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Thursday, 12 December 2002
Page: 8105


Senator MURRAY (5:11 AM) —The Inspector-General of Taxation Bill 2002 is designed to set up a new office called the `Inspector-General of Taxation'. This office is to sit somewhere between the taxation ombudsman, the Board of Taxation, the Auditor-General and Treasury. This office has been announced as an independent advocate for taxpayers. The Australian Democrats recognise that the proposed new office of the inspector-general fulfils a coalition promise made in the 2001 election. The parliament has traditionally taken the view that the government of the day is entitled to put into place those institutions which it feels will achieve a better outcome. By and large, without putting any expectation on the debate, I would expect that to carry through in the normal course of things. But, if the parliament ends up thinking the bill fails on the necessary criteria, the parliament will say that the government should not have its way. Although we have serious reservations about the potential effectiveness of this new agency, the Democrats are unlikely to oppose its creation unless, of course, our amendments fail. However, we cannot support it in its current format, and the concerns that I will express during the debate are generally reflected in the informed community at large.

Let me set out from the start that, frankly, I believe that this whole venture could end in tears—I do not mean today but in the whole expectation of the matter—because if the inspector-general does not meet realistic aspirations and needs the angst will just continue. The government has the opportunity to set up an independent body and, in this setting up, ensure that it is also perceived to be independent. You must remember, as I do, the great faith and hope put in the Board of Taxation. Now people are saying, `Let's have another institution; they're not very good.' Personally I think that in some respects the creation of this proposed new institution is a vote of no-confidence in Treasury, because the function of reviewing tax administration, as with policy and consultation, was traditionally Treasury's. If a body is created arising from an assessment of problems which may be the creation of the government of the day—or at least those agencies operating under the government of the day—which could be politically embarrassing, I cannot see that an inspector-general who is appointed by the Treasurer, who is reporting to the Treasurer and whose reports could be kept secret by the Treasurer will produce the kind of outcome that is being sought.

It is quite proper for a minister of the Crown to ask an independent body for something to happen and for it to then happen, but the ability to dictate to the independent body is another matter altogether. This is a major flaw in the bill, especially when we have good examples of independence operating, as for instance with the Auditor-General. The expectations of tax professionals and other tax activists concerning the new office seem extravagant and bound for disappointment. I say this with the acknowledgment that those within the industry do not all see the inspector-general as the panacea. Funding is low, competition and even confusion as to roles is apparent and, unless amended, the design of the legislation will result in the inspector-general's independence being compromised. There is also a danger that this position will be used as yet another opportunity for business to exercise special influence, as is the case in the heavily business-oriented Board of Taxation.

A submission to the Senate Economics Legislation Committee inquiry into the Inspector-General of Taxation Bill 2002 from the Australian Institute of Company Directors saw the Inspector-General of Taxation having the `potential to secure significant and lasting improvements in the administration of taxation in Australia'. Yet, at the same time, the institute put forward the view that the powers of the IGT are too narrow. The difficulty for the government is in avoiding a conflict with existing oversight and other taxation bodies but leaving enough scope to make a real contribution to better tax governance. The IGT needs to have a clear direction and sufficient powers to be effective from the start. Submissions to the inquiry have quite clearly demonstrated that the proposed IG has substantial support. While witnesses to the hearings held common concerns about some of the provisions, they were prepared to see the bill proceed rather than to jettison the legislation altogether. Mr Sheppard captured this general attitude when he told the committee:

We think it has the potential to make a difference, and we are happy to give it the benefit of the doubt at this stage and, hopefully, make the position work.

I do not know how they are hoping to make the position work; it depends on the way it is structured and how much money it has to do it. The Australian Democrats agree that the proposed legislation should be allowed every opportunity to succeed but provisions need to be strengthened or changed to safeguard the independence of the IGT. In my view, the committee was too timid in merely seeking government undertakings or assurances—I think there were seven—that measures would be taken to protect the independence of the IGT. That was done through the majority report of the inquiry.

The Australian Democrats will seek to put statutory safeguards in place that will ensure that the IG is indeed an advocate for all taxpayers, that this advocacy role will not be compromised in any way and that the IG's independent status will not be eroded. This will be done through amendments in the committee stage. Independence must actually be independence if it is going to meet expectations, even if only halfway. While I appreciate that there is strong support for the establishment of the IGT as a response to systemic problems in taxation administration, it is essential that the office has the capacity and independence to enable it to deliver the results taxpayers expect.

I think we have to be mindful that in the last couple of years we have had so much tax reform that we have seen a self-assessment system that has been creaking at the edges and a number of gaps have arisen in terms of the needs of taxpayers. There is a real disquiet out there as to the integrity of the administration of tax in a number of areas. Can an inspector-general fill this need? To do so, the new office must be able to attend properly to issues across the Australian Taxation Office—that means all the major ATO avenues of revenue generation, of prudential control and supervision, and across the ATO business lines. My concerns with the proposal as it stands centre around three aspects: the independence of the office and its work program, the breadth of its remit and the adequacy of its funding.

Clause 8(2) of the bill requires that the IG may be directed by the minister to conduct a review. The conduct of a review may also be formally requested by the Commissioner of Taxation, by a resolution of one or both houses of the parliament or by a resolution of a parliamentary committee. However, these parties may not direct that a review be carried out. I agree with a request mechanism. In contrast, the IGT must comply with directions given to the office by the minister, yet it is supposed to be an independent body. This issue was raised by almost all of those who put submissions into the Senate Economics Legislation Committee inquiry.

During the committee hearing on this bill, I raised a comparison with the Australian Federal Police in that they have a body of resources and a list of tasks to do. Those tasks are done on priority. Imagine a much smaller body with a very large task with a funding level of only $2 million. I remain concerned that action and activities will be done on those things that have the loudest supporters or on those things that are directed by the Treasurer. The strength of advocacy will be greatest and most articulate within the business community and this will have to have some effect, even if this is only a perception, on what activities are pursued. Safeguards are necessary to ensure that a broad range of systemic issues may be addressed, and I feel that the current arrangements are not strong enough in this regard.

The capacity of the minister to direct a review has the potential to undermine the independence of the office. It also poses the risk that the resources of the IG will be absorbed by ministerially directed work to the extent that other issues cannot be adequately addressed. It is important for the IG to consult widely. Currently the bill includes only the requirement that the IG consult with the Commonwealth Auditor-General and the Commonwealth Ombudsman in setting his or her work program. I will put amendments to clause 9 of the bill to include a requirement that the IG must consult much more widely with tax professionals, taxpayer groups, the Board of Taxation and relevant parliamentary committees as the IG sees fit. I also strongly endorse the committee's report that the bill should include merit based selection criteria for the office of the IG. I have moved amendments to that effect.

A further issue in relation to the independence of the inspector-general arises in relation to the reporting framework included in the bill. The Australian Democrats believe that if the role of the IG is to carry conviction in the minds of taxpayers and is to be an effective means of identifying and remedying systemic problems in the administration of the tax system, the reporting process must be open and transparent. How can you have an independent person whose reports are secret?

Clause 11 of the bill enables the minister to cause a review report to be tabled in each house of the parliament but does not require that this be done. It is essential for the credibility and independence of the office that review reports are publicly released in a timely manner. The only exceptions to this principle should be in matters of public interest or for the protection of individuals. Such exemptions are already more than adequately provided for in the bill in clauses 22 to 27. For example, clause 23 is clearly intended to protect the privacy of any taxpayer. Also, clause 26 stipulates:

If a person who makes a submission under section 13 has told the Inspector-General or a member of the Inspector-General's staff that their submission is to be kept confidential then information contained in the submission must not be included in the report under section 10 or 41.

Amendments to clause 11 of the bill will be proposed so as to require the minister to cause a copy of each review report to be tabled in each house of the parliament within 15 sitting days of that house after the day on which the minister receives the report. The minister should provide a copy of all review reports to the Commonwealth Auditor-General.

The office of IG should enhance the advocacy of taxpayer concerns but this role is not adequately expressed in the bill as drafted. The office should also be able to examine the legislative or policy issues which underlie systemic administrative problems and consider the administrative systems of other government agencies where these result in problems for taxation administration. The object of the act should contain a clear statement that the purpose of the IGT is to improve the administration of taxation for the benefit of all taxpayers, provide independent advice to government on taxation administration and enhance the advocacy of broad—but not individual—taxpayer concerns with regard to systemic taxation administration matters.

The office should also be a useful source of advice in the consideration by government of new proposals, bringing to selected issues a special expertise in administrative issues. In reviewing the bill in detail, the Australian Democrats have serious concern as to the narrowness of the inspector-general's powers detailed in clause 7 because the inspector-general is currently only dealing with the administration of tax laws. I think the IGT should be included to take into account tax policy and the tax design of systems, like the integrated tax design project that the ATO originally initiated.

The functions of the inspector-general should include the ability to review taxation policy and legislation to the extent that it has been identified as the source of systemic taxation administration problems. The office should also be able to advise the government concerning potential administrative problems which may arise from the implementation of new proposals or which have arisen as a consequence of administrative systems utilised by other government agencies. Clause 7 is to be amended.

The Ombudsman made the important point that the investigations that are proposed to be undertaken by the office of IG are heavily resource intensive. This further reinforces the concern that this may very well end in tears as a consequence of there not being sufficient resources to get any real level of effectiveness out of the IG. This is especially the case considering the level of expectation that has been placed upon this office by the stakeholders who have been involved to date. I share the concerns expressed in a number of submissions to the inquiry that the level of funding proposed for the office of $2 million per annum is likely to be inadequate to enable its functions to be effectively discharged. Should the capacity of the minister to direct the IG be deleted, I would be a little more reassured in this regard but it still seems to be too little money.

In closing, I want to reiterate what I started out with. There are such high expectations within the industry, and I know they do not see this as the panacea to the ills within the tax system, but nonetheless they put an enormous emphasis on what will hopefully be the outcome of creating this institution. A half-baked effort, which is what we have in front of us at present, will just frustrate the sector even more and see scepticism and nervousness about any further or future changes to the sector.