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Standing Committee on Tax and Revenue
Australian Taxation Office annual report 2012-13
House of Reps
- Parl No.
- Committee Name
Standing Committee on Tax and Revenue
CHAIR (Mr Alexander)
Sukkar, Michael, MP
Van Manen, Bert, MP
Chalmers, Jim, MP
Goodenough, Ian, MP
Williams, Matt, MP
O'Neil, Clare, MP
O'Neill, Sen Deb
Taylor, Angus, MP
Butler, Terri, MP
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Standing Committee on Tax and Revenue
(House of Reps-Wednesday, 27 August 2014)
Content WindowStanding Committee on Tax and Revenue - 27/08/2014 - Australian Taxation Office annual report 2012-13
CROKER, Mr Michael John, Head of Tax Policy, Institute of Chartered Accountants Australia
GRECO, Mr Tony, Senior Tax Adviser, Institute of Public Accountants
JEREMENKO, Mr Robert, Senior Tax Counsel, The Tax Institute
JORDAN, Mr Chris, Commissioner of Taxation, Australian Taxation Office
KONZA, Mr Mark, Deputy Commissioner, International Division, Australian Taxation Office
LEEPER, Mr Geoff, Second Commissioner People, Systems and Services Group, Australian Taxation Office
McLOUGHLIN, Mr Andrew, Deputy Inspector-General of Taxation, Office of the Inspector-General of Taxation
MILLS, Mr Andrew, Second Commissioner Law Design and Practice, Australian Taxation Office
NOROOZI, Mr Ali, Inspector-General Taxation, Office of the Inspector-General of Taxation
OLESEN, Mr Neil, Second Commissioner Compliance Group, Australian Taxation Office
STRONG, Mr Peter, Chief Executive Officer, Council of Small Business Organisations of Australia
Committee met at 16 :18 .
CHAIR ( Mr Alexander ): I declare open the committee's second public hearing of its inquiry into the 2013 annual report of the Australian Taxation Office. Thank you for attending today. I also extend my greetings to those listening to the broadcast of these proceedings. Today the committee will have the opportunity to revisit some of the topics that we discussed last February, such as the tax gap, international benchmarking and reinventing the ATO. I acknowledge that the Taxation Office has made progress on many of these issues. We also have the opportunity to discuss some new topics, such as the amnesty that the Taxation Office has provided to taxpayers in relation to offshore assets and income. The committee also is pleased to note the attendance of a range of tax experts. We look forward to you broadening our perspective on each issue.
I welcome representatives from the Australian Taxation Office, the Office of the Inspector-General of Taxation, the Tax Institute, the Institute of Chartered Accountants Australia, the Institute of Public Accountants and the Council of Small Business Organisations of Australia. Although the committee does not require you to give evidence under oath, I advise you that these hearings are formal proceedings of the 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. Do you have opening statements to the committee?
Mr Jordan : I would like just to make a few opening remarks, if I could, given that it has been nearly six months since we had our first public hearing. I should introduce the second commissioner Andrew Mills, who has joined the executive as a new second commissioner in March of this year. We have also now got our new chief tax counsel, Jeremy Hirschhorn, who started with us this month, reporting to Andrew.
In terms of the ATO's staffing and our reduction in staff numbers, we are well on the way to achieving the reduction of 3,000 staff by 31 October this year. It has been quite a large logistical exercise in actually processing that number of staff, but we very strongly appear to be in the situation that all those who will be leaving—apart from some in the Australian Valuation Office, which the government made the decision to close—will be going through a voluntary redundancy process. Like a lot of other agencies and departments, we are also currently in negotiations for our new enterprise agreement.
We are now also in tax time. This has been quite a different one for us with the introduction of the new myTax experience with simplified, streamlined returns for people with simple affairs. We chose to go through the myGov entry point, which is the whole-of-government thing. An additional two million users have registered through myGov and about 570,000 people have used this steamlined return myTax. That is the return where we pre fill virtually the whole return and we know all the income side for people, being wages and salary, interest, dividends, Centrelink payments or medical expense information. They have one or up to four deductions. The only fields they have to fill in are these four items, being donations, work-related expenses, investment income expenses and taxation fees, if they have got that from a prior year.
Feedback has been extraordinarily positive and people have said it has taken as little as five or 10 minutes to actually compete their returns, so we are very pleased with that and we will be looking to build upon that in the next few years. There is a target audience of about 1.4 million people who self lodge with such a profile. There is about 4.5 million people in total, about 3 million of which go to a tax agent for that.
We have also been doing considerable work in supporting Australia's presidency of the G20, the tax issues that are relevant for that and the OECD's action plan on base erosion and profit shifting. Mark Konza is here, who heads up our internationals area, if there is any questions or interest in terms of what we are doing there. Mark is here today to answer those questions. The standing committee's inquiry into disputes is in train and I presume that the matters related to dispute resolution will not be dealt with here today but, rather, will run through that separate inquiry process. We are currently responding to 10 separate reviews being conducted on the tax office, one of which is that dispute resolution review.
We are progressing very well on Reinventing the ATO, our major change program. We have been providing you with updates and we are continuing to implement our capability action plan response. That will continue for the next 12 months or so. We have gone through quite a considerable exercise in decluttering some of our internal bureaucratic processes, reducing our own internal red tape. I thought that was a very important step to take—that, when we are dealing with taxpayers, individual citizens and businesses, we might have a more streamlined approach if we had already gone through a significant process of decluttering internal matters.
We are happy to talk further, during the course of this hearing, about setting our new mission, vision and values. We have gone one step further with our ATO strategic intent. This document—and I have some copies if the committee is interested—sets out at a high level what we are doing and the taxpayer experience we are trying to achieve. We have also recently completed a corporate plan for the four-year period from 2014 to 2018, again setting out in a little bit more detail our reinvention and our approach to making the organisation a more contemporary one—and certainly a more service oriented one.
We also went through a significant benchmarking program with our own staff to inform our cultural change program—to give us a baseline measurement to refer back to, so that over the next couple of years as we progress we have some useful data. It helped to establish what sort of traits we have in our people and what they themselves believed were the traits—some that help us considerably and some that hinder some of our activities. Working in our favour are things like a very strong commitment to the purpose of the ATO and a strong commitment to public service, knowledge, integrity and ethics. Some of the behavioural traits that might work against us—and this is from the self-assessment done by our staff—are strong risk aversion, a silo mentality and far too bureaucratic internal processes. That also reflected the view of the executive.
We are continuing to have more meaningful engagement with the community and with our key stakeholders. We have already tried to demonstrate some quick wins with our more contemporary service. For example, I recently announced at the COSBOA summit in Melbourne a small business newsroom and a click-to-chat facility is being piloted. The small business newsroom is somewhere that small business people can go where all the things relevant to them are on our website. One of the things I have been concerned about in the past is the amount of information we send to small businesses, which could cause problems with their understanding of it. Small businesses can go in and turn off any of these general correspondence, brochures, materials and so on and nominate precisely the sorts of things they want to receive updates on.
The click-to-chat is a web chat facility where people can type in their questions. There will be a tax office client service officer available to respond to them as a new channel in addition to call centres and the small business assist thing we have got on our website, which is like a mini google within the tax office website that draws upon all the information relevant to small business. So we are trying to offer a range of channels where people can interact with us. There is a call centre, there is a small business assist where they can do their own type-in questions or there is the web chat facility where a client service officer will be able to help them out.
We have also participated in the first small business fix-it squad, which is being coordinated by the ATO but it involves a number of federal agencies—for example Industry, ASIC, ourselves—and state government and local government areas. The first item was to look at how to sell a business and how to close a business, and how to cut through a lot of the specific red tape that businesses confront when they are trying to transfer or sell a business. I understand the second project will be about how to convert yourself from a sole trader as a business into a company vehicle. The idea is to have rapid response—all three tiers of government involved to look at the issues and to engage with real small business operators. We do have that small business consultation panel where I think just over 100 small businesses have registered with us to be available. We engage them and remunerate them, because one of the issues we have found with the consultation with small businesses is that they are very much time poor and often just not available to donate their time to assist us in that consultation process. Working with small businesses, through that panel arrangement, has been quite a useful thing, particularly in that fix-it squad.
We have now expanded our app that was there for individuals, to include small business functionality and superannuation. So people can use their smart devices, their tablets, to access YouTube video product and a whole range of others things. Small business assist is also now available through that app as well and it continues to be quite well received. We are in the process of trialling the ECAP product, the external compliance assurance process, where if we need certain verification of factual matters with a company—not interpretation of tax law, but simply some verification of factual matters—those companies can have their statutory auditor provide that assurance to us. It is designed, in the first instance, for businesses with a turnover between $100 million and $5 billion to enable a far quicker resolution of the assurance around factual matters.
Our independent review function that we established last year has now had 19 major cases go through that process; 11½ of those have been in favour of the original ATO position and 7½ have been in favour of the taxpayer's position. Why half? Because one taxpayer had two issues—one went one way and one went the other way, just in case you are wondering how you can have half an issue. We have very much been involved in early engagement in our rulings process to try to sit down with people to understand the issues they want the ruling on, rather than to kick it all off in a very detailed paper way. We have reduced the cycle time for rulings from 129 days down to 70 days, mainly through that much earlier engagement in a face-to-face meeting sense. We are also using alternative dispute resolution. We have had some significant success in reducing the number of old cases.
You mentioned the overseas voluntary disclosure initiative. We do not actually call it an amnesty as such because there is tax payable across the last four years of income at the normal rates. There is a 10 per cent penalty applied and normal interest charges there. It has been relatively modest in terms of the amounts, which are about $38 million of income, and $360 million of assets have come back into the system. But there have been some 440 taxpayers who have lodged an expression of interest. We have not yet got their materials, as those run until December. We have been told by some of the advisers that there are some very significant asset amounts in those 440 expressions of interest. We would certainly expect the materials to come through before December.
The second commissioners and I are certainly very pleased to be here again today to respond to your questions about our performance and our efforts to reinvent ourselves. We very much look forward to working together to ensure that Australia has a leading tax and superannuation administration that is both relevant and valuable.
CHAIR: Do we have other opening statements?
Mr Noroozi : I can give you a quick update on where we are at. Since we last met, we have started three reviews. Two of them were listed on the work program: one is the support for tax practitioners and the other is debt collection. The third one is the one that the committee asked us to do, which is tax disputes. As a result of the tax dispute one that we have taken on, the other two reviews will have to wait a bit longer for us to start them. Those are the one about the review of the Taxpayers' Charter and the other one about employer obligations, which we will do once we have finished these three reviews. The other review that we had on track was the valuation review, which is reaching the end of its life and is probably a month or two away. That is basically the other work of the office. We are also gearing up with respect to the implementation of the budget measure—that is, the transfer of single complaints or the dealing with single complaints from the Ombudsman's office to the Inspector-General of Taxation's office. We are gearing up for that. That is a very brief summary of what has happened since the last time we met.
Mr Strong : We are from the Council of Small Business of Australia. I am sure most of you know there are over two million of us. I think 93 per cent is the figure that has been stated by the tax office that are compliant, which is amazing when you think how complicated it is. There are some 700,000 of us that employ people. We are a big group of collectors of GST and PAYG. We do our own personal returns and, when we are companies, we do company returns. So we are big players in the tax system.
We always talk about how tax for us is about process and communications. You can get the policies right but, if you do not communicate it properly and if the processes are not in place, it becomes far too difficult. So for my members the bigger issue is to get the policy right but you need to get the process and communications right. What we have with the tax office is plenty of communications around the process. There is no doubt that the tax office, in recent times, has understood that there is no such thing as a small business. We are all different from each other. They are all different sectors. There are so many different ways of communicating with the tax office now that that means there are more and more people who will find a way that suits them to go and communicate. Of course, a lot of people will not communicate because there is no need. They are getting it right . They are a contractor of some sort and their tax situations are not as complicated as others. But the ones who do need to get in contact with it are finding that there are more avenues do that. The other thing is that the tax office is not perfect, never will be, never could be. At the moment, when there is a mistake, it is: why, how did it happen, can we fix it, how quickly did we fix it, can we fix it any quicker?
There is also the issue that some of our members have a greater interest in certain parts of tax than others. We have people involved in brokering business loans—the commercial asset finance brokers. They have quite an issue around the tax debt and how it impacts upon businesses accessing other finance and they are in deep consultation at the moment with the tax office. So, at the moment, we say the consultation is deep and often. They do go out of their way—knowing full well that a lot of our members do not have a lot of staff—to do what they can to make that consultation also easy. There is a long way to go, which we are working on with the tax office. At the moment we are in constant dialogue, working on solutions, identifying problems and working on very long-term solutions, particularly the standard business reporting area. That will not happen tomorrow, but must happen some day. It will happen, because that is the way that we will get a lot of compliance problems out of the way. It is many years away, but a lot of situations that are around today will not happen once people engage with that. Thank you.
CHAIR: Is there any other opening statement?
Mr Croker : Not from us, Chair.
CHAIR: We will try to stick from topic to topic. So we might kick off with reinventing the ATO. Commissioner, how far away are we from simple taxpayers not having to lodge a return?
Mr Jordan : Well, this year we have taken the first step in terms of substantial prefilling. As I said, the target audience is around 1½ million people—with the profile I spoke of earlier—who, last year, self-prepared and self-lodged their returns. So far, 570,000 people have utilised this streamlined return. We see this as not quite your 'no lodging of a return', but literally some of the feedback is that people have said that it takes five minutes. They knew their donations amount or their work-related expenses and they simply inserted that, pressed 'confirm', and it was done. There has been a bit of a hold-up in some of the share registry information, which we have not received all of yet, so we have not yet done the large broadcast through SMS and emails to the bulk of these people to say that everything is there.
One of the difficulties we are going to have to deal with in the not-too-distant future—like next year—is to convince people to provide us with their information earlier. There is a legal requirement to provide certain information to us by 31 October. That is way too late. I do not understand the difficulties, with the technology available, that mean we do not get this information a lot sooner. In terms of a couple of the large share registries, we have not had the dividend information for some of the very large corporates that clearly have hundreds of thousands of individual shareholders.
We have got no defined date around having no return. We are developing up plans in terms of our 2020 vision as to what we would need to do to achieve that, because to get to that stage, you effectively have a real-time tax rate. Once you are authenticated and registered through myGov to the tax systems, you can look at your accounts. We will not be very far off people, if they have a deduction, putting it into their account and we can notify the employer of a tailored tax rate, effectively. Some of this is dependent on this program of a single-touch payroll that we are developing to help small businesses meet their obligations to provide statements to employees, pay the wages, pay the superannuation, and remit monthly or quarterly amounts to us that they withhold—the pay-as-you-go withholding. Right now, we get aggregate amounts from employers but we do not get the physical detail until after the year end, in terms of the actual name of the employee, their tax file number and the actual amount withheld. And then we run that, and Centrelink run that, to check on the eligibility for payments.
If we can move to a situation where we know the people literally every pay, we can get a lot closer to tailoring what is called the 'personal tax rate' for people, particularly if they are willing, as they purchase something that they know is deductible, or as they make a donation, if they think it is significant enough, to enter that in. And clearly there would be no need to do a tax return. We could simply notify you: 'This is all the information we know about you. Are you happy with this? If yes, press "confirm".' That would then be equivalent to the no-return scenario. But this year is not that far off with only those four line items to insert.
Mr Mills : The only thing I was going to add is that, in order to do some of that, there would probably be absolute changes that also could be made. There are different ways of managing what that personalised tax rate might end up being—whether or not we could get more regular information from financial institutions and so on, in terms of dividends and interest and that kind of stuff, and whether or not there would need to be some withholding in the absence of that in order to get to a perfect no-lodgement position.
Mr Leeper : And I think our position is that we already receive about 600 million pieces of prefilled data from various institutions. As the commissioner said, what we are working to do is to get that information to us much more quickly. We expect next week to be sending out the SMS and email messages to those people who have registered for myTax but have not actually used the product, to let them know that all the information that we have got relevant to their tax return is now in the system, in behind the myGov login. I expect that will result in a fairly significant increase in the number of myTax lodgements from the early parts of next week. Where we will 'struggle' to offer a no-touch tax return is simply around areas of deductions, because those are much less visible to us. Clearly, those would be matters for government and policy decisions to be made. But we think we can offer, especially with the taxpayer's consent, a fundamentally sound, reliable service around prefilling the income and other aspects of data relevant to determining your income. The issue is how easy we can make it. This year we have got it down to four screens for people with simple tax returns and simple tax affairs, to focus on those deductions. Sometimes your children are your best mirrors to look in here. Two of my daughters have used myTax and I have got lovely Facebook posts from them. My 23-year-old daughter says: 'I no longer need to answer the question about managed forestry farm investment schemes, dad; thanks very much. And I'm not being asked about the seniors tax offset, because I'm only 23.' So we can get great feedback.
I am checking where the data is, but we have had some positive comments on social media. We have also had about 370 suggestions from people about things they would like it to do next year. One of them is particularly around superannuation income. If we can bring that into the prefilled arrangements, that will again improve the value of myTax, as it were, for older Australians. We will be seeking feedback and amending the product.
Mr SUKKAR: Mr Jordan, just a quick follow up to a point you made. Accepting your point about real-time tax rates, which is an aspiration for the future, and some impediments around the compulsion of information being provided to you no later than 31 October, to try and assist you in the interim before we get to the ultimate utopia of real-time tax returns, what kind of dates—bringing that 31 October date forward as an interim measure, for a few years—would be your ideal scenario within the practicalities of the relevant organisations that need to report that information? I think that is—
Mr Jordan : I think it is a realistic expectation to have by the end of July, because there are a lot of people who are very quick. On 1 July we actually get a whole lot of people doing their returns because they want their refund. They cannot rely on our prefills, so I would expect that something like 31 July as a time. All these companies and banks know what the interest is. Some are very good; they do provide that very quickly. We talked about real-time. If we could get statements as interest is credited quarterly to bank accounts, if the banks could run it for us then, then we could sort of build up that information. But if we got it all by the end of July I think our service would be a lot more attractive to a lot more people.
Mr Olesen : Yes. I will just add to that. It is worth saying that whilst the regulated date is 31 October, we have very good relationships with most of the people who provide this data to us. The vast majority of them do come in in July or early August. There are usually just a few who do not come in who we continue to build the dialogue with to try to encourage them to come in sooner. We have managed to achieve quite a lot just through strengthening the relationships with the people who provide this data to us and we will continue to do that with the ones who are just being a little bit late this year.
Mr Leeper : It is a win-win space here because to the extent that a third party can provide us prefill data in a fairly timely way, taxpayers rely upon that. They are not ringing their call centres to ask for it. So there is a win for us and a win for the commercial parties as well. As Mr Olesen said, we are pursuing this on a constructive basis. We have not yet begun to consult with any of those third parties around bringing 31 October forward, noting, historically, that the intention of 31 October was to give us the data that we could then check tax returns after they were lodged—
Mr Jordan : 31 October is the date for the individuals who do not go through agents to lodge their returns—
Mr Leeper : Yes, that is the individual's deadline.
Mr Jordan : So, in a way that is a mismatch.
Mr Leeper : Third-party data really started as a post-lodgement compliance activity for the tax office. We are actually trying to turn it into a pre-document surface to reduce the burden for taxpayers. So we will need to consult with the third parties. But I agree: we should be aiming for as quickly as possible after the end of the financial year, and that makes a lot of people very keen to get their tax returns.
Mr VAN MANEN: Mr Jordan, in your comments—and my apologies for being late, I was at another committee hearing—you touched on cultural change in the ATO and upgrading the skills of the staff. You have touched on the chat facility, but one of the pieces of feedback that I have had regularly is that you talk to two different people at the tax office about the same question and you get two different answers. How in that process of change management are you upgrading the skills? And, specifically with that chat facility, how do you have people of sufficient skill and experience on that facility so that the people who are utilising it are getting the right information up-front rather than getting a piece of information, going back and then coming back later to ask a follow-up question and the answer changes?
Mr Jordan : Consistency of advice is clearly an important measurement and attribute that we would like to think we do relatively well at in most circumstances. With our knowledge management processes, we could probably do better there as well, in terms of the ability of anyone to draw on our information that has previously been done. There is a lot of information and I think we can probably invest a bit better in technology around knowledge management. That is something that I think we could be better at.
I do not know whether Neil or Andrew want to say something?
Mr Olesen : I have heard that too. I sometimes hear it around debt payment arrangements. That is the area where I have heard that mentioned most frequently. It is worth saying that we have very good quality systems around our call centre people, and very sophisticated quality systems around our call centre people. They are subject to very regular feedback about their performance. Of course, there will always be instances where you get some inconsistency.
I think to the extent that it might be, for example, around payment arrangements in the debt space, that often there is a fair degree of judgement to be paid in those cases. I think that when you get to elements of judgement—is this business viable? Are they going to be able to make this payment arrangement? Should we give them another chance?—that you can expect when you are asking officers to exercise judgement in those kinds of areas that you are going to get some difference. One thing we are trying to do as part of the cultural change is to give our officers appropriate freedom to use their professional expertise. Our people are well trained, it usually well qualified—usually tertiary qualified and often with a couple of degrees. They are good people and we do want to free them up to use that expertise. But having said that, you need to have the right systems in place, without being too bureaucratic, to try to get as much consistency as you can.
Mr VAN MANEN: Can I make the point that there is a significant difference, though, between being qualified and being competent as against being experienced in the application of tax law? You can have somebody who, yes, has come out of uni and has all the competence and qualifications but they are not experienced. Whether it is a tax dispute or a more general question about process, how do you deal with that issue? Do those people in that chat facility or in the call centres have the capacity and somebody at hand with a broader range of experience to refer that up the line sooner rather than it becoming an issue because they do not?
Mr Leeper : We structure ourselves so that we distinguish between tier 1, tier 2 and tier 3 kinds of work. The first tier is the simplest calls, which can be taken by a broad range of staff. Staff need to exercise a judgement at some point in the call that they need to seek assistance. I have sat in on phone calls myself, and you can hear them say to the customer, 'I'll need to place you on hold for a couple minutes,' and they will ring and find the expert they can talk to to test the matter. If those escalation processes are working well, we should be able to deal with those inquiries on that basis. We manage the majority of calls at a relatively simple skill and knowledge level, but we have got fallbacks, and the staff are instructed to use those. As I said, if you listen to the calls, you can pick up pretty quickly that they know this is not something they have expertise to deal with and will find someone in the organisation and, if necessary, move the call on or just answer it after some instruction.
Mr VAN MANEN: I commend you on myTax and myGov. Our two sons use it.
Mr Jordan : It is funny how many people talk about their kids' experience! I have the same. People say, 'My kids loved it.' I say, 'What about you?' 'Oh, I don't know!'
Mr Leeper : The interesting thing about myGov is that we took a deliberate decision to put not only myTax but Etax behind a myGov registration. Our logic there was that each year you have to provide the same proof of identity to access Etax as you did to set up a myGov account once. Once you join myGov, of course, you can link other services. So, whilst we have had nearly two million people who have joined myGov and linked the ATO for the purposes of doing myTax or Etax. They have also then linked Medicare; if relevant, Centrelink; and, if relevant, the person in control's electronic health record, so our influx of enrolled people for myGov is actually driving significant other numbers in related services.
It is a value proposition from its own point of view from our side, but it is also now driving greater benefits. By October we expect we will have brought in about three million people to link the tax office to their myGov account and the number of myGov customers will have gone from about 2.8 to probably five million across Australia. So it is win-win. It is a better process year-on-year for tax customers and it also helps to build the profile of myGov in the Australian community.
Mr Jordan : On younger people: there are a lot of part-time worker students out there. They do not have any deductions. They might have a little bit of donations. A lot of these just get straight on and go, 'Confirm, thank you very much' and it is done. I think that really does help encourage participation in the system.
Mr VAN MANEN: And they have the refund coming—
Mr Jordan : and have the refund quickly. They are motivated very much to get that in quickly. That employer data does come in relatively quickly for us. It is just a great experience for people. They do not have work related expenses in bar and restaurant jobs or that sort of thing.
Dr CHALMERS: In terms of reinventing the ATO, one of the issues, I am assuming, is how you keep pace with changes in the economy and how they relate to the tax system. The one I was interested to read about last week was the issue of crowdfunding. I was interested to see that the tax office has taken a position that crowdfunding needs to be determined on a case-by-case basis. I was wondering if anyone was able to us through the sorts of principles that apply to that judgement when it comes to crowdfunding. Is something in the GST net or not in the GST net? What is the difference between one appeal or another?
Mr Jordan : I have to declare I am not in that position, but I might ask if any of the second commissioners are able to speak to that.
Dr CHALMERS: I will refer you to the story in The Age from last Tuesday, 19 August, on page 23 and ask that we get a sense of that on notice if that is okay.
Mr Jordan : Yes, we are very happy to do that.
Dr CHALMERS: I do think there is sufficient interest in the community when they are determining different funding models, including crowdfunding. They might appreciate some certainty in terms of where that falls in the tax net.
Mr Jordan : I would be happy to do that.
Mr VAN MANEN: In addition to that, what about digital currencies such as bitcoin? How do they fall?
Mr Jordan : We have recently issued some guidance on bitcoin. Andrew might expand on that.
Mr Mills : Essentially there are two aspects to it. The income tax aspects look relatively uncontroversial, but the industry was certainly concerned about the GST aspects. We got advice from the Solicitor-General, given the potential for this to be much broader than just an ATO issue—it has the potential to be a whole-of-government issue. It was clear that it needed to be treated, from a GST point of view, more like a barter transaction. That is where we ended up and that is the guidance, in a nutshell, that we put out about a week or so ago.
Mr Jordan : The difficulty we face on this is that the proponents want it to be treated like money. That is their position. But there is a definition of money, of currency, in the tax act. It has to be the legal tender of a country. So we cannot say it is money—because it does not fit the definition. If things like bitcoin grow and these issues come up more and more, maybe that definition will have to change. The result is that there is a mismatch of expectations. As Andrew said, the income tax consequences are relatively uncontroversial; it is the GST treatment of the supply—because it is not money, or currency, under the definition because it is not the legal tender of a country—which is the issue. It does not fit under the definition of currency or foreign currency. That is the problem the industry has with where we are at with it.
Mr GOODENOUGH: I refer to part 3 of your submission, which deals with benchmarking performance. I note that there is quite a substantial amount of international benchmarking data available. Does the ATO use this to identify areas for improvement or have they used it in the past?
Mr Leeper : We use a range of benchmarking sources. You have mentioned international data, so I will start there. The OECD has a thing called the Forum on Tax Administration, of which we are a member. The most recent report comparing jurisdictions dates from 2013. I have just found it on the OECD website, so it is easy to find. It is a comparative analysis; it is not a ranking. You typically find that they are looking things like the institutional arrangements, how authority is delegated, how complaints are handled, structures, some of the performance targets and so on. I am familiar with those kinds of reports from other roles I have had. You would appreciate that most jurisdictions have, if not subtle differences, major differences. As you would be aware, many European tax offices also collect the national social security contribution. That is not a thing we have any role in. So there are aspects of comparative performance where you say, 'That is not us at all.' The document is 379 pages, so you might want to tread carefully. I could try to summarise, but it is essentially comparative. You find the value by looking at things where you think, 'Yes, we are close enough to that country that, if we have a score of 91 and they have a score of 105, maybe there is something to look at.' But it is very comparative, not statistically analytical, if I can use that term.
Within Australia, we also benchmark ourselves in areas like call centre performance and IT costs and arrangements. We take part in both public and private benchmarking arrangements to assure ourselves that the money we are spending on those activities are reasonable and defensible.
Mr GOODENOUGH: Of particular interest was the cost of collection relative to net revenue—that section. I noticed there had been improvements over the years in Australia.
Mr Leeper : Yes, but of course ratios have two moving parts. Sometimes they go up for the right reason and sometimes they go the other way for the right reason. But, as a broad indicator, yes—the tax office runs on less than a dollar per hundred dollars collected—gross and net. Other jurisdictions on the outlays side, involving much more testing and eligibility assessment, run at a somewhat more significant cost per hundred dollars. But internationally, I think the data we provided to you on page 13 of our submission would suggest that, all other things being equal, we are reasonably well placed in a comparative sense.
Mr Jordan : And that is why we provide the gross revenue and net revenue. We have a lot of churn in our system in terms of particularly GST collect and refund and that sort of thing. And that costs—to have integrity around refunds and check a lot of process around that as well. Our ratios on the net amount are not as good in a comparative sense as on our gross. Not all countries have the level of churn to the same extent. Obviously a lot of effort goes into making sure that if you are giving large refunds to people it is appropriate to do it. And particularly in the GST world there is quite a significant effort in terms of the way our system is set up to make sure that people who put in claims for refunds are entitled to that. We sort of sit on the average on the net amount, but we are quite well below average on the gross amount.
Mr WILLIAMS: In terms of reinventing the ATO and your objective of being a more service oriented organisation, I am interested in how you will measure that. When I was reviewing the capability action plan from March I could not really get a feel for that being a focus. I might have missed it, so, apologies if I did. But in terms of the documentation you provided in your submission, the benchmarking is good, but, again, there is the question of how you are going to benchmark any improvements in terms of being more service oriented. I know it is a more intangible element, but I am just keen to get some understanding about how you are progressing or tackling that one.
Mr Jordan : In each of the sections of our corporate plan for 2014 to 2018 we set out the measures. I have just turned up, on page 26, the measures for fostering willing participation. One is customer service. I will not go through them, because there is quite a significant number, but we are trying to provide some specific measurement. And we start off generally, with community and key stakeholder engagement and satisfaction with the performance, the number of customer service interactions delivered through our multi-channel environment, the proportion of self-service interactions, the number of complaints received, the number of complaints on hand, the fact that people surveyed agree that the ATO makes it easy to access services and information, and so forth. So, there is a whole series. We have tried to think carefully about a realistic way of measuring, and that goes through measurements around providing guidance and advice, supporting participation et cetera. But each of the sections of the plan does set out the various measurements of our success.
We then, in a general sense, measure our performance against certain outcomes to deliver in terms of confidence in the administration—our statement that government requires us in a general sense to meet. So, we have a whole series of more general ones. But it is probably in the more specific aspects that we set out there. We have been quite transparent in how we are going to measure our success on these issues.
Mr Leeper : Perhaps I could compare our current service standards, which in large part are 'do percentage X in Y days', paper amendments finalised within 50 business days, registrations for the Australian Business Register—they are very much input and process focused. There are a couple there about perceptions. In our corporate plan we have established four key goals: easy for people to participate, contemporary and tailored service, purposeful and respectful relationships, and a professional and productive organisation. These are the things that, when we have tested them with customer and stakeholder groups, represent the kinds of propositions they want back from the ATO as a transformed organisation. And we have derived the measures that the commissioner has mentioned, which are on page 15 of the corporate plan, to service and test those four goal areas. So it is very much a transformation from an input-and-process focus around service standards to measures that will help us to test the value we are providing in the transactions that we undertake.
Ms O'NEIL: We have been conducting these hearings into the disputes process at the tax office, and I think we are getting a pretty consistent message from people that they feel that things have improved quite a bit in recent months. I think some really good things are happening, and it is great to hear that. One of the comments that I have noted has come up quite a few times is that people are starting to identify quite a different experience dealing with senior staff at the tax office versus junior staff. They are finding the junior staff still being a little bit more prone to a more bureaucratic way of doing things. I can see Peter nodding next to me! Perhaps you could provide a bit of a comment on how you are working on that. I am sure you were anticipating that problem, but what kinds of programs do you have in place to try to get that trickle down happening?
Mr Jordan : It is really around the cascading through the organisation, and I am not surprised, I suppose, to hear that. The more senior people have heard the message, are confident in their abilities, have been able to move more easily from a process driven approach: 'Here is a checklist that I have always dealt with and I'll tick my way through the boxes.' The more junior the people, I suppose the less easy it is to readily move from a process driven approach that they might have had in the past. It is a large organisation, and we are cascading the change to do it. We did spend a fair bit of time doing our corporate plan, and our strategic intent sets out some more detail around our goals, around our strategies, and we are now designing a lot more detail relevant to individual work units that would help the more junior people understand what it might mean for them.
So, it is really that basic cultural change of, 'How do I have the ability, have the permission, and exercise judgement and common sense?' When I give speeches internally in the various sites at the ATO I keep saying, 'You've got a good education, you've got good experience, you're well trained; that should equal an ability to exercise common sense and judgement'—within certain principle based parameters, rather than setting out in very, very finite detail all sorts of requirements across every single aspect of their duties to have much more principle based parameters for them to exercise judgement and common sense within. I do get a lot of positive feedback from people saying, 'I enjoy my job more because I am applying my mind more to the actual thing in front of me, rather than feeling like I've just got to go through a line-by-line process or questionnaire', or something like that.
Mr Mills : I might add that, as a relative newcomer to the organisation, I was impressed with the way in which there is this attempt to ensure that there is a cascade of information down. There are a number of different ways in which it is done. For example, the senior leaders, including the commissioner and the second commissioners, will be out in various sites talking to our middle management people at a very detailed level, doing round tables with them, engaging on a town hall type basis and Q&A sessions with staff across the whole of the organisation. There are programs of work to change or to translate, if you like, what the changed program is trying to achieve down to a business-line level—that at that business line there are programs of work associated with it, that there are leaders within each of the business lines trying to engage with staff, asking staff to self-nominate as being change agents being part of that process. So, there is quite a lot of engagement, and I have heard from professional organisations and others that there is a concern that while you can mandate the change from the top, how are you going to ensure that it does in fact live on the ground? It is this kind of thing—embedding it completely in the culture of the organisation through those kinds of things—that I have been most impressed with in terms of the effort that has been gone to.
Mr Olesen : The last bit of that goes back to performance measures—ultimately you build it into the performance measures for how you judge the performance of your teams in the work they are doing. We are probably a little way away from that level of granularity, but you take your corporate measures and team by team convert that into something that is meaningful for those people—you measure the performance against the quality of the relationships they are having and the quality of the engagements. Those kinds of things are important to us.
Senator O'NEILL: We have to talk about the thorny issue of staff cuts, if you do not mind talking us through how that is going. You said 3,000 employees by the end of October. Is that in addition to the 900 from last year or is that the sum total?
Mr Jordan : That includes the 900 from last year. In fact, the last year figure was a bit in excess of the 900 because we had quite a large number requesting voluntary redundancy. As I said, it has been a large logistical exercise. A senior deputy commissioner, Jane King, has been taken off line and her and a small group have been running the whole-of-ATO process. We still have more people who have asked for a redundancy than we have redundancies available—in excess of 3,000 people have applied. It has pleasingly been all voluntary—we have not had to invoke involuntary redundancies at all.
We have to be very careful in managing precisely where and from what groups and what locations we take these redundancies. That is why we have to measure this from a whole-of-ATO point of view, because if the business lines did all this you could find that, if some offices have 300 or 500 people taking a voluntary redundancy, the office might not be viable. We have had to be careful in managing sites and components of workgroups—if it is important to have a particular function in a particular site, we cannot necessarily allow that whole function to go. Up until 31 October we are focused on effectively processing those 3,000 people. After that point, and probably up until Christmas, we are then going to have to have a fairly concentrated effort as to where are there any particular gaps or areas that need to be backfilled and what retraining or redeployment might be necessary to make sure we have the most efficient and effective workforce we can possibly achieve.
Senator O'NEILL: Has it been quite a scientific process in determining which redundancies will be accepted and which will not? You are describing something that sounds more like an art.
Mr Jordan : It is quite a significant process. It starts out with a self-rating of the level skills and the criticality of the role. There is a self-assessment process done and then there is a business line assessment of the people and the role as well, and then there is a panel that looks at all these cases. One individually assesses every single case. There is 4/4, which is the highest—the person in the role has no particular skills and the role is not particularly critical. We have gone through the 4/4s, and now there are the 3/3s—if you are a 3, you do not have necessarily particular skills that are very important to the organisation, and if the role is rated at a 3, that particular role is not particularly critical at this point. We have managed mostly with the self-assessed and the panel has agreed on 3/3s—I do not think we have had to dip too far below that rating. We have said to some people who have applied that they have critical skills and they are in a critical role, so, sorry, they can't have a redundancy. There has been a little bit of tension, as people have said they wanted it but we have assessed them as being critical to the organisation.
Senator O'NEILL: How many applications for redundancy did you receive in the end?
Mr Leeper : About 2,200 in the first round, which is the one we opened at the end of January, and 1,361 people left the organisation as a result of that round. Following the budget we then opened a second round, where 2,366 staff expressed interest. We have initially made just over 1,300 offers out of that round. That is all now running through the financial and other approval processes. We will be there by 31 October.
Ms O'NEIL: Could the first round people who did not get an approval reapply?
Mr Leeper : Yes, they could. A number of people in the first round were told no, but the second round was open to anybody who wished to apply, including those who had been rejected in the first round.
Ms O'NEIL: Mr Jordan, you provided us with a report of which parts of the ATO redundancies had been made in. Are you able to provide an update of that for us? You can take that on notice, as you did last time, if you like.
Mr Jordan : We can provide that update. We are monitoring that.
Ms O'NEIL: Since we last talked there have been quite a lot of reports about the revenue impacts of these staff reductions. Do you believe these reports? Do you think there will be a revenue impact from this round of redundancies?
Mr Jordan : We do not believe there will be any material impact on the revenue collected as a result of the staff reductions.
Ms O'NEIL: How could you lose so many staff and not have a revenue impact, when you collect tax as a mission?
Mr Jordan : There are various levels to that. I might call on Neil Olesen from compliance to talk about that. But it is around eliminating duplication of function and de-layering the management structures to give more authority directly to people to make decisions and get on with their work. Over the years there has been a build-up of quite a multilayered management approval structure, which we are eliminating. We are also looking at a lot of duplication in function that has been developed within the individual groups. They have built up their own significant corporate enabling functions over time as well.
Ms O'NEIL: Do you think we have reached a threshold where additional staff will start to have a revenue impact, or do you think additional staff could be cut without having a revenue impact?
Mr Jordan : Clearly, as the numbers increase the likelihood of a revenue impact becomes greater. We are quite comfortable with the way we have approached it thus far that there will be no material impact. Neil may want to add something.
Mr Olesen : On that point, to the extent that we have optimised team sizes and reduced layers of management to achieve some of the reductions, there is only so far you can go with that. You can increase team sizes to a certain point, but beyond a certain point it gets a bit unwieldy. I think there is a point at which some of the levers we have pulled to try to deal with the redeployments or the workforce adjustment become less and less effective. I think some of those articles are premised on a simplistic view that you just divide the revenue base by the number of officers in the organisation and that equates to revenue per head of person working in the organisation. That is just not how it works. The variety of functions that people do, the variety of risk they might address, the kind of work they do varies enormously. You certainly cannot apply a simplistic average to every person and say that for everyone who works in the organisation they bring in this amount of money. That is just not how it works. It is substantially more lumpy than that, depending on the risk, the area, the market and the tax that you are looking at.
Ms O'NEIL: Would you say a calculation could be made for people in certain parts of the organisation? I understand your point that not everyone is directly engaged in revenue collection, but for those that are do you think every staff loss indicates a revenue loss?
Mr Olesen : With a particular tax and a particular market for that tax, particular groups of taxpayers, and a particular risk in relation to that tax and those kinds of taxpayers—so, say, with income tax for individuals, the risk of overclaiming deductions—even if you whittle it down to that level inside the teams that are doing that kind of work you do not get homogenous results. You do not get individual results; they are often team results. There is a lot that we get through the work we do that comes, for example, from audits that we do of large corporates, but that is not a homogenous outcome per team; it has to do with the complexity of the facts or the uncertainty of the law, so you are not going to get an even spread of outcomes across all of the teams that do that kind of work.
Dr CHALMERS: Correct me if I am wrong, but I understand that the 10 regional offices that are going to be closed are Sale, Bendigo, Orange, Grafton, Port Macquarie, Cairns, Mackay, Rockhampton, Launceston and Toowoomba. How many staff will be affected by those closures? What is being done to redeploy any staff who want to stick around? And are there any involuntary redundancies among that collection of staff that have been working in those 10 offices?
Mr Olesen : I did not catch the list, but it sounded about right to me.
Dr CHALMERS: Have a crack and I will remind you if I think you have forgotten anything.
Mr Olesen : There were 72 staff involved in those 10 sites. I have some figures here as at late July. These figures tell me that nine staff had accepted voluntary redundancy with two further voluntary redundancies in progress, there were two staff who had declined offers of voluntary redundancies, and then we will then move into the normal redeployment redundancy clauses in the agency agreement for those people who did not accept the voluntary redundancy.
Dr CHALMERS: So are there 61 people whose status is unclear?
Mr Olesen : There is more information here, I am not sure how far we will get through the 72 though. As at 28 July, we have 11 staff who have redeployed from regional sites to other ATO metropolitan sites and there are two further cases where people are considering that option. This note tells me that there were two staff who have received offers from other agencies. I am a little bit surprised by that figure because I thought that number was higher, but I do not have that number here.
Mr Leeper : I do not have a final figure, but we are in discussions with a number of other Commonwealth agencies that have vacancies and opportunities at those regional levels. Those conversations have not concluded. From memory, something like 30 staff were possibly able to be accommodated that way, but that of course will rely on decisions made by the other agencies about those people's suitability.
Dr CHALMERS: I appreciate the efforts to redeploy staff. I am not diminishing those efforts; I think they are important. That does not cover everyone, so when you say that there will be no involuntary redundancies, by the end of October when these regional offices close down there will be a cohort of people who will have no choice but redundancy. Will they be the first cab off the rank in terms of involuntary redundancies in some of these key regional towns?
Mr Jordan : Those offices do stay open beyond 31 October, which is the date for the 3,000 figure that I referred to. Potentially, that could be the case. We are trying to redeploy. The largest office was Launceston, where I understand a couple of staff have taken voluntary redundancies, and a large part of that office is relocating to Hobart. Some staff, as Geoff Leeper said, have been able to be accommodated either within the ATO or another federal government agency in their location. I cannot precisely give you the numbers, but that is probably right. There could be some involuntary redundancies at the point of time when the office has to close.
Mr Leeper : Depending on the employee's age and length of service, their retention period when they are formally declared as excess is either seven or 13 months. The employee can at a certain point in the process elect to take a voluntary redundancy at that point, so technically we would say that they took a VR rather than an involuntary, or they can serve out their notice period at the end of which they would become compulsorily redundant. That gives them seven or 13 months to find another opportunity as well. It will take a while to settle, I think.
Dr CHALMERS: Are the staff who are affected but who have not yet made a decision or had a decision made for them aware of the timing of the closing down of these 10 offices?
Mr Leeper : Yes.
Dr CHALMERS: So they have an end point and a bit of certainty on that front?
Mr Leeper : Yes, definitely.
Dr CHALMERS: Do you have a team of people who work through their options with them?
Mr Leeper : Yes, we do.
Mr TAYLOR: Just following up on this question about this crude and simplistic ratio between the number of people and revenue collection, I draw your attention to table 4 of your submission which does the comparison across countries of gross revenue collected per staffing level. I note there that you have a range in that table—it is a very good table—between US$11 million collected per full-time equivalent right through to $US23 million. My hypothesis coming from that is there is a lot more to this than some kind of crude and simplistic relationship between putting more people on the ground and collecting more tax. Is that a fair summary to draw from that data?
Mr Jordan : I think that is a fair comment.
Mr TAYLOR: I take also from Mr Olesen's comments that we are not yet at the point where restructuring of the ATO is going to risk significant tax revenues. We may get there, but we are not there yet.
Mr Olesen : What I was doing was supporting the commissioner's comments that I think we are getting to a point where some of the levers we have pulled—which have allowed us to manage the reduction so far—are stretching. We focussed on people who are not in client-facing roles, to the greatest extent we could, and we focused on team restructures, we focused on de-layering management, we focussed on—
Mr TAYLOR: As yet you have not gone beyond that?
Mr Olesen : I think we are at a point where it is getting pretty tight is what is I was saying.
Mr TAYLOR: Do you feel as though you are making compromises in where we have got to today?
Mr Olesen : To the extent that the question is focused on impacts on revenue collection—as the commissioner said, we do not think that there will be substantial impacts on revenue.
Mr TAYLOR: On a related topic, I think I have mentioned before, and I am sure you are aware of it, that the UK revenue collection authority has a wonderful set of benchmarks that I can look at each quarter and around several different areas—the cost of tax collection, the tax gap, the actual tax collected and customer views of the revenue authority. At what point are we going to have perhaps not exactly the same set of benchmarks but a similar set of benchmarks that we can look at in a simple table and see the trends on a very regular basis? When do you think we might be at that point or is that not an aspiration of yours?
Mr Jordan : Just on the tax gap, we do that for GST right now, and as you know we are doing a whole exercise around initial measurement of that and we will report annually on that. Clearly that will be a performance measurement to see that shrinking over time rather than increasing so certainly we will be doing that. We have gone through a fairly significant exercise in reviewing our whole performance measures. We lost count at over 500 measures that we reported on. It was a bit like counting widgets—as Geoff Leeper said, you do x by y times and it was just a lot—
Mr TAYLOR: So in the UK of course they have it on one page.
Mr Jordan : We are not near one page yet. As I mentioned earlier, in our corporate plan there are a number of measures relating to each of the goals and strategies that we have got. I still think that we have got probably too many and this is an evolving process. I am very happy to further analyse that report in the UK and see if we can bring it down to a simpler, more straightforward set of measures.
Mr TAYLOR: You may have criticisms, as a far more experienced person than me in this area, but it seems to me to be a very elegant way of demonstrating how things are progressing.
Mr Jordan : What I can say is trying to measure and report on over 500 things was not all that useful, clearly. It did not really improve the organisation particularly. So really bringing that down to much more focused and relevant reporting is something that I am absolutely open to.
Mr TAYLOR: No time line yet?
Mr Jordan : No time line for the quarterly reporting of that nature, no. Not that I am aware of any way.
Mr Leeper : No. I was also struck by the Danish system. I cannot remember all four but they just have a simple two by two that says something like don't increase the tax gap, reduce debts, build customer satisfaction and I am not sure what the fourth one is, but it is just really simple.
Mr Jordan : As with a lot of these things, we have moved from way, way too many, over 500, and we are probably a lot better placed, but I feel there are probably too many there as well. Hopefully next year we can further refine it.
Mr TAYLOR: I look forward to it.
Mr Olesen : You would have seen in our submission what we said about the tax gap and the tax gap measurement.
Mr TAYLOR: Yes, I have.
Mr Olesen : We have no ambition to do it on a quarterly basis. It would not be possible. It is not possible to measure tax gaps on a quarterly basis.
Mr TAYLOR: I think, to be fair to the UK, all the other measures are shorter term. The one that they actually do, I think only once a year, is the tax gap.
Mr Olesen : And they recommend every two years, I think, which is the benchmark we have gone for on tax gaps. So, no, we will not be doing tax gap quarterly. On other measures, like the community satisfaction, we have amalgamated our community perception surveys. We did them across a range of markets in the past but have recently amalgamated that into a single survey of client satisfaction, in a sense, across a range of bases, and we are doing that quarterly I think now. So, on that measure, to use one of your examples, we are getting pretty close to quarterly measures of performance around people satisfaction.
Ms BUTLER: What is the financial incentive to take a VR compared with waiting to see whether or not you get made redundant involuntarily? Do you get more money if you get a VR? That is my question.
Mr Olesen : I think the safest answer is: it depends.
Mr Leeper : The nature of the redundancy is what determines the tax treatment. If it is a genuine VR—
Ms BUTLER: No, sorry, it was not a general question. For employees of the Australian Tax Office who elect to apply for a voluntary redundancy instead of taking a lottery to see whether or not they are involuntarily made redundant, is there a financial incentive—do they get an extra four weeks pay, do they get an extra week of pay per year of service? The question that I am driving at is: are they genuinely voluntary or are people just seeing the writing on the wall?—in which case your suggestion that there is this sort of lovely sense that everyone is just going because they want to is undermined.
Mr Leeper : I am sorry, I will have to take that on notice to be accurate.
Ms BUTLER: Thank you.
Mr Jordan : I can describe to you what the situation is with the voluntary redundancies; I am very familiar with that because we have not had to go down the involuntary route. I understand there is not a huge difference—but we will come back to you—in the financial outcomes between the voluntary and the involuntary but there is quite a different process about being declared excess to requirements and notice periods and ability to be redeployed and all sorts of other things there. But, in terms of the quantum of the payout, I do not think there is a significant difference between the two, but we will clarify that.
Ms BUTLER: The Reinventing the ATO initiatives sound really fantastic. I am interested in whether or not you are thinking about how the tax office can help other government departments through your really fantastic online services—for example, the 'pay now' functionality on your website that you mentioned in your submission. Can you use that to pay debts owed to other government departments—Centrelink or child support debts that might be owed to a former partner? Is it possible to integrate other departments' needs with that site?
Mr Jordan : Before I ask Geoff Leeper to comment on some of those whole-of-government initiatives, I will say that there is a lot of focus within government across the agencies and departments as to what the ATO is doing. We seem to be portrayed as making change in an organisation that people thought would be very difficult to implement change in, given its size and history and some of the cultural attributes of the people. Certainly I have been doing a number of talks to the APS leadership group and to the secretaries group in terms of presenting on material. We have been sharing with certain agencies and departments, on a one-on-one basis, a lot of our material.
There is a significant push to have more whole-of-government initiatives; hence our decision to go through the myGov entry point to myTax. I was concerned that people who were already registered for e-tax had to do a one-off authentication and registration there that might have spoiled their good experience with the product, but we have had very few complaints around that. We have had a few who were a bit annoyed. They had to go and register themselves again when they were already registered, but we chose to support the whole-of-government initiative, which has been evidenced by so many of the people who have gone in for tax registry for Medicare, Centrelink, electronic health records and that sort of thing.
Mr Leeper : As you mentioned, recovering debts for other agencies would be something that could be looked at. That would be a decision for government. We are part of myGov. We have just deployed a voice authentication into the ATO. Already 9,000 people have recorded their voice prints and 360 of those have then subsequently successfully used just their voice to prove identity with us. We deliberately constructed that in such a way that the licensing can go well beyond the ATO.
Our contact centres have the ability to take not only ATO calls but other calls. That would depend on decisions made by other government agencies. So we are certainly a strong player in whole of government. I think that is very important, and that is why we took the path we talk with myGov. But decisions to recover debts on behalf of other agencies would be decisions for the ministers, I think.
Mr Jordan : Just on that voice authentication: I should mention that it is just literally only a week or two old and it has had a number of people. I see that as a great breakthrough because it is very secure. We always seem to have very complex authentication procedures in the government. I think people are all loaded with passwords and usernames and all of that. I see it with your smart phone and your tablets—you are able to speak into those and you are on. You are onto the system; you log in and just use your voice to authenticate yourself and there is your account and everything—your myTax on that. I certainly see that as the way we have to move and I would expect that there is an expectation that it is the sort of thing we can do.
Hopefully, we can migrate that into the myGov thing and have that as a quick and easy way to authenticate yourself.
Ms BUTLER: It sounds fantastic.
CHAIR: Can we just pause for a moment? Because we have some members coming and going and coming back and we are in peril of not having a quorum at one point, could I have a member please move that we form a subcommittee to collect evidence today comprised of myself as chair as well as Dr Chalmers, Mr Taylor, Ms O'Neil, Ms Butler, Mr Goodenough, Mr Van Manen, Mr Williams and Mr Sukkar? Thank you, Doctor. That will allow us to keep going and gathering evidence, even if we get down just to 'me and Bobby McGee'!
Ms BUTLER: I have two more very brief questions. I greatly appreciate your submission and the view that willing compliance is really prevalent in Australia and that it is important to have a light touch. But equally there are—and this is in my mind because I have been doing the child support inquiry in the social policies committee—there are some recalcitrant people when it comes to filing tax returns, for example. Is there any consideration at the moment about the failure-to-lodge penalties and whether those failure-to-lodge penalties strike the right balance between light touch and genuine incentive to file, for example, for people with child support obligations?
Secondly, on a related topic, I notice from your annual reports that the use of the formal powers of access have declined steadily over the past three years. Is that beneficial? Is it a desirable thing that the formal powers be used less? I think that overall formal powers have been about level but there has certainly been less physical use of access powers. Or do you have to maintain, in order so that people do not assume that you are a light touch and an easy mark, robust use of formal powers?
Mr Jordan : Certainly, there is a flipside to us talking about offering a lighter, no-touch interaction for those who have a demonstrable history of willing compliance year in and year out. The flip side of that is a correspondingly harder, heavier-handed approach to those who demonstrably and year in, year out do not comply. I think there is quite a lot of leverage to be had from better use of the data that we have—better analytical capabilities and smarter use of the data—to refine further and profile people so that we can have those active compliance measures.
Neil might want to comment on the non-lodgement scenario, but in terms of the formal powers I personally would be very happy to promote the notion of better early engagement and trust between parties and therefore to have that interchange of information in a more trusted environment—I ask you for something and I trust the fact that you are providing a full and appropriate response—rather than the heavy-handed: 'Here is the formal lodging of a notice to comply and to produce information.' I do not know if Andrew wants to mention anything further on that.
Ms BUTLER: But last time you spoke to us you expressed concern about people not providing you with enough information at the audit stage and then objections having to be lodged and a large number of those objections being successful because people introduced new information at the objection stage, so does that indicate to you that, while a lighter touch is generally preferable, people are taking a little bit for granted that you will not insist on information being provided?
Mr Olesen : No, I do not think so. For the vast majority of people building a good relationship and being clear in a dialogue about the information you want, as opposed to lengthy questionnaires, will almost certainly get you a better outcome quicker and cheaper. We certainly need our people to be well trained in the facts and the evidence they need to be able to support the decisions they are then asked to make in a manner that might then sustain it in various review processes, so it is combination of making sure our people have the right skills and understanding of the facts and evidence involved—and that involves my people working very closely with Andrew's people, who are the law technicians, to make sure we have a good relationship there, a good synergy there—and having a sensible use of our powers of access. Like Chris, I am not surprised to see the trend decline. I think that is one measure, if you like, of the changes in approaches that we are taking. I do not anticipate it will reflect in the poorer outcomes at disputes though because with the right capability our people will know whether they do or do not have the information they need and if they need to can use those formal powers to access that information.
Ms BUTLER: What level of delegation do you need? How senior do you have to be to decide to use formal powers?
Mr Olesen : I would probably have to take that on notice. It is relatively junior. We push it down to team leaders.
Ms BUTLER: Thank you. I am sorry: I asked three questions when I said I had two.
Mr Olesen : Just on the failure to lodge penalty question, we have a range of strategies that are designed to try to improve lodgement results for individuals and for other markets. Penalties probably are not top of mind for us as the key tool. It is a tool and a factor. It is a lot in the behavioural economics space that we have been starting to toy with. I have got here in the notes some examples of things we have piloted. For example, prefilling returns for people we have identified have not lodged to the extent we can—much in the way we have for myTax—sending it out to them and asking them to fill in the rest and send it back. That has shown some quite astoundingly good results. There are a range of other tweaks we have done to processes that we have. Indeed, the 85 per cent lodgement rule around tax agents—and there is a bit of controversy around that at the moment—too was part of an overall suite of things designed to push overall lodgement rates up. When you look at the totality, it, along with other measures, has helped with that outcome.
Ms BUTLER: I understand what you are saying—and this is on my mind because of the child support inquiry I am doing. We have people say to us that they are not going to file their tax return because then their ex-wife will get an adjustment of their child support. Those people maybe are not going to respond to the behavioural psychology—
Mr Jordan : Can I just jump in there because that is interesting. As I understand it, the trigger for the running of the data against the requirement for payment of your child support is the lodgement of the return. As Neil touched on, we have a lot of this information, so maybe it is just to look at what triggers the assessment of child support. As I understand it now it is both parties lodging their tax returns and then there is a comparison done and a revision of the payment requirement. If we do have recalcitrant people because they want to avoid their obligations then why don't we run the data that we have? We know their salary and wages, their interest and their dividends. What we will not know is their business income—
Ms BUTLER: Yes, that is part of the problem—the sole traders.
Mr Jordan : If they are in that small business area, that is not so easy. But maybe we can provide prefilled information to the Child Support Agency, saying, 'We know this much.'
Mr Olesen : If my memory is not letting me down—it has been a while since I have worked on child support matters—I think we do have the ability to do default assessments too, so if we do have the information available we can issue a default assessment based on what we do know. I think that plays into some child support cases.
Ms BUTLER: This is one of the reasons I asked about whole-of-government collaboration, because—when I looked at the FTL arrangements that say, 'If you have a refund or a nil return, we are not going to charge you the FTL penalty'—it struck me that it would be easy to tack on to that 'or, if you have a child support liability, we will chuck in the FTL penalty then.' This is always a challenge in any big organisation—I know it is not about the tax office particularly—but it seems to me that there are many opportunities for collaboration.
Mr Jordan : It would be of interest to us if you do have a sole-trader small business operator who is failing to lodge a return to avoid child support. We would be interested to know that anyway, because they are not lodging a return for their business.
Ms BUTLER: Exactly.
Mr Jordan : Maybe we just need a better exchange of information between the child support agency and us to work that out. We would be happy to go and speak to that small business owner and say, 'We need you to lodge your details for our own purposes, and we have been made aware of this through the CSA.'
Mr Leeper : For wage and salary earners, the commission mentioned a single-touch payroll system before, which I stress is a tax office idea, not a government policy. Single-touch payroll overcomes the fundamental disjoint between an employer paying wages and deducting tax and that being remitted to the tax office on an annual basis, at least from an information point of view, and people getting statements of income and things. Single-touch payroll would generate all of that data for taxpayers every fortnight, and with the appropriate permissions we would pass that through to the Centrelink and DHS agencies. So if you are a wage earner out there at some point, you are going to be visible—much more so than now. The interval in which you are not that visible is going to be quite short. At the moment it is at least a year, because that is the annual tax assessment cycle. That is a side benefit I had not considered. We certainly thought that single-touch payroll would greatly improve overall compliance for the income support agencies.
Ms BUTLER: Because it would make it easier?
Mr Leeper : Yes. It creates the notion of a tax account rather than an annual tax statement.
Mr Mills : Can I go back to a point you mentioned around the provision of information at audit versus after objection? I expect that we will see a trend down in that kind of occurrence, and I am not going to call it 'behaviour', because I do not think it is necessarily always a planned behavioural response, but just a response to the way in which we have engaged with people in the past compared to the way in which we engage with them now. There is a much more refined level of engagement around the audit, getting clarity around questions and the way in which we approach taxpayers. That conversation is going to tease out a better quality of questioning so that we actually get the kind of information we are after—not to find, after the objection has been lodged, that there is a realisation about: 'Oh, that is what you were after. Here it is.' So I think there will be a trend down in that kind of response.
CHAIR: I will direct this to our panel of peak bodies. When the commissioner came to the position, he stated that he wanted to decrease the large number of consultation forums from 68 to eight. How has this worked from your perspective as stakeholders?
Mr Jeremenko : The reduction initially was resisted by a number of organisational representatives, but within a short period of time it has become quite apparent that the new model is very workable. The reduction in duplication is very welcome from the professional bodies' point of view, and I am speaking for the Tax Institute. A number of the old-model consultative groups involved a number of our members needing to attend, of course, as they do now. But members attending means that they are being taken away from their day job, and they do not mind doing that—if it is seen to considerably add value.
As I say, there was a lot of duplication that has pretty much been eliminated in the consultation space. I still think it is early days in terms of the new model. I do not think it really started to find its feet until about December 2013. But the tax office has been very up-front in setting up, if you like, a steering group for the new consultative structure, which we as professional bodies are all members of. That gives us the oversight and, I guess, the opportunity to tweak this new model as it is bedded down. Certainly from the Tax Institute's perspective it has been a positive change.
Mr Croker : I would agree with Robert. There was a sense of loss in some regional areas, I think, where it gave the local practitioners a point of contact in the ATO—someone that they could call; it may not even have been in the region but someone they could go to to sort through problems—but those sorts of concerns have dissipated over recent months.
The other sense of loss was the FBT group. Tax is made up of various specialties—for example, there used to be an FBT group and there is no FBT group anymore, so some practitioners with those special skills felt that. But the contacts can still be maintained and we encourage that on an informal basis with the relevant skilled people inside the ATO. I think that can still go on without necessarily having regular meetings.
But another interesting thing is that we now see the ATO with their Reinventing the ATO project. Down the track we can see a really heavy emphasis on SBR, for example, which we support. There will be a pendulum swing, I think, and we are trying to work this through with various players in the ATO about how we engage with regional practitioners and people who are not necessarily in the loop on SBR to have roadshows or other sorts of forums where we can collaborate with the ATO to sell messages about things like SBR and deal with common questions et cetera. To some extent the ATO has already recognised this by conducting a series of forums—I think there is one in Rockhampton, for example, coming up this week—so we are seeing an effort to engage a little bit at a regional level to handle our local practitioner issues. But I suspect that if we are going to do a change as part of the reinvention project there will be a need for some program coordinated regional activities to start engaging with practitioners who have not switched on to SBR or whose clients have not switched on to SBR.
Mr Greco : Yes, I agree with those comments. It is a question of balance. There were too many forums and there was a lot of duplication, but I also stress that there were specialty groups that provided a lot of feedback to the ATO and some of those have been disbanded. So there is a loss of contact with industry on certain specific issues. I take for example the Lodgment Working Group. Things have gone off the rails so that group has now reintroduced meetings. Again, it is a question of balance. We are very supportive of the new model. There are opportunities for anyone to raise issues on the so-called consultative hub. Then there are issues pertaining to tax practitioners and there are still one or two forums in relation to bringing those matters to the attention of the ATO.
There is also a loss of some other specialty groups and we find it difficult to relay those issues into the new forum structure. So, again, it is a question of balance. I think the ATO has acknowledged the loss of some of those opportunities and, I think, is looking at reintroducing some of those. There is always the opportunity of putting a group together, but it requires a lot more. The ATO is now in the driver's position as far as the when and if and how of these specialty groups, whereas previously it happened on a regular basis.
Mr Strong : Yes, and when it first happened I thought, 'There is a new person there. They want to change something—let's get rid of some groups.' But the reality is that the changes that a lot of us thought should not happen have been quite good. The impression I get, and this is what we will know over the next few years, is that it will be a reactive and proactive approach. As Tony and Michael were saying, as things happen, particularly when tax agents are forced to use SBR or whatever, I think we will see a ramping up of communications and meetings et cetera, but then we will not get bogged down and just have that sitting in place for four more years. I think that is the issue. You have to react to, or be proactive about, an issue, but then you have to move on to the next one, rather than maintaining these things which have been there for an awful long time, just sitting there, perhaps, and in some cases not delivering much information. Those particular areas that the accounting groups and tax groups are talking about are very important to our members. But it is, hopefully, an opportunity to deal with it as it is, rather than as some ongoing problem, and, hopefully, fix it and then move on to the next issue, because they will keep cropping up. As new policies come in and as new technology occurs et cetera, we are going to have different issues. So from our point of view it is working. It is giving more of my members a chance to participate than before.
CHAIR: We are all a little reluctant to change; we get set in our ways. Does this good experience give you a greater appetite for change during this transformational period?
Mr Strong : It certainly means we can get involved in something knowing that it is not going to go on for another year or another two years. So we say, 'Okay, we have an issue. Let's talk about it and confront it; let's do what we have to do and then move on.' I think that would suit our members, as well. They do not want to get involved in something that just seems to go on and on.
Mr Jordan : I think a fundamental aspect of the change was exactly that. Some of these committees were formed 10 years ago with some legislation, and often they were largely of the same people 10 years later. It did become just a bit of a process—the meetings were held quarterly, there was an agenda, the people would get there and tick off the items—whereas I am much more focused on that shorter term: 'Here are the issues that we have today and need some help on. Who are the best people around in Australia for this issue to help us work our way through it?' And then, stop! As Peter said, there is no expectation that, if you do that short-term thing, it is going to go on for four years. You do it for more like four months, and then it stops—and then there is the outcome. So it is much more outcome focused.
CHAIR: Terri has to leave. We will have a break for a cup of tea.
Ms BUTLER: I will be back for a quorum very soon. I am very sorry to have interrupted.
Proceedings suspended from 18:02 to 18 : 18
CHAIR: We will recommence. Would the Inspector-General like to make some comment?
Mr Noroozi : Unless you have in mind any specific comment, I can provide some commentary on what has been said so far.
Mr Noroozi : Can I start with the consultation forums? Maybe their members talk more loudly to me; I am not sure. But certainly, in terms of the tax practitioner review that we are doing at the moment, we have heard disquiet, particularly about the regional ATPFs—the lodgement working group. I think there is general acknowledgement that we had too many consultation forums. I am not too worried about it, because I think there will be self-correction. In other words, it is like the swing of a pendulum: we had too many; we may have gone to too few. But I think that, over time, the tax office is reinstating some of them or some of them are coming back in some way, shape or form. So right now I am not too worried, because I think it will self-correct. The one area we have looked at and I can comment on is, for example, with transfer pricing. Given where it is at, I think there is a group. But we had asked for that to be ongoing for longer, for reasons that are in the report.
In terms of the ATO's support of tax practitioners, what we are hearing from the smaller tax agents particularly, is that, since the regional ATPF, ATO tax practitioner forums, are no longer, they feel as if they do not have a forum where they engage and consult. The other forums they go to are more where they receive information rather than engage and consult. They have also made comments about the lodgement working group, but I understand that something may be being done about it—on the consultation forums.
The other issue is this: I think Michael Kroger said that people can still raise issues, but my only issue with that is that when you have established working groups there is transparency. You can see what questions were raised, and everyone can see the tax officer's response, because those minutes would be on web sites. The agendas are on web sites. If you can manage that and that information can be disseminated in some other way that is great. But there is the issue of transparency. That covers the consultation forums.
On the net there was a lot of discussion about when we will be able not to lodge a tax return. The tax office is doing what it can. There is the bigger issue of what you are going to do with work-related expenses. Until that is resolved, the tax office can make it as easy as possible—it is the holy grail of the Australian tax system. You are going to have to do something about work-related expenses. People do like to claim their deductions. I think the previous government at least made an attempt at it by using an increase the amount of standard deductions, which at the moment is about $300. Clearly that was not high enough and there was disquiet about it. There is something in the policy/legislative space that needs to happen, irrespective of how easy the tax office can make it.
There are two sides to everything. In terms of the assertion, I think you referred to a transcript that advisers sometimes leave stuff only to raise it at the objection stage. We hear the other side, too, which is taxpayers and tax advisers complaining that new arguments have been introduced at the objection stage or later in the process. There are improvements to be made on both parts, but that is something we can revisit in the tax dispute space.
In terms of benchmarking, there was a fair bit of discussion at the beginning. All I can do is share with you what we have said about it in the past. You may recall that some years ago one of the recommendations I made to the Tax Forum in 2011 was that there should be an oversight or advisory board. The then government announced, I think more than once, that they would have an advisory board. With such an oversight board—ASIC and APRA both have one—one of the things it can do is set those benchmarks, to provide some degree of separation.
The other thing with the review of self-assessment, in terms of measuring the cost of compliance, is that I think something we do not measure at the moment is the taxpayer's cost of compliance. In the review of self-assessment we made a suggestion that perhaps the Productivity Commission could make an estimate about what that might be. That is also a relevant factor that needs to be measured.
In terms of tax gap, I think the current tax office should be congratulated. They are making inroads in terms of also doing it in the income tax space. I notice that Mr Taylor referred to the UK, where at the end of the year they explain in their annual report what it was and why it was not quite what they thought it should be. I think those are all measurements that are useful.
Ms Butler raised the question of failure-to-lodge penalties. We looked at that some years ago—we have looked at it more recently but pertinently some years ago—when we did a non-lodgement of returns review. At the moment what happens is that if somebody does not lodge on time they do not automatically get a penalty. They only get a fairly nominal penalty once they lodge it late. The previous government had the stimulus package, where you needed to bring your tax returns up to date. I think the non-lodgement number was around nine per cent when we did the review, but post the stimulus non-lodgement reduced to somewhere between four to five per cent. The recommendation we had in that review was that it should be like some other countries where if you are in the system and do not lodge a return you get a letter issued which says that if you do not lodge by a certain date there will be a penalty. We may have kept a lot more people in the system, having gone from around nine per cent to four to five per cent. If such a penalty had come in I would be interested to know what the latest statistics on that are.
I do not want to give answers off the top of my head. I have only commented on stuff that we have already reviewed and commented on in the past. Do you wish to add anything, Mr McLoughlin?
Mr McLoughlin : Probably just to look at the general tenets around good administration of taxation. We talked around lodgement and one-touch or light-touch. If we look at it, the system is built around registration to identify taxpayers, at first instance. Then we look at issues of reporting and collection. To some extent, with respect to the collection mechanism, making sure obviously that monies are with the revenue authority at the appropriate time is one of the issues that is central as an outcome. Where the reporting actually occurs as a lodgement type issue—which is going to the point earlier about default assessments—I think is actually quite important. We are actually linking our system in to do other jobs. I think the other commissioners have touched around this particular area. But I think a central issue for us to draw in is what the inputs and outputs we are linking to are for those particular processes that align on either the reporting, or in relation to the cash collections. That is where there is an opportunity for policy changes, as I think the commissioner is articulating. It is around some of those aspects as to when it is we decide to hit default mechanisms in order to press things through the system to give rise to the ability to collect under other agencies, whether it is child support, or otherwise. Some of those issues are very important. Additional policy considerations will be required as to how that should be effected.
CHAIR: Moving on to Tax Institute submission questions, tax agents are becoming increasingly reliant on the tax agent portal. What steps are being taken to ensure the portal is operational as often as possible, especially during peak periods?
Mr Leeper : The tax agent portal is relatively old, and I think we are having trouble maintaining the infrastructure to a state or a degree that is satisfactory from the tax agents' point of view. Nevertheless we have adopted an internal service standard that the portal should provide three seconds or less response time 95 per cent of the time. That is measured daily. I have a chart I can provide on notice that shows we have had intermittent problems in the past 12 months, but, of course, this is on a per-day basis. Within a day you might have periods of difficult access, followed by periods of relatively rapid access. Overall, it meets the three-second standard. I do myself no favours here, but a chart I could provide to the committee is probably the best picture, rather than the worst picture, of access.
That said, we have put in place arrangements for tax agents to alert us quite quickly when they see problems that we might not have picked up. Certainly through this tax time, I have insisted that we have quite a rapid response capability when we do get reports of delays in portal response times, which is the major way that it presents. We minimise actual outages as much as we possibly can, although with a system with many, many parts—60,000 interfaces—there is a lot of maintenance work that has to be done. Occasionally on weekends, we will have to bring the portals and the mainframe systems down. When we do that, we try to limit that to say 9 pm to 6 or 7 am in the morning. In large part, that is successful.
We keep our ears finely tuned to the feedback from tax agents. We understand that this is fundamentally how they do their business. Whilst we have not met that service standard at all times, certainly I want to make it clear to my people that we listen very, very carefully and respond quickly when there are problems. We acknowledge there has been some issues, that's for sure.
Mr Jeremenko : The analogy that we use internally is that it is, as Mr Leeper said, an old system. The portal is almost like a dinosaur that is trying to deal with the 21st century. I believe it is only from 2002, but iPhones were a mere drop in someone's memory back then. It is all very well to keep an eye on the stats in terms of the operation, and that is something the tax office needs do, but it is especially so in an environment where tax practitioners are continually being pushed more and more towards an electronic way of interacting. The amount of reliance they currently place on the portal means that outages, whether they be planned or—more problematically—unplanned, really do have a huge effect on practitioners' ability to function.
I know the tax office is aware of this. Through some of the remaining fora of consultation, we continue to raise this. It is certainly an issue that we think is worthy something like a post-implementation review, in terms of whether the portal still worth patching up and continuing. That is, considering all of the negative downsides in terms of its operation. My colleagues could possibly add to that.
Mr Greco : It is frustrating from a practitioner's point of view when you have got the ATO spending a lot of money on new, beaut apps for end users. Then you have got the portal, which I think we acknowledge is outdated. There is a process where they are going to migrate it to a better platform. But it is not best practice; it is far from best practice. If a bank organisation said to its customers during the busy time, 'Can you sort of back off?' that is not what practitioners want to hear. They just want to get on with their job and, like Robert said, their underperformance standards to get returns done efficiently. Does it meet best expectation? The answer is no.
We have to live with that, because we understand the constraints. The portal has been being fixed continuously since 2002. You have got more users. The BAS people are now using it as well. You have got a fairly substantial load on an ageing system. I think the ATO's is caught in whether they do a patch up and how can they keep this thing going just to get us through tax season 2014. It is just a cause of frustration that best practice is far from best practice when it comes to a critical piece of infrastructure for them to do their day-in, day-out process, which is assisting taxpayers with their tax obligations. It is just frustrating and it causes a lot of angst in the tax practitioner community.
Mr Noroozi : I will balance it out by saying that in the submissions we have received to the tax practitioners' services review that we are doing, people actually do like the portal. They do think it is something that they could not do without. But they do have frustrations with functionality and with down times. I do not want the impression to be left that we should do away with it, because I think it is something that tax agents use a lot and are reliant upon. It has become part of their tools of trade. Many of them believe that they cannot do without it.
The other thing I would say is: whilst people do want improved functionality and decreased time lines, what they are also concerned about is whether, if it were to be replaced by a whole new system, there would be disruptions. What is in their minds is what happened with the previous IT upgrade—the change program—and the flow-on effects from that. From what we have heard, there seems to be a cautiousness with which they are raising their concerns, because they are worried that, if there were going to be a wholesale change, it might attempt to solve a few of their current irritations but give rise to a much bigger problem. I think the tax office can talk to that, but I would understand why they might want to tread gently as to what they do.
Mr Leeper : Can I add that our intention is to do at least two things—obviously, to maintain the portals as best we can in their current state, but to move a lot of the desired functionality into two places, one of which is ATO Online in general, which is a more robust platform for online services. The other is to work with the software sector to incorporate portal access functionality into the software that is being built to accommodate the transition from electronic lodgement to standard business reporting, which will commence from July next year and become the lodgement method by 30 June 2016. So we have been consulting with the tax agent community around those things. Our message is basically that we need to maintain the portal access, because that is fundamental to their business, but to move it to a more robust platform, from the ATO's point of view, through ATO Online, but also to work with the software sector to provide the portal access functionality in the software that businesses can use to run their taxation practices.
CHAIR: So is it correct for me to say—I am trying to understand this—that you have a raft of other IT solutions to take the load off the portal, as it is overloaded?
Mr Leeper : As Mr Jeremenko said, it was implemented in 2002 and I think it is fundamentally the same as it was 12 years ago. In IT terms, that is a long time. We think that moving it into the ATO Online platform, which is a more current generation of technology, should assist with reliability and performance. But we will not be cutting off the old service and saying, 'Jump onto the new one.' They will run in parallel to a point where we can then, in consultation with the sector, close down the current, somewhat clunky, portal access.
Mr Noroozi : I think that is a really good way to go, because one of the problems with the change program was that one system cut over to the next. So if they can run it like that I think that would be ideal, because the impact on tax agents would be minimised.
Mr Croker : If I may add: our submission to Ali probably reflects a more benign or favourable view of the portal, as he indicated. But what Geoff Leeper just described as really the Holy Grail of design, from a practitioner's viewpoint, for those clients who wish to stick with the tax agent—and I acknowledge that some clients will depart from that relationship—is to be part of that tripartite information loop—the so-called dashboard approach. To give you some idea of how exciting this technology is, Australia Post, just last week I think, signed an agreement with the Department of Human Services to trial communicating with Centrelink people using secure mail, which would be a fantastic design feature for this portal. So the key communications could be seen by the adviser and the taxpayer, but other communications could go straight through. This is where the sensitivity arises, in the sense that we want an implementation strategy which acknowledges that, if there is a desire to seek tax agent advice, they are somehow in that loop. That can be done with careful design, using the skills of our software industry, but it does require a great deal of collaborative effort, we think.
CHAIR: Dr Chalmers?
Dr CHALMERS: I have various questions not specifically related to that issue. The first is: there has been some welcome media attention, including today, to the issue of the cash economy, and particularly as it relates to small business. I was hoping we could get Peter's reflections on this idea that small businesses that are not paying tax are obviously disadvantaging small businesses that do pay tax. So if I could get a sense from Peter on the sort of work that his organisation does in this space, and if I could then get an ATO colleague to give us a sense of the work that you are doing in terms of the cash economy. This article today suggests that up to $25 billion a year is being lost due to people not paying tax, because of the cash economy. Could I get Peter's sense and an ATO sense.
Mr Strong : I was on the tax office's cash economy task force for many years. I do not know where that is going under the new processes. The good thing about that was that it engaged with industry. There were various campaigns—for example, the concrete-layers in Victoria. So the concrete industry would be brought in; they would support it because they realise that the people that deal in cash have an unfair advantage over those doing the right thing. They would support it and go out and send the message that you need to do something about it. It is certainly something that we agree with.
The hairdressing industry in particular sees the backyard operators as a problem. The industry says 'If they pay tax, that is fine, but they often do not; they also do not contribute to the training of the sector,' and that sector is built on the training of apprentices et cetera. They see that as letting the whole industry down as well as the tax system. You find that across other areas as well. The interesting thing is the growth of signs saying, 'We do not take credit cards,' or, 'We only take cash.' Everybody seems to think that the reason for this is they are going to dodge paying tax. If you were trying to evade tax, you would not advertise it like that, would you? The reason is that the cost of credit card facilities has gone up. I know some very good business operators who say, 'Look, it is just that I have to put another line into the shop,' or the bar or whatever it is, 'so I can communicate with the banks. It is going to cost me more money, so I just take cash from my customers, and that is it.' They pay tax; they are not dodgy at all.
There are people who delve in the cash economy—the black economy—who do it on purpose. Go and do what you need to do with them, because they give the rest a bad name. I am concerned about the people who do it because there is no choice and about the normally honest people who do it because of the customer or because of their workers. One fellow I know had to go to Sydney because his mother died, and he could not work in his shop on a Sunday. The only person he could find to replace him said that she would only do the work for cash. In the end he closed his shop, which was a bit sad, but other people would take that offer. You have to say that the cash economy is something that exists not just within businesses but elsewhere. I notice they talk about cleaners who take cash for cleaning at home; there is someone giving them the cash and there is someone taking the cash. So there is a little bit of cultural stuff here. I do not know whether anybody in this room has ever dealt in cash with a cleaner, but that is the sort of staff that we want to work with the tax office on.
Yes, let us crack down on people who deal in cash that should not; let us get the message out there that you are letting everybody down, that it is not right and that we will support the tax office in what they are doing there. Let us talk to the other people who find themselves caught in a trap as well, and make sure we can change whatever that trap is. People often employ their first staff member on a cash basis. They do it because they do not have the software or whatever else they need in place, and the only solution they can find is to pay cash. It is not a solution they want, because they are really afraid of injury and they will not have workers comp or anything like that. There are solutions to that issue. But people do not do it because they are dishonest; they do it because it seems to be the only solution that they have in front of them. So we certainly should support them.
One of the things that the tax commissioner talks about is the fact that most of us are complaint. As we do the cash crackdown, we have to try to make sure to leave the honest ones alone, and make it very easy to go and find the dishonest ones.
I know that Ali has been talking about benchmarking. It is still in its infancy to a degree. It is about two or three years old. I remember when it first came in that we would review it. It gives an indication to people by saying: 'If you are within this, that is fine, but if you are outside it, well, we need to have a look at why. If it is for a good reason, then that is okay.' That also gives an indication to people who are sticking cash in their pocket that they should not be doing it.
Dr CHALMERS: Does that task force no longer exist, Chris?
Mr Jordan : I am not sure.
Mr Olesen : I am also unsure. I am not sure that the task force still exists in the form that Peter engaged with. Certainly, an active team in our organisation still does this work. The way in which they engage with organisations like COSBOA may have varied from the days when we had a thing called a cash economy task force, which was a mechanism to engage with stakeholders around the strategies we were adopting. So I think we have relabelled it, but we would still be engaging with people on the kind of thinking we are bringing to addressing cash economy issues.
Mr Strong : One of the things about that task force was that it had people coming from other jurisdictions, from New Zealand, Sweden, Britain. It was fascinating to hear what they did with cash, and we do not want to go down that path! Okay? Let's just do it this way, whatever way it is—we have to catch them. I think it was in Sweden that they have a black box connected to every cash register in the country that only tax agents can open—
Mr Strong : and the business pays for it. Can we delete that from the transcript!
Dr CHALMERS: Peter's just reconvened the task force, by the sound of it!
Mr Jordan : We are going to get the task force up and running again!
Mr Leeper : But Canada has the same thing, because one of their tax lawyers was given a restaurant to audit and it happened to be the one where she and her husband had had dinner on Friday night, so the first thing she did was pull her bill. Instead of two entrees, two drinks, two mains and two coffees, it was one, one and one. So they now have these boxes that get around the zapper technology that split the bill into a taxable and a non-declared component. So it is not just Sweden.
The other thing I will quickly say is that if you have a search on YouTube you will find an extremely funny Swiss tax authority video on cash and a fellow in a milk bar who does not ask for his receipt. It is well worth a look. Our staff love it.
Dr CHALMERS: Okay. Can we get a sense of the sorts of strategies you are employing to crack down on the people doing the wrong thing?
Mr Olesen : Yes, sure. I was just going to make a couple of observations. One is about the size—you mentioned the $25 billion figure. We have not done a measure. The tax gap work that is covered in our submission will get to that point. The Australian Bureau of Statistics have published a figure around what they call 'the unobserved economy', which kind of overlaps with the cash economy, and they set it at a certain figure. They had it at that level in their 2003 report and it has remained unchanged, up to the report they updated last year. I do not know what that converts into. Through the tax gap work that we will be doing, we will be seeking to make our own measure in this area as part of that activity over the next couple of years.
The other observation I would make is that countries like Australia are at the forefront of technologies like payWave, so cash—as you will see from a lot of the papers—is less becoming less feature in our economy. Now, that in itself is a helpful development because that means the money is in the banking system, and we have already seen cases where there are mismatches between data we can access from the banks and what people are putting in their returns. So that is a helpful development. It is interesting that behaviours when dealing with cash have still flowed over, notwithstanding that people are using the banking system. They are used to a model where they would hide some of their income and they carry those behaviours over, even though a lot of their income is showing up through the banking system. It is easier for us to address that.
The activity that you have seen reported in the papers this week that we have been doing in Sydney is one of the new strategies that we have been adopting. That builds on some of the information we have been exchanging with other jurisdictions—for example, the New Zealanders. The current thinking is that a lot of the cash economy work is driven at a community level. So, quite apart from using your data and analytics to identify where the highest-risk industries might be and targeting people in a remote way, there is something in community based strategies that make the work that we do more visible that can have a big impact on how the community sees it. Indeed, that is part of our thinking behind wanting to progress some of the tax gap work: one of the benefits of having a measure there that we think has some robustness behind it is that it will help feed a community debate about tax-paying behaviours. We know, and all the theory and research will tell you, that social norms play a big part in the way in which people think about their compliance and ultimately their behaviours; and there is a place, I think, for us to assist a broader community debate around tax-paying behaviours. Indeed, the strategies you have seen unfold in Sydney this week have already played a little bit into that space, where there is greater visibility about this issue.
So we continue to deploy a significant workforce to these kinds of activities but we are very interested in and continue to explore best-practice approaches to different strategies that we can employ that we think will make a difference.
Mr Mills : I might just add one thing around that, and that is: it is not just a tax issue. I take Peter's point about the small business that could only get a person to work on Sunday if they were paid cash, but sometimes the reverse is the case, too, and the small business, the cafe or whatever, is not prepared to pay the Sunday penalty rates and so on. Therefore, it gets to the level of payment, the potential underpayment, particularly of university students and people who may not be in a position to bargain or people who may simply be prepared to take whatever. That then has a flow-on effect in terms of their coverage from a workers comp point of view, superannuation and other taxes such as payroll tax. There is a broader spectrum of things at play here as well.
Mr Jordan : That is the point I want to make—that yes, there is the issue of a level playing field, so the honest taxpayer cannot compete effectively with someone who is not paying the tax, but there is a strong correlation between other aspects. Often if you are in the black column, if you are not declaring your income, there are other things you are not doing—you are not paying proper award wages, you are not making superannuation contributions, you are not set funds aside for employee entitlements. There are these other issues in this area, which one should not disregard.
Mr Noroozi : I probably have a bit more history with some of this. On the benchmarking issue we have been involved because we did a review into small business benchmarking. I know there are people in Neil's with whom we are working on implementation of some of those recommendations. So there are things being done in that area. Basically the strike rate when we did the review was about 26 per cent, from memory. That means somewhere between 700 to 800 were found to be outside of the benchmark and of those, for around 26 per cent of those which were looked at there was an adjustment. We have made a number of recommendations about how, as Peter said, to go light on those who should never have been caught within that range, as well as made a recommendation about how those risk assessment tools can be improved.
There are also others in this as I think the commissioner said. I think small business people who are in the cash economy may not be a huge part of the black market. There are also things like drugs and other things for which cash changes hands, which are a sizeable part of this. As the commissioner said, there are proceeds of crime. To some extent, it is a wider issue than just tax. With the superannuation surcharge, we have looked at that in the past as well but I think the previous government put in some measures in relation to that. As I said, small business is just one part of the cash economy. The same article you are referring to also talked about proceeds of crime, particularly drugs. Since the legalisation of prostitution and some kind of guidance for sex workers, that is probably more in the tax net than it may have been previously. I am saying there is a much bigger picture. I think for the billions that were quoted you would not be looking to small business for all of that amount. There is a much bigger picture.
Mr McLoughlin : We actually looked at the cash economy issue of the ATO's overall program and it is about that big. The report details the comprehensive nature of the ATO's approach as it was then. If there are additional programs that the commissioner has referred to, they would be in addition to what was the spectrum of cash economy initiatives. As it only has said, there is a range of other areas within that report which are analysed. I am sure the tax office can give you additional details as to what the current state of play is but that report gives some insight around things beyond just the bench marking issue, which is one narrow part.
CHAIR: Has there ever been work in any of these sectors that would be traditional cash—as you mentioned, housecleaning? I just did little some in my head. If you have a million homes who pay $100 a week to have their house cleaned, that is $5 billion a year in the cash economy just with housecleaning. And I would think that that would be an incredibly conservative estimate. It could be a million homes in Sydney that do that. But has there ever been any work on whether, if that activity were made a tax deduction, we would be collecting more tax? As it is, we are collecting no tax, but by making it deductible then you would be collecting it and people would be paying it and having it receipted and deducted. I wonder whether we would be better off. You could think about that for child care, babysitting, housekeeping. I wonder whether that is something maybe for policymakers to be looking at to legitimise more of these cottage industries to bring them into the camp. Although there is some cost to that, it is better to get something rather than nothing out of those industries.
Mr Strong : One of the other things, I think, Chair, is how much money these people earn. If you are doing babysitting, you might not be earning that much money so you might not have been paying tax on it anyway. I have a belief that people should do a tax return. People should be aware that you have to pay tax; and, if you are not paying it, it is because of our system and nothing else. That is another issue. But there are a lot of people who just do not earn enough money to pay tax. Cleaners might be included in that and, certainly, long-term babysitting or child care et cetera. Again, the tax office would have information on that, I would hope.
I know they have done studies in the past on the cafe industry, going back some years. I put a cafe in my shop and I remember the previous commissioner saying, 'What you do is you just put more froth in than you put milk, and it will never be found,' or something. I thought, 'Okay, a good bit of advice.' So, obviously, there are studies that have been done on how you judge a cash economy is happening. I think it was also how much milk you bought: if you buy this amount of milk, you should be selling this amount of coffee—unless you have an appalling barista! But, coming back to those other areas, I think we need to get more information to inform whether we chase that money. It might not be worth it.
CHAIR: It just seems like there is an awful lot of money in that cottage industry.
Mr Greco : The ABN system was supposed to correct that scenario. But we come back to this cultural thing, which is that the private sector will not necessarily ask for a tax compliant invoice. It is just not in the nature of a private person because it does not impact on them as far as their own tax goes. The ABN process was supposed to bring those businesses into the net, but, unfortunately, it just does not happen. There is a withholding obligation if you pay someone who does not provide an ABN. So the system is sort of there, but no-one takes it seriously—that withholding obligation.
Mr Jordan : I think that obligation is a business-to-business one, clearly—the withholding obligation if you ask for an ABN and you do not get one. If it is your cleaner and you are a private individual, there is no legal obligation for you to withhold any amount. It would be quite a complex process for the average householder to withhold and remit and that whole thing.
This is where the community's general attitude becomes important and the publication of these sorts of issues, because there is a huge amount of work that shows people comply if they think others are. People are less likely to comply if they think a lot of others are also not complying. So it is important that we do have a general expectation. Yes, there are competitive issues. Yes, there is this correlation with other bad behaviour that often goes on: if you are not paying your tax, you tend to do other things that are not quite right either. Maybe in that area it is just about saying to your cleaner, 'I want your ABN.' You do not necessarily want an invoice every week for the $100 and all that sort of stuff, but at least you want to know that they are in the system: 'Have you got an ABN? If yes, give me the number. I can look it up.' We have 400 million look-ups or something of the ABN register every year, because some of the software now builds that in in terms of invoicing for businesses. It automatically does that to make sure that it is there. So maybe it is as simple as that—if we can just encourage people to say: 'Have you got an ABN? If so, I'm happy to just give you the cash and it's your responsibility, but at least I know you're registered.' It could be as simple as doing some of those sort of things to address the issue that you have raised, Chair.
Mr Noroozi : If they are a registered business or if they put down their business or their occupation on the tax return, then to some extent you can—like the cafes, for example. The benchmarking is aimed at that. For example, there are figures that the tax office produces that say, 'If you are a cafe of this shape and size, we would expect you to have this amount of revenue.' The benchmarking that we talked about earlier is supposed to cover this space to some extent. When we did the review, most taxpayers and advisers felt it was a legitimate tool. The only issue they took with it was that it does not touch you lightly enough if you should never have been caught in the first place. But, otherwise, it is seen as a legitimate tool.
As the commissioner said, it is pretty hard to mandate this sort of withholding, or the requirement to get a receipt from individuals. Maybe you can try and change behaviour. Drink-driving was something people used to do, but the community has changed. The previous commissioner used to give that as an example and say that he would like people who dodged tax to see it as a little bit like drink-driving and that he would like the culture to change. But there are many drivers for that—some of which the commissioner has mentioned. But there are others also. Often people would ask, 'How well is my money being spent?' So there are a lot of drivers, and it is very hard to try and mandate.
Mr McLoughlin : To try and answer your question directly about the incentives and the incentive structure, it is a difficulty because, as Chris has pointed out, when you have a business-to-business relationship, you have an incentive to get an invoice because you want to get the credits back on the GST. A feature of the GST system is that it incentivises a business to actually get the receipt. In relation to a private transaction, you cannot claim the credit; it is intended to sit with you. That is where the GST falls on the consumer. When you are looking at it as an incentive structure, the actual end-client user—being the customer, the person at home or the private-use person—does not register to claim. When you are looking at the transaction on the other side, if you give a deduction, you may end up with a worse result, whereby you give the income to someone who is actually not even going to make the general exemption threshold but you will give a full deduction to someone at 48½ per cent. So some of the incentive issues are quite difficult.
In looking at behavioural norms and some of the issues that we have been looking at through the reviews—and that I know the tax office has adopted—the Department of Finance, to its credit, has been pushing behavioural insights around psychological and social contract, to use Rousseau-type language, as ways of trying to moderate and incentivise behaviour. But it is more directed around social norms. I think there are real incentive problems at that particular edge.
Mr Jordan : In a very general sense, I should say, with the better use of data, greater provision of data to us, greater analytical capability and the running of that sort of information—we get all of the credit card transactions provided to us and we get all of the online sales information provided to us—it is becoming increasingly difficult for people to stay outside the system in any significant way. We can then aggregate people, the business, the individuals and the assets in order to paint a picture so that we can say, 'Well, you cannot be in the situation you are and have the business that you said you had.' This is going to be increasingly available to us with the greater analytics and data provided to us. This is the message we have to get to people: 'You might be doing it now but, increasingly, it will be harder and harder to stay significantly out of the system.'
CHAIR: It is a little bit like the drink-driving thing—you will get caught one day and you will come a cropper. So you can get away with it, but inevitably—
Mr Jordan : There was a recent case—although I am not sure if it has been published yet—in which there was a significant nondisclosure of sales income in a business. The business owner went to jail. I do not think a lot of people would ever think that they could go to jail. They would just say, 'Look, all I did was dodge my tax. What do you mean I'm going to jail?' I think that also needs to be out there a bit more, too—this is the potential consequence. Most people think, 'If I get caught, I will pay a bit of tax and then it will all go away.' Well, it might not. Your life, and your family's life, might be totally disrupted by you going to jail.
Mr Noroozi : You used to definitely do that. There used to be press releases about tax agents going to jail and various other taxpayers that have dodged tax going to jail. You certainly used to put out press releases on that, because I remember I had people sharing that with me.
Mr Jordan : I think this is part of our job too, to have this general community information out there as to the consequence, because I am sure—and Peter, you might confirm it—that a lot of these people just never expect that they could go to jail for dodging tax.
Mr Strong : A lot of my members, as I said, get quite angry knowing that there is someone out there competing against them who is not paying their tax. And we talked before about how there are all these other things—superannuation and all these sorts of things that come along with it—and we should make employing easy. I sometimes think maybe the tax office should have veto over red tape, because one thing you do as a business is GST and PAYG, and there are other things you do in employment. But they are the big things we want them to do. It should be easy. You should not look at it and think: 'Do I really want to employ someone? There's this super thing; what's that about? There's this, there's that, there's the other.' We have to come up with a system of employment that is very easy so that everything is included in PAYG. I think a lot of you know that I think super should be there. You think: 'Okay, this is easy; I've just got to do PAYG. I can do that. I've got a 1-800 number to get the workers comp'—so, you make that really easy, and you move on. And I think we have to look at that process.
Mr Leeper : Peter, I did actually send you a short animation we have developed around single-touch payroll. I am not sure whether you saw it, but it shows how the business of employing somebody under that system would be very, very simple—26 reports a year rather than 400-plus. And it is an issue about cash flow, but the reporting part of it can be driven completely by the payroll system—completely.
Dr CHALMERS: I have two unrelated questions. The first one is probably for you, Chris. When you are settling tax debts with high-wealth individuals, what is the lowest number of cents in the dollar that the tax office goes to in order to do a deal? And what is the trade-off between getting it out of your in-tray versus getting as much as you can?
Mr Jordan : I think it is a facts-and-circumstances situation. There is no particular threshold level that I am aware of. But I might ask Neil Olesen, who heads the compliance area.
Mr Olesen : Perhaps I could just clarify: are you talking about a debt-collection issue—a settlement issue around a liability?
Dr CHALMERS: I think I am talking about a settlement, yes. I will tell you where I am coming from. I am told that it is possible that sometimes you guys might recover only 10c in the dollar, for example. Is that possible?
Mr Olesen : We do not enter into settlements on that basis. We enter into a settlement conversation having regard to what the law requires and how that applies to the facts we have discovered. Ultimately, in that whole equation, you will form a view about whether there is a risk in the position that you are taking and what the risk is of you being successful in a court of law or not on that particular proposition. And if, on that particular proposition, there is no particular precedent value, it is not a novel issue, it is not an issue that affects lots of other people, then you might also form a view that it is probably not something that it is worth spending community money on to take through the court process, as expensive as that can be.
Dr CHALMERS: And how does it differ with debt collection?
Mr Olesen : Debt collection is a different issue altogether, because you have established the debt, so then it is more a question about ability to pay. So, we will pursue debts. If you are talking about high-wealth individuals you are talking about substantial debts. They are well above any threshold we would have about not pursuing debts. We do have some debts that we do not pursue because it is not economic to pursue them, but we are talking about quite small amounts. That would not be the case for a high-wealth person. For the kinds of debts that a wealthy individual might face with us, they would be debts that we would pursue—
Dr CHALMERS: You would pursue 100 per cent of it? Or do you ever do a deal where you take, for example, 10c in the dollar?
Mr Olesen : We make payment arrangements. It is for the entirety of the debt, but it may be over an extended period. We might look at interest rates and what interest rates we apply and the extent to which we might remit them. So, we have a range of tools we can use, depending on the circumstances. It has to do with the overall financial health of that person and their ability to pay and our interest in efficiently collecting that tax but also our interest in keeping that business viable too, so that we can keep collecting tax from that business over time.
Dr CHALMERS: Thank you for clearing that up. The last thing I have is a follow-up on 25-90—the issue that we have discussed before in the international context. Chris, you have said before that this is the only provision in the tax act that you are aware of that specifically gives you an exemption against exempt income. The last time we spoke about it a few months ago you indicated that the government was working with you and Treasury and others to consult with business about this issue. Are you able to give us an update on that work?
Mr Jordan : I think there is not really much to update. That consultation process was run by Treasury with people from the private sector, and the matter, as I understand it, is still with government for a decision on that.
Dr CHALMERS: Your understanding is that the consultation is completed?
Mr Jordan : Yes.
Dr CHALMERS: And the advice has been provided, but there is yet to be a decision?
Mr Jordan : Yes.
Dr CHALMERS: Are you doing any related work that is parallel to that, or with Treasury, working with international counterparts on this issue in relation to the G20 agenda?
Mr Jordan : Given Mark Konza has been here for the whole session, this might be an opportunity for him, as head of the international division, to make a contribution.
Mr Konza : Section 25-90 is to do with your taxed income that has been earned overseas—whether it is a good idea to tax it when it gets here, because it discourages global expansion of business. It is not really a specific part of the base erosion and profit-shifting action plan. There are some elements looking at interest deductions and other financial arrangements, but 25-90 is not really a direct part of that plan. So I guess the short answer is no.
Dr CHALMERS: It might not be in the specifics of that section in our tax law, but how you just described the role of debt and interest and all of that is part of the remit of the G20 work. So, in the general sense, individual regimes must have some version of this that they are also concerned about.
Mr Konza : Yes, the thin capitalisation issue is certainly part of base erosion. There are similar types of provisions in other countries. In the US, for example, there are provisions that allow you to accumulate your offshore earnings and do not require you to pay US tax on them until they are repatriated. But they are not specifically part of the base erosion issue. The real base erosion issue is more about debt loading, or debt dumping, which is a way of shifting profits from a high-tax jurisdiction into a more favourable jurisdiction.
Dr CHALMERS: I understand that. In the Australian context, what sorts of learnings did we get from the community consultation process? What do we know now that we did not know last time we spoke?
Mr Jordan : I was not part of the actual consultation but, in a general sense, I understand there are considerable difficulties with Australian companies with operations overseas to identify appropriately and easily the interest costs that might be related to those, particularly when there has been, as I understand, a significant shift in the way Australian multinational groups raise their finances, because they might have these multi-bank syndicates that do not specifically have funding for different geographic parts of their organisation. So there is a draw-down. There might be draw-downs in different currencies but, as I understand it, it is very, very difficult to comply with the identification of the interest that relates to the foreign operations to effectively trace that interest. I am told that prior to 25-90 being introduced back in 2002 there were these financial syndications of overall debt, but it has become a lot more that way. There are not borrowings as in, 'I have got operations in the US, I go and borrow in the US and do all that.' There is one facility, it is made up of a multitude of banks and you are drawing down on that all of the time. I understand that it was quite problematic in a practical sense to work up a solution that allows the easy identification of that sort of interest.
Mr Mills : It is a bit like unscrambling an egg, in a sense, because the law change encouraged a certain kind of behaviour that helped facilitate the kinds of things the commissioner is talking about in a commercial sense, so there was less concern about having to keep track of all of the bids. You can flip it on its head—if you were to withdraw that, you have an unscrambling process that would be quite complicated and would add a lot of administrative cost. At the end of the day, the real issue is trying to focus on the debt-dumping issue. That is the real prize, if you like, that should be focused on.
Mr Konza : The announced position, I think, is that, rather than try to unscramble the interests and what it was applied to and so forth, the government changed the thin capitalisation ratios—or at least announced an intention to change the thin capitalisation ratios. The great majority of companies are well within the thin capitalisation ratios. Just to make sure that those who were debt dumping or debt loading were controlled, the government lowered the overall limit, which still leaves the great majority of companies with no greater compliance cost but provides a control against the extreme cases.
CHAIR: We have been advised that tax agents are required to lodge 85 per cent of their client returns by the due dates in the lodgement program, otherwise they face punishments, including being removed from the program. This means they would no longer have extended time to lodge returns. How is the ATO monitoring the effectiveness of this framework given that late lodgers may compromise the reputation of an otherwise innocent tax agent?
Mr Olesen : I have a couple of contextual things to say at the start. Tax agents play a critical role in Australia's tax system. They are responsible for lodging a large number of individual tax returns. We certainly acknowledge and recognise the critical role they play. Part of the support we provide are things like the portal, which we were talking about before. A key feature of our system is the extensions of time to lodge that we provide to agents so that they can spread the burden of lodging returns over the course of the year. The conversation about the 85 per cent lodgement approach started in a bit of a behavioural economics conversation about three or four years ago. Agents were raising with us the issue of differentiating between tax agent practices. It started as an exercise where we drew to the attention of some agent practices a comparison of how their practice was going relative to other practices—to show their relative lodgement performance. Even that simple exercise had the effect, in some cases, of substantially improving the on-time lodgement of those practices—showing them the performance of equivalent practices so that they could understand how equivalent practices were operating.
The dialogue moved on from there into, as I understand it, a conversation about what the benchmark should be for agents to aspire to—given that they have this quite generous concession allowing them to lodge returns pretty much up until the end of the financial year. Through conversations with the tax agent community and the professional associations, the 85 per cent benchmark was struck. It was not something we arbitrarily came up with; it was something that was co-designed with the tax agents and the associations. Indeed the 15 per cent is designed to allow for some of the exceptional things that can take place that mean that an agent is not able to lodge on time for all of their clients.
We are very interested in how it is performing. It has been through one transitional year and now one full year of operation. It is worth saying that there have not been any sanctions applied to any tax agent practices under this new regime—apart from the tax office seeking to work cooperatively with them to help them improve their practice and their lodgement performance. I think it is worth noting too that the vast majority of agents, based on the survey work we do, are quite happy with the 85 per cent regime. I think I saw a stat that said that 90 per cent of the agents we have surveyed are quite happy with the way the 85 per cent standard is operating. But there are some things around the margins that are not working so well—there is some disquiet.
Sorry, I should also say the key objective of going with the 85 per cent program and idea was to improve on-time lodgement of tax returns and in particular to improve electronic lodgement of tax returns. Certainly at a macro level it seems to have had that effect, the key effect being that there has been an overall increase in on-time lodgement of tax returns since the introduction of the program by two or three percentage points, which is significant given what we are talking about. So that is a good thing. Certainly for taxation practices, if you just look at tax agent prepared on-time lodgement, there has also been a substantial improvement in their on-time lodgement performance as a result of the program—or at least you can correlate the program coming in and that better performance.
As I was saying, that is not to say that there are not issues that we are interested in. There continues to be a dialogue about the way in which you calculate performance towards the 85 per cent. We recently engaged through the Lodgement Working Party—as was mentioned before in a conversation about some of these irritants that are coming out with the current system. We had a dialogue only a couple of weeks ago to tease out some of these issues and work out where we go to from here. So there are some issues around the calculation methodologies and there are some issues around the kind of treatments you would in fact apply to agents who do not meet the 85 per cent standard—although, as I mentioned before, there have in fact been no treatments applied under the current program apart from us working cooperatively with agents who are not meeting the 85 per cent standard. There have certainly been some issues around the ways in which we have collectively communicated about the intent of the program and how it is meant to operate in practice and the ideas behind it. They were the kind of things that we worked through with the Lodgement Working Party a couple of weeks ago, and we will be continuing to work through those in a cooperative way to see that the program is fine-tuned and continues to have the positive effects that we have already seen from it—but perhaps less noise around some of these issues and irritants that are clearly being raised with us.
Mr Noroozi : We have had significant representation to us too about the 85 per cent rule. Basically I think the tax agent's concern is: 'If I am helping somebody that has not lodged for the last 10 years and bringing them up to date, I should be thanked for bringing these people up-to-date rather than being punished.' I think the tax office says they only looked at it in terms of the current year, but the difficulty for the tax agent is that they still have to do the rest of their work along with that. So there are some issues. On this review we are doing about assistance to tax practitioners, we have had our kick-off meeting with the tax office and we have shared that with Neil Olesen's team and we are also going to work alongside them to see what can be done. There are some tax agents that actually work on this model of bringing people up-to-date, sometimes going back as far as 10 years. I understand some of the people at your Sydney hearing may have raised such concerns. I think it is something that we have heard a lot about as well. I can see their point of view and we are looking at that in this current review.
Mr McLoughlin : One of the issues that have been raised is that some of the models are quite different in the way that they play out. Some people run with a lot of individual type returns, which is an interesting business model because obviously for things like myTax that may crowd out some of those particular business models. Some of the representations that have been made to us are that not enough account is taken of their whole-of-practice issues—as the faithful tax accountant or agent, they do a lot more than just tax returns. One of the issues might be about the amount of regulatory response that they have to do at different periods in the year, whether it is responses to ASIC on behalf of clients or other sorts of regulatory issues that pop up for them that go to the faithful tax agent to try and deal with, in addition to tax returns. Some of those peaks and troughs might be things that could be looked at in trying to even out the burden over the year.
Mr Jordan : Can I emphasise two comments that Neil Olesen made. One is that we have got a significant communication issue that we need to be a lot better at in terms of this issue. We need to explain where we are coming from with this thing, because I think the perception about the rigidity is not the reality of our approach. Neil mentioned that there have been no sanctions about this in the operation of it. I am certainly very well aware of this after giving a talk at the Institute of Chartered Accountants tax practitioner forum. I think eight out of nine questions were on this issue, and there was a lot of heated commentary. When I went back to the office the next day, I made significant inquiries about this issue. It was obvious to me that the perception of the audience and the participants in that forum was very different from our actual approach to it. So there is a real disconnect here. Probably we have not done a very good job in our communication on this issue.
Mr Greco : If I could just add to that, I was present at that lodgement group and I can pretty much assure this group that all those impediments that Neil brought forward are being looked at. Because that working group had not met for quite some time, I think the communication issue became a problem, because even if you were 84.99 per cent—just a little bit under the 85—you got the same message: that you may face sanctions with the Tax Practitioners Board. I know firsthand that that is not the message that the ATO wanted to send. All they are concerned about is an improvement process, because it is a new initiative and there should be some conditions attached to providing that concession. We all get it. We all understand it. We all support it. I think it is the bottom quartile of tax agents, who effectively only do 20 or 30 per cent lodgement on time, that was the issue, and they have a process to address those people. But for everyone else it is pretty much, 'Let's help them improve their statistics.' But the messaging, I think, is where it has fallen over. Probably, had they continued to operate, they would have noted some of those things at one of those consultative forums. So there are some lessons to be learnt all round.
Mr Jeremenko : The Tax Institute raised this issue in our submission, as you know, and we very much support the tax office's summary of the issues as they see them. Again, supporting my colleague's comments just then, I think this is an example of the tax office getting onto issues when they are brought to their attention in the right forum. So that is to be welcomed.
As Tony was just saying, as an organisation we support the lodgement program—the 85 per cent program. But after two years—one transitional year and another year of operation—it is time to have a look at what are the little sticking points, and that is exactly what the tax office is doing through this Lodgement Working Group. It has only happened in the last couple of weeks, so it has happened since the submission from the Tax Institute to the committee. But that is something where there is a lot of work to be done, and it does cause angst amongst a proportion of our membership.
CHAIR: This is the last question, I promise: could you please give the committee an overview of your decision to further pursue measurement of the tax gap.
Mr Olesen : I will not labour it: we have quite a lot of material in the submission that we provided to the committee. I think the last time we were here we indicated to you that we were looking to consider that issue before 30 June and make a decision on it, and that is exactly what we did. We made that decision sometime in April, I think from memory. So yes, we are looking to progress our measurement activity beyond indirect taxes into the direct taxes, income tax being the big one. We have mapped out a program of work over the next couple of years to get us to that point. We will start with those bits of the system where we already have data that we think we can use in a methodologically sound way to come up with estimates. As our submission to you indicates, for some parts of the tax system—and to give a greater confidence level to our estimates—we think we will need to have some random audits as part of a program. We are working on some advice that perhaps that is a program of around 5,000 random audits over a four-year period. That is not as big a figure as we had considered in the past. The immediate challenge for us is to design that program in a way that is as low touch as possible for the people who might be subject to it.
What we will be doing is working through each element of the program of work, firstly to settle on the methodological issues, and then secondly to move to the calculation process itself. As part of that we will progressively work through how we will make that information available, but, as I have foreshadowed, it will be at least two years before we end up with an overarching aggregate figure of what the tax gap might be that can be disaggregated into various components of the tax system. But we have committed to that program of work and are now getting on with it.
Mr Jeremenko : The Tax Institute certainly supports the further analysis that will enable this tax gap information to be broadened as the tax office is saying. I think, however, that in order to get more reliable tax gap analysis for individuals and small business a series of random audits—as Mr Olesen was saying and the tax office's submission says—would need to occur. That makes me tread carefully, and I am not sure how a random audit can be light touch for a taxpayer. From the taxpayer's point of view, I think any audit is too much touch.
It is down the track, and it is something we need to work with the tax office on, but initial reaction from the Tax Institute is that I do not think we should subject individual and small business taxpayers to extra audits for the sake of collecting data.
Mr Jordan : As you know, Chair, I have expressed in prior hearings my concern over that issue. We are subjecting citizens to an intervention for the sake of collecting data. But we have committed to do this measurement now, and I absolutely get and share your concern on that issue, and I personally am quite concerned about that. We are told that for reliability—and the experts advise us—there does need to be an element of that random audit in there. So this is a very sensitive issue.
Mr Noroozi : In the long term, there will also be benefits to taxpayers in that what this random audit can also do, to the extent that it uncovers people who should have been caught but were not, is allow a feedback loop into the risk assessment tools of the ATO—such as benchmarking, for example. They can then better design risk assessment tools in the future, so fewer people fall in the range they should not have been in. So in the long term it may actually help that. But there is no doubt there will be touch. I think when we discussed this in one of our reviews we commented about it needing to be light touch. But also, where it is not light enough, maybe there is a case for compensating those taxpayers that were not lightly enough touched.
CHAIR: There is probably some innovative thought that could be applied to find out whether there are compliant taxpayers who might willingly assist an audit to create a baseline for that data collection that is not invasive.
Mr Jordan : This is obviously something we would need to have appropriate communications about, and we would need to actually alert people that this is the reason they are being subjected to this audit. It is something that we have got to work our through. I am very conscious of the potential negative reaction that could occur through this. But we are moving down the path of this measurement, so we just need to be careful of the extent to which we intervene with taxpayers on that basis.
CHAIR: Thank you all. Is there anything else that anybody would like to add? No? Then on behalf of the committee I would like to thank all of the witnesses who have given evidence today at the public hearing. For questions on notice we will require that an answer be provided to the secretariat by the close of business on Friday, 26 September. With that I declare the public hearing closed.
Committee adjourned at 19:34