emerging topic but also enables us to provide better information and advice to complainants if they do contact us.
CHAIR: I will kick off questions. I understand the independent review function announced by the ATO was trialled last year and was being reviewed at the beginning of 2014. What was the scope of the trial, and were some business lines excluded?
Mr Olesen : It was not so much a trial as it was our introduction of a new process for large taxpayers to get a fresh set of eyes to look at their disputes with the tax office, so the scope of it was large taxpayers in relation to better income tax affairs. We deliberately started narrowly like that because we wanted to see how the process unfolded and what the issues around it might be, with a deliberate view of doing a review of the process after the first six months of operation, which we have recently completed. As Mr Jordan said earlier, we will now be looking to extend the scope of that review process to large taxpayers in relation to their GST affairs as well as their income tax affairs. Over the coming months I assume we will start that process.
It has been, as Mr Jordan said earlier, a pretty successful process. We are pretty happy with how it has gone. The feedback from the 10 taxpayers who have been through that process has been pretty positive—in fact, very positive. We have taken on board some of the suggestions they have made to us and we will be tweaking some of the process for the coming months.
CHAIR: Can you please advise us on the status of the review of this trial?
Mr Olesen : Yes, we considered that the other day at our executive meeting. There were a number of recommendations that were made out of that review, including the one I just mentioned about expanding the independent review process to GST matters. There were a couple of other recommendations that we also accepted about some of the processes of escalating matters inside the organisation and being clear about who the decision makers are in certain limited cases. We have taken those on board. That review is complete and we are now acting on the recommendations from that review, to put them into effect.
Mr SUKKAR: Mr Noroozi, last year you released a report into the use of early and alternative ADR. How does the ATO's review function differ to what you recommended? And do you see huge advantages in separating some of the functions, particularly around litigation, from an ATO perspective?
Mr Noroozi : Are you referring to the particular recommendation towards the end about the separate appeals area? Is that your main focus?
Mr SUKKAR: Correct.
Mr Noroozi : That particular recommendation was a follow-up to a submission I put to the tax forum in 2011 where, amongst the things I suggested as improvements to the way the tax system operated, was one that we should have a separate appeals area to provide an independent view. So once assessment is issued, if a taxpayer wishes to object to that then it would be handled by a separate area called 'appeals', headed up by a new second commissioner—'appeals', for the want of a better word. That is what was suggested.
In the ADR review I said that while we waited to see what the government does with that, would the commissioner consider running a pilot to see whether that would work? The current commissioner at the time disagreed with that recommendation. Whilst it is not written there, I think the main reason for it was that he believed running a pilot was going to cost just as much as running the whole thing, or close to it, so it did not proceed. There was not agreement on that recommendation.
Subsequent to that we had a new commissioner, and I recall at the office's 10-year anniversary events that Commissioner Jordan said that following on from that he would consult with us about what he had in mind, which was the independent review, and we have had conversations about that. I think that is a step in the right direction. It is not quite the same as what I suggested. I did provide some input into that, which I am sure the commissioner has considered. I think it is a step in the right direction—it has merit.
The way it differs to what I suggested is that the legislation is set up, the assessment is issued and then you object to that. There are a number of issues of difference, and I will outline them as best I can. One of them is that this independent review function happens before the objection stage; so the taxpayer is still entitled to object at the objection time. There are two possible scenarios: one is that when you have had somebody very senior look at it as an independent review, what can then be added on at the objection stage? Is it then purely a rubber stamp, and would that be valid under the legislation? If it is not a rubber stamp, then we have introduced a third layer effectively. Those are some of the issues that I would raise. But I have not made a big issue of it because this was a pilot—something to learn from before they rolled it out. So that was one of the issues that I raised. The other issue is that the pilot is not directed at all taxpayers. The suggestion we made called for there to be a separate appeals area from the moment that an objection is made and for it to be dealt with in that separate appeals area. So those are the differences.
The US has a model that goes even further than what I had suggested, and it is similar in the UK. We used to have a separate appeals area in this country but no longer do as a result of certain reforms. Those are the major differences, but, as I said, it is important to give things a chance. So I am observing to see what happens with this internal review, how far it is rolled out and how successful it is and then I can give you more information. Those are the differences between what I had suggested and what has transpired, but, as I have said, it is a step in the right direction.
Mr Jordan : Could I just make one comment there as well? In addition to the independent review, which did start, as Neil said earlier, for purposes of working out how best to do it with large business, it is now going to large GST, and we are looking at the extent we can cascade that down to the larger private group disputes. In addition to that, we did move the entire objections function out of the compliance group into law design and practice. So we have totally rejigged law design and practice and the objection dispute method. We have created a new group—legal services—that Debbie Hastings—
Ms Lendon : Review and dispute resolution.
Mr Jordan : Review and dispute resolution. If we want to call that 'appeals', we can call it that, but there is a separate group, it is just not headed by a separate second commissioner. So review and disputes is a new group with a new focus that takes all the objections function and people out of compliance. I think that is a key point to understand here: that that is not left in the compliance area. The reason we had this issue around what an objection means was that I did not want two reviews because we have to manage our resources. We talked earlier about losing 900 people. So we will have an independent review done by a senior person in the organisation, typically from the tax counsel network that sits in the review and disputes group under law design and practice. If the objection is done, it is effectively a third layer because you have the compliance group doing it, you have the independent review and then you would have a third group. I cannot see the necessity. It would be a pretty straight forward process if the objection is on all fours with the independent review and there is not new material or anything like that. It could be a very straightforward process to deal with that objection because it has already been dealt with by the highest-level independent people that we would have available in the organisation.
CHAIR: Ali, do you have any comments on what Chris just said?
Mr Noroozi : I think in some ways we have said the same thing in that it is a third step in the process. As I said, even if you have done the independent review, the taxpayer under the legislation is still entitled to an objection. So a third process would be introduced. When I was saying what differences were, I said it was a step in the right direction. The differences are that it is a third step, so I called it rubber-stamping, but I think Chris said it would be a straightforward process if it is being looked at. At the objection stage, the taxpayer's expectations are that they would have an independent look at it. That is the expectation. At some point, to align all of this maybe we do need to think about how it fits in with the legislation the way it currently is. I guess that is the point I am making: it does not sit as neatly with the way our structure is at the moment.
Mr McLoughlin : To add to that point about independence and people being able to access the review function, as you move further down the tree and you are a smaller taxpayer, where those functions are actually activated within the tax office it is effectively costless, in a sense, to the taxpayer. If they need to go to external review through the objections process the cost burden is significantly increased. That is one of the reasons that we focused on internal review and on trying to get that working more effectively within the tax office—to try to reduce cost pressures on taxpayers.
Ms O'NEIL: I have a couple of questions that return to the resourcing issue. But could I clarify: how does the Ombudsman fit in with this dispute resolution question? There is not a separate opportunity for review through the Ombudsman, is there?
Mr Neave : Not in the same way as there would be a review in the manner in which is being outlined here. What the Ombudsman would look at is whether there was defective administration in the context of a dealing between the taxpayer and the tax office. I did not answer your question. If I might spend a moment on dispute resolution, it seems to me that as many opportunities as possible which can be taken in the context of the legislation to focus the mind of both the taxpayer and the tax office on whatever the issue might be is really the issue around dispute resolution. What sometimes happens on the part of the taxpayer, or possibly the tax office as well, is that, until it is starkly obvious that there is going to be, for example, an objection or that it needs to go somewhere else, sometimes both taxpayers and possibly the tax office are not really focused on resolving whatever the matter might be. The general comment I would make about dispute resolution is that, where it is possible in either processes or legislation to have a very clear focus on the need to actually deal with whatever the issue might be, that should be built into processes and procedures.
Mr Jordan : Could I take this opportunity to table a one-page document entitled External governance arrangements for the ATO. It tries to put in pictorial form the various bodies that are our scrutineers and oversight and describe that. I thought it might be useful to have a picture—a fairly busy picture. There is enough going on. As an organisation we welcome oversight and input. I thought that might be useful. We could provide an electronic copy of that for other committee members who may not be present.
CHAIR: Is it the wish of the committee that the document entitled External governance arrangements presented by the ATO be taken as evidence and included in the committee's records? I have a nominator and a seconder, so that is agreed.
Ms O'NEIL: Mr Jordan, as a committee we will probably be dealing a little bit with this issue, and it would really help me to have a diagrammatic illustration of how a dispute is put through the system. I am saying that to you—and in addition to the options of the Ombudsman and any bodies for review that are available to a taxpayer with a dispute. It would be incredibly helpful.
Mr Jordan : We can provide this as an A3 copy, which shows this whole new process. I do not have that with me, but we can certainly provide it.
Ms O'NEIL: That would be great. Thank you so much. I want to return briefly to the issue of the job cuts. It is really hard for me to believe that you can cut four per cent out of the workforce and not have any impact on what the tax office does in delivering for the community, which is collecting revenue and providing customer service, basically. Can you guarantee for us that in making those cuts and redundancies there will be no negative revenue impact?
Mr Jordan : I do not think I am in the position to provide a guarantee. What I am in a position to do is provide an assurance that we will be focused absolutely on protecting the core function of revenue collection. I am not pretending to say there will not be any other impact on the activities that the ATO has done. We cannot.
Ms O'NEIL: Would you acknowledge that there will have to be either a reduction in customer service or a reduction in revenue collection as a consequence of the cuts?
Mr Jordan : We will be focusing on maintaining the revenue collection side. We do have to look at some of the service standards. Geoff mentioned that 80 per cent of calls within five minutes is part of our service standard. That might have to go to 70 per cent or 80 per cent within 10 minutes. These are the sorts of choices that we are going to have to make. I did say earlier, though, that part of this reinventing of the ATO was to streamline part of our internal processes. There are areas within the ATO that we were looking to de-layer and take out some of the middle management that was there because of the process itself. Maybe the process is not actually required, or does not add, particularly. Our integrity adviser, who is on there, is signing off on all of these process changes and so is the ATO Audit and Risk Committee, which is made up of a number of external parties as well. That is the first effort. But I cannot sit here and pretend that if we take 1,000 people out of our organisation it is not going to have some impact somewhere. What we have got to work through is: protecting the core function of collecting the revenue is a given, but what are the areas least likely to impact on service delivery? That is part of the work that we are currently doing.
Ms O'NEIL: Does the ATO have any research that it uses, or rules of thumb, about how reductions in customer service standards relate to revenue collection? You were talking before about—
Mr Jordan : That is a good question.
Mr Leeper : I am sorry, I am not aware of any. The issue here is that it may be possible to make the experience slightly less convenient for people without impacting on their commitment to pay their tax on time. That might work for a year or for two years, but over time there is going to be an impact. We do not have any studies of that, I am sorry, no.
Ms O'NEIL: Okay. We read today that you have had quite a lot of interest in taking redundancies. Can you provide us with the numbers of redundancies across revenue collection versus other parts of the tax office? You can take that on notice if you would like.
Mr Jordan : We are in the process of reviewing 2,187 expressions of interest, or something of that order. Clearly that is in excess of our target of 500. They are from across the board. Having expressed an interest does not mean that it is automatic.
Ms O'NEIL: I understand that. I am taking from what you are saying that you have had interest from the people working within compliance and revenue collection. It would be great to understand where the numbers have fallen.
Mr Jordan : Yes.
Ms O'NEIL: We understand the cultural change program that is taking place within the ATO and applaud those efforts. I think what you are doing is really exciting. Have you set down clear metrics across a timeline of how you will measure the success of the program in tangible ways?
Mr Jordan : We are in the process of finalising that. We are actually taking some baseline staff surveys on these topics to have a baseline to move forward with.
Ms O'NEIL: When were the surveys done?
Mr Leeper : They are in the process of being done now. We are sampling staff to get a feel for the mood of the organisation, to give ourselves a baseline.
Ms O'NEIL: It is probably going to set a pretty low baseline, is it not? Is this the best time to be doing that sort of review?
Mr Leeper : There is never a best time to do these things. You do them when you need to do them and you move on.
Mr Jordan : We also have annual engagement and wide surveys that we are now doing, not separate to, but part of, the Australian Public Service Commission whole-of-APS surveys. That is quite a wide area. As Geoff referred to, we are just trying to narrow it down to the mood of the place.
Mr Leeper : By and large, the State of the service report says that ATO staff understand what the organisation is about, they are proud to be part of the organisation and they are committed to providing an effective tax system. That gives us a very good base with which to work.
Ms O'NEIL: Yes. Would you say, Mr Jordan, that you are being less ambitious about how much you can improve that culture, given the redundancy cuts that are taking place?
Mr Jordan : I cannot deny that this is making it harder. So, yes, this will make cultural change more difficult. Change in itself is often difficult for people to deal with. It is often something where you have got to be very careful in the way that you manage, communicate and achieve that change. In an uncertain environment, in an environment in which our budgets are being reduced, that will probably make the pace of change slower and might make the ambitious nature of some of our change program less easy to implement over time. It is a long-term process, though. I hope we can maintain the momentum, because we have some pretty exciting plans. I can provide you with some further information—another A3—that does provide a picture of our change process and our 2020 vision. It sets out some of the strategic directions we are looking at.
Mr VAN MANEN: My questions are directed more to the Inspector-General of Taxation. Firstly, how will the closure of the Australian Valuation Office affect the administration of valuation matters—both for the purposes of your work and for Mr Jordan.
Mr Noroozi : Some time before the announcement of the closure of the AVO, we had announced that we were going to look at the ATO's administration of valuation matters, which is broader than just the AVO—that whole space. As you probably know, I am now in the middle of that review and I am precluded from speaking about the review until it is finished and the minister releases it. I do not want to be unhelpful, but I am constrained in what I can say. I am sure the commissioner can be more helpful, because he does not have the same issues that I have.
Mr Jordan : We are a relatively small customer of the AVO. The largest customer by far—I think about 85 per cent—is DHS. It is largely to do with property valuations and entitlement to part pensions. Most of the use of valuers from our side of things is not about property valuations. It is typically valuations of businesses, of royalty flows and that sort of thing. By and large it is not done by the AVO. It is done by a panel of private sector valuers that we use as and when required.
Mr VAN MANEN: There has been a bit of discussion about the job cuts. Can you please outline a bit of the history of how it has got to that in the first instance—where those reductions in budget have come from?
Mr Jordan : The ATO's budget, as of May of last year, was at a certain level. Decisions made by the previous government and decisions made or announced by the present government have contributed to the change in our forward resourcing. It is about $600 million over the forward estimates period, just over half of which is attributable to decisions of the previous government and just under half of which is issues such as the closure of the AVO, the announcement of the future of the Australian Charities and Not-for-profits Commission and the abolition of the minerals resource rent tax. While some of those things are announced but not yet through the parliament, our planning has to take account of the possibility that they occur. All of the things we are talking about around staffing reductions have had their genesis since the second Tuesday in May 2013.
Mr VAN MANEN: Would that also include any functions in relation to the administration of the carbon tax?
Mr Jordan : Yes, there are impacts on the ATO. That is part of the resource change as well.
Mr VAN MANEN: What you are saying is that some of the resource changes since the new government has come in are the result of the fact that taxes are being removed from the system such that you are not going to have those administration requirements going forward—as opposed to previous changes which were related to efficiency dividends.
Mr Jordan : Yes, it is a combination of decisions affecting specific functions and—and this is the majority of them—the application of general efficiency measures affecting the APS, of which the tax office is a part.
Mr VAN MANEN: Those were in the previous budget.
Mr Jordan : In the budget and part of the pre-election fiscal outlook decisions.
Mr STEPHEN JONES: I want to follow up the issue which my colleague Ms O'Neil was talking about, regarding the impact of staffing changes on the capacity to recover. I want to drill down into one specific area which has a big impact, not necessarily on government but on taxpayers, and that is the capacity to chase debt in respect of superannuation. I am looking at page 55 of the annual report, where you advise that you are unable to collect $188.9 million in superannuation payments that were due to employees. It looks like the vast majority of that is because they have gone into administration or some form of insolvency. I note that there is about $15 million that you say is uneconomical to collect. What makes that debt uneconomic to collect? Is that number likely to go up? Is this one of the areas where you are going to be unable to recover debt?
Mr Leeper : It would be a very large number of very small debts. There are really only two categories for setting aside debt. One is that for the time being we cannot find a way of pursuing it. Internally, the word 'waiver' is used, which I struggle with because most people in the street would say 'waiver' means you set it aside forever but in the tax office 'waiver' means we put it aside and if you pop up again later we will come and find you. But 'uneconomical to pursue' is almost always associated with a very small amount of money which would not be worth our while chasing. We probably even tried to collect it through one of the mercantile debt agents that we use, and even they have not had success. I can take that on notice if you wish, but it is almost certainly large numbers of very small debts.
Mr STEPHEN JONES: Is that an amount of money which is small to the tax office or small to the individual employee, who is either—
Mr Leeper : I will take it on notice if you want me to be precise, but I would expect it would be relatively small to the individual. We are probably talking hundreds of dollars, rather than thousands.
Mr Olesen : I am pretty sure that around super guarantee we have lower thresholds than we have for other kinds of debts because it is other people's money; it is not a typical piece of revenue collection. I need to check that, but my memory tells me our thresholds around collection tolerances and what is economic and not economic are set at a lower level than for other kinds of debt collection.
Mr STEPHEN JONES: Thank you for that. I would also appreciate, if you can, in the same communication a breakdown of how many employees are engaged in chasing debt—or in this function, let me put it that way.
Mr Leeper : Do you mean within the superannuation debt function?
Mr STEPHEN JONES: Yes, those who are in that function at the beginning of the current financial year and after this round of 900 goes through. If you could provide that communication, that would be very good. Is that clear?
Mr Leeper : Yes.
Mr Olesen : Yes.
Mr STEPHEN JONES: I do not know whether any of the other agencies would care to comment on this particular function?
Mr NOROOZI : The only thing that I would say is that that is listed as one of the things we may look at—the ATO's handling of debt collection.
Mr STEPHEN JONES: I am particularly interested in the superannuation component because it is different to a lot of the others.
Mr McLOUGHLIN : We have looked at superannuation guarantee as a particular review item. Some years ago, there were a number of recommendations that have been picked up by government. Some of those will assuage some of the impact of problems that were existing, and that may be historical as well, that are still within the numbers; I do not really know. The ATO can obviously answer that by taking the question on notice. There were particular issues that did arise, at the time we were doing a review, around collections and about payment arrangements and other issues. I think some of those concerns around collections have been addressed but—
Mr NOROOZI : For example, one was director penalties. I believe the legislation went through on that. The copy of that report is on our website, which I can provide to the secretariat if you like. It talked about some of the concerns about collection.
Mr Olesen : Just around the super guarantee, I would make the point that the biggest thing that helps in collection of unpaid super guarantees is the point in time at which we become aware that super is not being paid.
Mr STEPHEN JONES: I can understand.
Mr Olesen : Typically what happens is that employers run into cash flow problems, they seek to manage that, some remittances to us fall away, some remittances to super funds fall away and then we are chasing the tail, which is why such a large amount of that is in fact employers going into insolvency. By the time we get there, it has all come to a head and we only get a certain share in the dollar of the amounts that are owing to us.
I guess the other point to make is that, if you look at our reports over the years on this, our collection rate, our success in raising liability, our success in collecting that debt and our success in transferring that to the employees to whom it is owed have been increasing quite substantially over the last five years. So we have been doing pretty well there, relative to our past performance, in successfully chasing employers, raising that debt, collecting that debt and passing it on to employees.
Mr Leeper : I can update those numbers if it is helpful. In the first six months of 2013-14, the equivalent figure of being unable to recover because of entering insolvency was $81.3 million, so that is less than half of the previous year. We did not pursue $6.9 million because it was uneconomical to do so. Again, that is less than half of the 2012-13 figure. But I do not have the data on actual numbers of staff involved in this activity. I am sorry.
Mr STEPHEN JONES: Thanks, Mr Leeper.
Mr McLoughlin : It is a particularly complex issue. One of the issues that we identified through the review process was that issue of timing and being able to make sure that the agency, or the administrator in the ATO's case, was aware as soon as possible so they could take action. One of the difficulties is that a lot of employees do not feel that they can make a claim for fear of causing an issue with employer groups. We spoke to a lot of the Fair Work related agencies—state based as well as federal—to try to get some sort of insight into what was causing the underlying problems. So a lot of the attention that has been directed has been the ATO seeking to get more in front of the game, which has certainly arisen or been improved upon since the original report was released.
Mr STEPHEN JONES: Thank you for those answers. The final question refers to pages 39 and 40 of the annual report and goes to the broader issue of debt collection. It seems you are doing well, I have to say, based on the data that is provided here, particularly in relation to debt collection ratios per employee. They have increased, by the looks of things. But I am just looking at that general trend in the increase in collectable debt. Is that an economic cycle issue or is there something else going on?
Mr Leeper : It will be a range of factors. You are correct to point out that between June 2012 and December 2013 the collecting efficiency of our staff was up by 13 per cent but collectable debt is still rising. There are a number of forces at play here. Dun and Bradstreet track payment terms by companies. Typical payment terms are about 52 days at the moment, but for large businesses it is running at 56. Most of our debt is small business activity statement debt, so you can well imagine that there is a kind of cash flow crunch going on here, and that is something we are looking into. The commissioner and I have had several conversations about this. One of the things we think might be at play here is that, because the fact of a debt to the tax office cannot be disclosed to the markets because of secrecy provisions, there are no credit reference consequences from being in debt to the tax office. You certainly would get failure to lodge or general interest charge consequences, but being in debt to us does not affect your credit rating. This is a matter for government to consider at some point. The only way around it that we can think of is to propose that the Commonwealth as an entity have the ability to advise a credit market, 'Geoff owes $41,000,' without disclosing the nature of that debt.
Mr STEPHEN JONES: I can understand why with short-term debt, but surely a debt that has aged two years or more—
Mr Leeper : It is all covered by secrecy provisions, so unless we can construct some other way of advising the credit markets—but, of course, all you are doing then is trying to elbow your way to the front of the queue, and the small business person is still trying to pay the bank, the material supplier and things. So it is not a simple issue. We did notice that collectable debt went up as a consequence of the global financial crisis, and certainly the Small Business Association—correctly, in my view—praised the tax office for taking a more accommodating stance on debt during that particular event. We are not collectively out of the woods yet, but you would expect that at some point on-time payment and on-time debt performance should now be improving. It is a combination of factors. But we do think one of the mains things is that a debt to the tax office, whilst it sits on your books, does not actually have credit reference implications. That is a policy matter for government's to consider.
Mr STEPHEN JONES: By definition, that collectable debt does not include insolvency?
Mr Leeper : No, it does not. It is one of three buckets: it has been raised and disputed, which is mainly out of the compliance area; it has been raised and is collectable; or it has been raised and it has been put in insolvency. We measure the trends in all three areas.
CHAIR: The non-payment of superannuation might be a symptom that all is not well with the business. Has the ATO received any feedback on the outline business viability assessment tool that it provides to assist businesses manage cash-flow and debts? Does the ATO use this tool to provide an early warning about businesses that may be close to insolvency?
Mr Leeper : The business viability assessment tool is something we provide on our website for businesses to use. Our staff, in certain situations, will take a business person through that tool. You have heard these stories of where we go through this and say, 'There doesn't seem to be a functioning business here,' and the person says, 'Gee, that is strange; that is what my accountant says, too.' So the tool is verifying what is independently being done. We have also got a cash-flow analysis tool. We are looking at two issues: are they able to service the debt, and what implications does it have for their cash flow? The feedback we get is that businesses and debtors find those tools very useful, but I could not go any further than that in terms of the broad feedback.
Mr Jordan : In our assessment of a payment plan where a business has a debt to us, we use this tool to see how much free cash flow, if any, there may be from the business—how much they need to live on and service other debts and, therefore, what might be available to service the tax office debt. That tool was designed by an external firm—one of the big four accounting firms. They used it for their assessment of businesses, and they made it a little bit simpler. So it is a commercially developed tool, and it is very appropriate. We loaded that up on our website so we can say to people, 'This is what we use to look at your viability so why don't you have a little look at this?' We have also, in conjunction with that, provided more useful benchmarking data on various industries and suggested to small business operators, 'Why don't you see where you sit in the benchmark figures? Plug your own figures into this viability assessment tool and see how you look. If you are sitting at the bottom of benchmark figures and you do not come out of this assessment tool looking very good, you should do something about your business because you are not looking very viable.' We are trying to provide information and tools that we have previously only used internally in a more public way as a service to say, 'We have this information and it might be helpful if you analyse yourself against that information.'
CHAIR: When you provide this tool on the website and it is being filled out, short of walking somebody through it, do you have access to the data that they are putting into it?
Mr Leeper : I would not have thought so, no. It is included as part of our Small Business Assist suite of products now as well. In effect, somebody is opening up a webpage and putting some data into it; but, as far as I am aware, it does not transmit to us—it is just there as a screen—and when they close the page the information is gone.
Mr SUKKAR: To round out the earlier discussion—this is directed to the ATO—around your transformation process and how you will arrange that in light of a reduction in headcount, you also mentioned earlier that you had done a little bit of work with comparable revenue agencies in other jurisdictions. I think you mentioned Norway and the UK. Have you had a look at the recent reductions in headcount in the UK, New Zealand and Ireland, or any other jurisdictions that are comparable in complexity to ours, to gain some confidence that, as part of that transformation process, the ability to simultaneously reduce headcount, maintain standards and still increase revenue collection is achievable provided increased information technology and other things are undertaken?
Mr Jordan : I should say that New Zealand Inland Revenue has actually grown substantially over the last two or three years, so they are against that trend. I am not aware of what work we have done in conjunction with the UK. They have had significant reductions in headcount. I am not sure whether we have done any comparisons yet. No doubt that is something we can factor into our progress along that path.
Mr SUKKAR: Have you done any assessment of where we sit, relatively speaking, in terms of headcount and revenue collection? I would have thought that is a pretty fundamental place to start.
Mr Jordan : I am aware of that figure we mentioned earlier in terms of dollar costs and revenue collection and we come up relatively well, I understand, on that—0.9 per cent cost of gross revenue collected. I recollect that we are reasonable on that scale. I am not sure of any comparative data on headcount and revenue collected.
Mr Leeper : I think the OECD forum on tax collection from time to time does a broad descriptive comparison of revenue agencies—and we can look inside that. When looking at ratios of revenue to FTE you have got to be careful that you are comparing the same tax systems. Typically, European tax administrations—some at least—might be involved in the collection of social insurance premiums as well. So you are not comparing like to like. But I do recall such a table. We will get it out and see if it adds anything to the conversation.
Mr SUKKAR: Clearly our self-assessment system is a bit lighter than some European jurisdictions—so I get that point.
Mr Leeper : The UK, for example, has a system not unlike the Scandinavian countries. You get what is called a personally calculated tax card, the intention of which is to make sure you get to the end of the financial year with no business to do with the tax administration—so it is finetuned in that way. But still I think about one quarter of their population need to launch an individual tax return; in Australia, it is everybody. So there are broad differences in how the administrations operate.
Ms Lendon : It is also true to say that, to help manage reductions in budgets more broadly across revenue agencies, there is a much heightened focus on trying to provide more tools and support for people to help themselves. So there is a lot of focus around the move to electronic services and that kind of thing—and we share information and learnings around that as well.
Mr VAN MANEN: My question is addressed to the Auditor-General. Could you please explain to the committee the importance of the accuracy of the tax expenditures statement and the work you do in regard to that? What role does the ATO have in compiling that? Could you also explain, if necessary, whether any improvement by the ATO is required to improve the accuracy of that statement?
Mr McPhee : Firstly, we do not have a formal role in reporting on an annual basis on the tax expenditure statement in the same way that we do in reporting on the financial statements of the tax office, and the tax expenditure statement is prepared primarily by the Treasury. However, we have done at least two performance orders on the tax expenditure statements across the years. The last one was probably two years ago, or thereabouts. I might ask some of my colleagues to see if they can give me a hand with some of the other areas in your question, but I think it is largely driven by Treasury with some assistance from tax.
Mr Morris : Certainly the ATO does have a role in some of the data items that make up the individual tax expenditure items. In the last audit that we did, we did not look at the methodology behind the particular statement items but we were looking at the reliability of the data. In the first audit that we undertook, the reliability of data was low in a lot of instances, and we actually went to the extent of rating it as low, medium, high and various other categories. While some of that responsibility is with Treasury, some of it is also with the ATO. The ATO has been working with Treasury in some instances to improve the data, but probably our overall finding from the last audit was that the data had not really improved significantly between 2008 and 2012.
Mr VAN MANEN: Mr Jordan, would you care to comment on the work that the ATO puts into assisting Treasury with preparing that information?
Mr Jordan : I am not really in a position to do that. I have not seen that in specific terms.
Mr Olesen : I can confirm what the ANAO are saying. We play a role with Treasury. Treasury are the owners of that statement, but we lend them a hand because we have a lot of the data about what is happening in the tax system. We worked with the ANAO on the audit that they did last year. They made some recommendations which, from memory, we accepted. As Andrew was saying, that had to do with some of the data holdings that we have and the way in which we assist Treasury.
CHAIR: Earlier today we discussed the ATO's methods for measuring the tax gap. Do any of the scrutineers have a view on what we discussed earlier?
Mr Olesen : At the moment, when we think about measuring the tax gap, we tend to look at what the ATO does in terms of what they call their compliance effectiveness methodology. That basically looks at the risks for a particular tax and how those risks are being mitigated or treated through the compliance activity that is being undertaken. Although we have an audit being undertaken at the moment that is looking at the compliance effectiveness methodology across the ATO, we have tended to look at it, where we could, in the audits that we have done. For example, we did an audit of the small business sector the year before last and we looked at the work that had been done in terms of determining whether the compliance activity had been undertaken—I am talking about audits or reviews or any of the education activity that has been done. We looked at how the ATO had measured that to say how it is actually treating its compliance risks. That is how we tend to see how the tax gap is addressed. We accept the fact that the ATO does not measure the tax gap and that it would be a very time consuming and costly exercise to do so. But we see this as being the alternative to that process.
Mr Noroozi : The discussion was centred around the need to do random audits. Random audits are useful for measuring the assessment of your risk assessment tools. We did a review of cash economy benchmarking. The tax office had a strike rate in the mid-twenties—and I said they could do better than that. In the absence of a placebo—in other words, a purely random sample—there is no actual metric to prove that you are getting a better result by using a particular risk assessment tool versus just doing random audits. The benefit of doing random audits is that you can also use the result of that as a feedback loop when you design your risk assessment tools. Whilst random audits do have benefits other than purely doing tax gap, you can use them to improve your risk assessment tools' performance and also to have a justification for using those risk assessment tools.
Whilst I am not coming down on either side of whether we should do them or not, I think it is important to take into account that random audits have a place. Obviously, that has to be counteracted with the costs involved and the inconvenience caused to otherwise compliant taxpayers. But I think these all need to enter the argument as to whether to conduct random audits or not.
I think for other jurisdictions that the commissioner did say earlier on that many OECD countries do them. It tends to be not so much at the very large end of town, because usually the revenue agency has quite good information. My understanding is that it is usually for the high-wealth individual SME area and individuals that random audits generally take place. Usually revenue agencies have pretty good information for the very big end of town, particularly if they are publicly listed and so on. Anyway, that is my contribution to the random audits.
In relation to the whole idea of tax gap; I remember having conversations about this with a number of commissioners, both here and overseas. The argument often is that they may be so out of the ball park, but you could say that with all kinds of forecasting. Forecasting is never exact. Some revenue agencies in their annual report, for example, explain, 'Yes, this is what we said as part of our gap analysis; what we collected is this much and these are the reasons for it', after the fact. Unless you have a figure in mind—I know there are alternative ways of doing it—there are certainly benefits to doing random audits. But I guess that has to be balanced against the cost of it and the inconvenience to otherwise compliant taxpayers.
Mr McLoughlin : If we were ever doing a review, one of the issues that we would have to look at is that everyone thinks it is a good idea in principle but there are these particular costs—and they are clearly there. The tax office is aware of them; we are aware of them as well. And there is the inconvenience to people who really have not done anything other than do their tax returns correctly—it is obviously a burden. But is there possibly a way of mitigating that by compensating people who have been displaced in order to find out what you do not know? Those are the sorts of questions: how do you actually look at a point in principle and agree, 'Okay, that is a good principle'? What is a way of trying to effect it in the least inconvenient way that you possibly can?
Mr Olesen : It might help the committee to understand that the Australian Bureau of Statistics updated their estimate of the hidden economy last year in one of their publications. I cannot recall the name of the publication or the date at the moment. They originally did an estimate in 2003 and last year they updated that estimate. They based their estimate, I think, on an analysis of the national accounts and maybe some survey work they did as well. From memory, their broad conclusion was that the size of the hidden economy had remained pretty stable over that 10-year period between when they originally did their measure in 2003 and the measure that they updated last year. Now that is not the entirety of the tax gap, but it is a component—possibly a key component—of the tax gap. Just for the information of the committee, I thought that might be interesting to mention.
CHAIR: That would be one of the more difficult areas to determine: the tax gap as opposed to GST, possibly?
Mr Olesen : It is an area where you have to invest, as Mr Noroozi was saying, resources in random audits, because you would need to go into those random samples of businesses to understand what the level of compliance was. I just thought I would signal that for one of the considerations for that part of tax gap that the ABS has attempted an update of their estimate. They published that last year and their conclusion was that things had stayed pretty steady there over the last decade. I think that feeds into the debate.
Mr VAN MANEN: I would probably change direction a little bit. My question is directed to Mr Neave, in relation to the complaints that you receive as the Commonwealth Ombudsman in relation to the ATO. In your opinion, how many of those complaints could be mitigated, or reduced, by the ATO having a more positive community engagement process? In other words, being more proactive in getting out and speaking to various groups?
Mr Neave : My overall experience in the complaint-handling industry has been over many years now—and previously as the financial services ombudsman—so I have a pretty good understanding of the need on the part of organisations to appropriately engage with the community. The feeling I have is that one first of all has to engage in an appropriate cost-benefit analysis, because one would hope that a better understanding of what the role of the ATO might be in the community would make sure that the community is more understanding of the fact that the ATO is really only trying to do its job; it is not trying to make life difficult for the community. And of course the job that it does is critical to the fiscal stability of our country. So the messages which are given both generally and specifically should explain, particularly to community groups, what the role of the office might be. There are a number of key organisations around the country which are very close to the community—for example, financial counsellors and a whole range of community organisations. One of the matters which no doubt, to an extent, the ATO is engaging with already is to provide good information through community groups about what it does and how it does it, as well as making sure that they have appropriate engagements with professional organisations—accountants, lawyers and others.
To wrap it all up, I think a good understanding by the community of the role of the office is critical. I think also that members of parliament can help with that too, because if any group is close to the community it is the members, who have people knocking on their door on a regular basis, seeking help with the sorts of problems that you deal with extremely well, I might say, from a distance. I was trying to wrap it all up by coming up with a summary and a whole lot of other thoughts came to my mind! I think it is a sound investment, what the ATO is already doing about explaining its role, and I think that that can only develop further the good foundations which it already has in its community engagement program, as far as I can see.
Mr VAN MANEN: Could I extend that question to you, Mr Jordan, as to what your plans are in that space—to continue to develop and improve that?
Mr Jordan : As we have said, we have to do a cost-benefit analysis of things. It is an area where I am very keen to maintain as strong a presence as possible. I am very strong on ensuring that the leadership group, the 250 or 260 people that we have in this overall leadership group, down to the band 1s—the senior executive service—all play a role. I use the analogy of opening the doors and opening the windows: it is not just to let us out but to bring people in and to provide a safe and trusted environment for people to come into and engage with.
Mr VAN MANEN: Because you would agree that, at the moment, that is probably not quite the public perception of dealing with the tax office.
Mr Jordan : I keep using my dental analogy—that people do not really ever want to go to the dentist but they know at some point they will have to. So my challenge is to make interactions infrequent, quick and painless. And that is really setting, in all seriousness, the fundamental platform of our future reinvention and service offerings. They are around contemporary service and infrequent, quick and painless interactions. We dress that up with a whole lot of other, big words and lots of A3s and that; but that is it, if you want to know how to explain it.
It does cover many layers. I recall going to the non-English-speaking background forum at Parramatta—Geoff went to the Melbourne one. They crave information and we provide a lot to them. These are sometimes quite small language newspapers and radio. People say, 'You send someone once a month to come on my radio program; can we have them once a week?' They say, 'You provide this information once a quarter; can we have it every month?' So there is a craving, and they play an important part in pure information dissemination. They are not trying to have a go at us. They are not trying to trip us up. They want information, to give it to their communities. So I want to keep that going.
We provide YouTube videos in a variety of languages; I want to expand that. I want to make that really well known, because people like that form of engagement these days. That is why the individual app was really important to me—and now there is the small business functionality and we are adding the superannuation one in a couple of months—because that links people through to a whole range of various language YouTube products, because that is what people want these days: a two- or three-minute explanation of something. Through the eight stewardship forums we make sure that we have good engagement and widespread community engagement. I am encouraging the leadership group to get out and talk to places. I do a lot of that. Geoff, when we were at the Wollongong opening a week or so ago, spoke to the local Illawarra chamber of commerce, and we want to do more and more of that. We do have to make choices going forward, though, and the core function of revenue collection is at the top of that, but I do see this as important to keep that 96 per cent of revenue coming in.
Mr VAN MANEN: But do you believe that, if people are better informed and those areas of resistance are broken down through a better level of public interaction and communication, that will actually make your job easier to achieve that ultimate target, which is revenue collection?
Mr Jordan : Yes, I agree that that must be a result. If people understand the system a bit better and understand their obligations, most people will comply. If you do not speak English at all or as your first language, we have to make sure, through the NESB media outlets, that we can provide relevant, tailored information in a very simple form. We can do better at making it simple, I think, and that is certainly something that I want to work on over the course of this year.
Mr Olesen : I think it is a role for school based assistance as well. For many years we have had a tool available for teacher to use as part of the civics programs inside, including high schools, to help them educate kids about the role that tax plays in their society. We refreshed that last year or the year before and relaunched that into a more modern format. The take-up of that by schools and teachers around the country has increased quite significantly as a result of that. I think that is all part of it too—trying to improve the understanding.
Mr Jordan : Also on that point, I think the trial of last year went really well. It was a joint effort with Centrelink and the tax office to provide through Facebook how you might get student benefits, how you get a TFN and what your obligations as an employee are. We did this sort of live chat thing through Facebook, and I think that is a great innovation that we have to do more of, because that is the means of communication. When I talk about us getting into the email age, my 25- and 20-year-old sons do not use email any more. They have already gone beyond that. It is all into the social media, Facebook and that type of approach to things. So we have to align ourselves with the way in which people get information rather than say, 'We're always going to write it on a piece of paper, fold it up and put it in a letter and post it to you.' That is not the way of the future.
Mr VAN MANEN: So do you have somebody within the ATO who is responsible for your social media strategy and policy? Through the chair, I might suggest it would be interesting from my perspective to get a fuller briefing from them on what is actually available so that we can push that out to our communities as well.
Mr Leeper : We certainly have a communications area that is responsible not just for monitoring but also for devising strategy. There is a website group, and we use a range of social media—Facebook and Twitter. It is actually the most effective way to get your letter to the editor published now—to actually tweet that you have put one up and just attach a link to it. Whether or not the paper publishes it, you still have it out there in social media. So we would be happy to provide such a briefing if the committee would like to do that.
Ms Lendon : Another little example we did a couple of weeks ago was linking into a professional discussion group around superannuation through LinkedIn, and that was a great way. It was an hour of time and it just tapped into a whole lot of people who had questions. It was a very efficient way of getting your message out but also helping with the questions that they were facing. So it was a very useful thing to do.
CHAIR: I have a little comment on that. I think the five pillars of efficiency, simplicity, equity, policy consistency and sustainability are simple headings. The simplicity, the efficiency and the equity really hit home. But there is a new, transformational culture. My understanding is that the reason more complaints go to the Ombudsman than directly to the ATO is that fear. You can see that this could so easily change, because I think it is such an advantage for the taxpayer to have those first three pillars, understanding that we need to achieve that sustainability. So the feeling that I think we are getting—certainly I am getting it—is that that is in progress.
Just going back to what our Treasurer talked of last November—that he had deep reservations about the ATO being both an administrator and a prosecutor—I would ask: just how independent is the independent function announced by your office given that it is still staffed by ATO staff?
Mr Jordan : We will never get around the fact that people within the ATO are employed by the ATO. What we are ensuring in this independent review is that they have not been involved in the matter and they are bringing a fresh and independent set of eyes and thought to the matter. It is set up to ensure that they take a fresh look. As I said before, I think that out of the 10 completed cases four—actually 4.5 because one taxpayer had two issues—went in the taxpayer's favour. That is a pretty strong starting base, so that looks pretty independent to me.
Whilst the way the government structure the ATO is a matter for government, if you do set up an independent body to do that then what work will they be doing? They will just be looking at the prosecution of matters. They will just be seeing the worst of the behaviour of taxpayers, and that in itself will simply build up a culture over time. So I think we have to look at changing the culture within the ATO and being able to refresh people and rotate people through as well. We offer a fairly broad-based career path for people. I am not sure what an agency that just prosecuted tax cases would look like after 10 years, because that could involve its own cultural issues. Yes, you would sever it from the ATO, but what would it look like? How would it attract people? What sort of career path would it offer in its own isolated existence?
So we are trying to make sure this independent review function works. We are looking at cascading it, as I said, into down levels. It is a resourcing issue, though, because, as you can imagine, it is quite intensive and requires the highest levels of technical expertise that we have.
CHAIR: Ali, could you comment on that and what your feelings are. Can it be improved by further separation?
Mr Noroozi : I kind of said my piece earlier on when Mr Sukkar raised it. The only thing I would add is that I think the Treasurer or I, at the time the shadow Assistant Treasurer asked us back in November, said that he may go as far as taking it out of the tax office but did not necessarily say that that was warranted. In my submission to the Tax Forum, I discussed that and I said that you could draw comparisons with crime, where you have police being the executor but the DPP being the prosecutor, but I came down on the side of saying it should be kept within the ATO, just because of the efficiencies and the delays involved. If you had it in a department outside the ATO, the dispute cycle might be much longer. So, whilst it may have some advantages, it will have some disadvantages, and those need to be weighed up. As I said, I went for the position where it would be within the ATO but a separate appeals area.
Having said that, the new commissioner—not so new now—came up with the independent review, and we are giving that some time to see how that progresses. We have not done a review into that, but we are giving it time and, before I pass final judgement, I would like to see how that progresses. I would probably counsel against moving the whole thing out of the ATO, because that would introduce significant delays in the process, but I do think an as independent a process as possible within the ATO would be the way to go. Whether the current independent review achieves that remains to be seen. Certainly, from what the commissioner just said, there are some positive results.
Ms O'NEIL: On this point, I am genuinely not clear on what problem we are trying to solve by taking this function out of the ATO. Can you tell me a little bit about what the problem is and what the evidence is that the problem exists?
Mr Noroozi : Much of this is addressed in my submission to the Tax Forum, which I am happy to provide you with. There were a number of issues. We had done a separate review into how the ATO handles objections. At the time, many of the concerns were that taxpayers expect an as independent as possible review at the objection stage. That was not happening in some instances. In fact sometimes the objection officer would be junior to the original decision maker and they felt that there was not sufficient separation. They were not getting a fresh set of eyes, effectively. Also, when we did the ADR review, for example, one of the things was that the AAT reported that in that period over 90 per cent of disputes were settled before the registrar before they proceeded onto hearing. There was also background of that at the time. The ATO did not have a great track record for decisions going to the High Court. As I suggested, the reason for a separate appeals area was, firstly, to provide a more independent look at the issues and, secondly, to strengthen the litigation—what cases are chosen to take to court and how those cases are run in the courts so that the ATO would strengthen its team that works on the litigation matters. Those were issues behind what I said. But you would need to ask the Treasurer about his reasons behind that.
Mr Jordan : Can I make two points. I think it does reflect a tax office of the past, not the tax office of the future for which we are reinventing and driving this cultural change. Maybe there were some issues in the past. I would like to think we get an opportunity to demonstrate the change program we are going through. The second point is, as I said before, we have moved the entire objections function out of the compliance area.
Ms O'NEIL: Regarding the issues that you raised, Mr Noroozi, about the objections being dealt with by juniors, and that sort of thing, in your mind has that been resolved by the change the tax office has made?
Mr Noroozi : As Commissioner Jordan said, that was a submission I made in 2011. Since the changes that the commissioner has instituted, we have not done a further review. That is why I am reserving judgement until such time as we have given it some time to work. What the commissioner says, that what used to happen before was that the objection teams were in the same business line as the compliance area, is true, yes. The new commissioner has taken that out and put it in the law area. What I have said was a separate appeals area. We do not know—maybe what the commissioner has done now will be sufficient and it will work. What I am saying is that I am not taking issue with any of it. All I am saying is that we need to give it time to work. We then need to look at it and pass judgement.
Ms O'NEIL: When would you be thinking to do a review of the new process?
Mr Noroozi : As you know, the way I go about choosing my work program is based on public consultation. I have got to be mindful of what people put in front of me. Whilst what I review is at my sole discretion, I need to be guided by what taxpayers and tax professionals and their representatives believe are the most pressing issues. To the extent that those are brought to my attention, I then have to choose a work program that delivers the maximum amount of benefit to the maximum number of taxpayers—not in isolation but in the work program as a whole. I have until 21 March, so if this is something you would particularly like me to turn my mind to then you, as a committee or as individuals, are welcome to make those suggestions to me. At least it steers me in the direction that people want me to go.
Ms O'NEIL: I cannot speak for the committee and I will let the chair conduct a process for us to come to a decision together, but as an individual member of parliament I think that, if there is a policy change that tries to address an issue that the tax office believes it has already fixed, it will be helpful for us to know whether the tax office has indeed fixed the problem before a decision is made to go ahead and create an entirely separate bureaucracy. We need to know if the problem that the bureaucracy is trying to solve is still there. If it is within your purview to make a judgement about that, it would be lovely to have a perspective on it. I have not heard the comments that you have made about the fact base that sits underneath the issue, and it would be great to understand how many complaints you, the Ombudsman or the tax office has received that have called into question the integrity of the fact that both functions are being done by the tax office. So what I am asking is: how many people have raised this is an issue? I have not seen that fact. I am new to the committee, so it might have come before us before.
Mr Noroozi : The specific issue of both being done in the same government department has not been raised that often. The issue that we get most often is that they want an independent review. Before the matter goes to court, they want the review to be, as the commissioner says, as independent as possible, because it is still the same organisation. So they want an independent review and they want more judicious decisions on what should go to court and what should get settled.
Ms O'NEIL: Okay, that makes sense. Mr Jordan, could I just clarify: you mentioned some numbers around the proportion of disputes that you are settling in favour of the taxpayer. Are you saying that 4½ out of 5 disputes are being—
Mr Jordan : Out of 10.
Ms O'NEIL: Four and a half out of 10 are being resolved in favour of the taxpayer?
Mr Jordan : There are 10 cases that have gone through this new process and that is the result of those 10. We have specifically gone through the 10 most significant longstanding disputes, and it is difficult to draw long-term projections out of only 10, so we just did a review after six months and said, 'Well, how did this go?' We got feedback on the process from all the taxpayers and all of their advisers and, as Neil Olesen said, we are tweaking it a bit as a result of those processes. We did that at the executive committee meeting of the ATO last Tuesday. We have agreed on three changes to that.
Ms O'NEIL: Terrific. Mr Jordan, when you provide this flow chart of how disputes works through the tax system, it would be very helpful for me to understand what the numbers attached to each element of the process are. I do not want to create a lot of additional work, but even understanding that only 10 taxpayers have gone through your separate dispute process is quite illuminating for us. So if numbers can be attached that would be helpful.
Mr Noroozi : The only thing that I would also say is that most of the feedback we have had on the independent review has been largely positive.
Ms O'NEIL: Okay.
Mr Olesen : Can I just add to that that the vast majority of the kinds of disputes we are talking about—objections to assessments—occur in relation to individuals and small businesses. The number of audits we do of the large market is a much smaller volume, as you would expect. We do in the order of 40 or 50 audits in a year of the large market, whereas of course the volume of assessments and transactions for individuals and small businesses is much larger, and that larger volume throws out the majority of disputes that we face as well. So I thought I would just give you the context. The disputes around the large market, with large corporate taxpayers, are only a very small part of the total number of disputes we get but, as we discussed earlier, the value and significance of those is often very large.
Mr VAN MANEN: Mr Neave, regarding this discussion around the old way of handling disputes, how much of that flowed through to your work? As a consequence of the introduction of the new system, have you started to see something of a decline in the movement of that to your purview?
Mr Neave : I could be corrected by my colleague Rodney Lee Walsh in a moment, but I do not think we received many complaints from people who said that they did not have the chance to have an independent review before they objected to whatever the issue might be with the tax department. The general comment I would make about this discussion is that there are hundreds, perhaps thousands, of decisions, made within government departments where, within the same department or within the same agency, there is an informal appeal mechanism within the department as a result of which an Australian citizen could have a decision reviewed by someone who had not made the first decision in relation to whatever the case might be. Indeed, in the Ombudsmen's office, if someone seeks a review of what the Ombudsmen might say about a particular case, we get that reviewed by somebody else within the Ombudsmen's office so that someone else has a fresh look at whatever the case might be.
The issue of independence and the word independence is something which crops up fairly regularly when you are looking at decision making, but there are methods within organisations to, on an efficient basis, look again at a decision, should a person want that decision reviewed. One would again have to use that phrase I used before about a cost-benefit analysis. In setting up a review process, whilst dealing with the issue as far as the Australian citizen might be concerned you would also need to make sure that any review process was reasonable in all the circumstances, depending upon the size of the case, the issue and whatever it might be. There are methods by which, within the same organisation, appropriate review mechanisms can be set up without causing undue detriment as far as the Australian citizen is concerned.
CHAIR: I have a couple of questions to conclude, which might help this new committee help you both. From your perspective as agencies scrutinising the ATO, is there anything that this committee can do to help you in your role?
Mr Noroozi : When we do a review we obviously consult with the ATO. Certainly in the three reviews that were released last Friday you would have seen there is a large amount of agreement. In fact I think we pretty much agreed on most things in the three reviews. But what the committee might want to turn their minds to is where there is disagreement—for example, I make a recommendation and the tax office does not take it on. That might be something you would like to look at. By and large, in most of the review work we do we have quite a lot of dialogue before it is given to the minister. The areas that might be worth while would be areas of disagreement or, for example, the bigger issues, such as what you were looking at before, the separate appeals area, which at the end of the day is a matter for government. Those are probably quite useful and, also, I think input into my work program would be useful, because you are talking to your local communities and you know what the issues are. I would really appreciate a steer as to what you would like me to look at. Those would be very helpful as far as my office is concerned.
CHAIR: Colin, would you like to also respond to that?
Mr Neave : The only suggestion that I would make is that if the committee had a view on any inquiry which you would like the ombudsman to make, it could be like what we call an 'own motion' inquiry. We have quite considerable powers to make inquiries about matters and we would be happy to look at that, if something did occur to you that we could engage in. The second point is that the committee needs always to remember that the ombudsman's position is that of a totally independent organisation, which looks at the administrative side of the tax office. Again, if matters come to you from your constituents that we can look, as well as matters that might occur to you, then we would be happy to have referrals of whatever those matters might be.
Mr Lee Walsh : Perhaps if I can make one further comment to Mr Neave's one? Language is very important for our office. The sophistication of taxpayers who may approach our office with a complaint will not necessarily raise issues, as Mr Van Manen said. That independent review—that language—may not be present in the way they express their concerns; and so for the committee it is always a present consideration for them to have the sophistication of the individual who might be making a complaint.
Mr McPhee : Thank you, Chair, firstly for asking that question—it is very good of the committee to ask. I have to say that because the relationship with the tax office is professional and straightforward, and because we work with them with our audit work a fair bit, there is a good understanding and the processes work really well. Where there are any issues, we shake them down and work them through; it is very rare to have a level of disagreement.
But things can change, so it is nice for the committee to have these inquiries. I have found this morning incredibly useful myself, and we have been taking a few notes just in terms of issues that we can follow up later on. But like the others, we always give priorities within our forward work programs to areas highlighted for attention by parliamentary committees, so if there are any issues at any time we are open to considering that. Thank you.
Mr Jordan : While you are in front of us, I just want to make a comment—perhaps to temper enthusiasm for more reports! You can see the document that we provided, but we are in an environment of reducing resources. We had 14 scrutineer reports last year: there were the six from the inspector-general, double-sided printing, and two of which are not yet released. But there are six reports there. There are seven Australian National Audit Office reports on performance audits and those sort of things—I do not know how big they would be. There is the one 'own motion' from the ombudsman—and I am pleased to hear that it is all agencies now, it is not just us, which I had not appreciated until you made that!
So we have to balance the resources and issues here. I know that it is an important role of oversight for us, and I am not in any way saying that we should not have that. But maybe we could just balance it some time? As I said, that is just the inspector-general reports over the last 12 months: 14 reports in total.
CHAIR: Thank you for that. We must be considerate of that, especially in view of our leader's concept of reducing red tape, which we are supporting wholeheartedly.
Thank you for today. It has been a very good meeting and on behalf of our committee I would like to thank all the witnesses who have given evidence at this public hearing today, and also thank Hansard and broadcasting for your assistance. That will conclude our meeting.
Committee adjourned at 12 : 39