Senator SHERRY (7:00 PM) —I move:

The Auditor-General’s report listed as No. 4 in the order of the day is in fact Audit report No. 39 of 2004-05, Performance audit—the Australian Taxation Office’s administration of the superannuation contributions surcharge. The Senate yesterday considered and passed legislation to abolish the superannuation surcharge. Perhaps in that context some people would believe that the highly critical Audit Office report is no longer relevant; however, it is. It is relevant for two reasons. Firstly, it highlights the incompetence of the implementation of a policy that this government introduced—namely, a new tax. Secondly—and I know that there are some in the community who do not understand this—the surcharge in terms of accrued debt through defined benefit funds still continues, and there are still considerable amounts of unaccounted for debt to be collected by the tax office from people who have not yet been assessed for the surcharge. That is at the heart of this report. It is a highly critical report. Going to the summary on page 17, I will read paragraph 16:

This paragraph highlights the fact that since the introduction of the surcharge tax back in 1996 through to the period of August 2004 there were 11 million exceptions or transactions relating to the collection of the surcharge that the tax office could not successfully conclude to collect between $360 million and $750 million in revenue. That is over a period of eight years, so for those eight years the tax office was unable to collect this amount of revenue.

It raises a number of important issues. Firstly, why did these 11 million exceptions and uncollected revenue over a period of eight years go on for so long? Why wasn’t it reported earlier by the tax office that it was having significant problems in collecting the surcharge tax revenue? Over eight years this went unreported. I am not one who is overly critical of public servants—they work hard; they are a dedicated group—but I think in this case, when a significant amount of revenue goes uncollected because of systemic problems that go to the heart of the collection of this tax and it goes unreported so long, there has to be criticism of the tax office. It is effectively a cover-up over a period of eight years.

I have discussed this report with Mr Carmody at estimates—in fact, I thought he was almost going to resign at one point; he was very upset. He did claim—and I am only paraphrasing him—that he was not informed by some of his management staff about the problems in relation to the surcharge. I accept him at face value that he was not told about it. He has made a number of staff changes in respect to the management and administration of the surcharge tax collection revenue as a consequence. But I think a legitimate and strong criticism should be made of certain officers—I do not go to the names; I did not go to them at estimates—when a situation can be allowed to build up to the extent it did over a period of eight years and go uncorrected. It is only because the Audit Office—I say thank goodness for an independent Audit Office—went into the tax office that this particular problem was identified.

The tax office has begun to resolve the 11 million exceptions and collect the back revenue of between $360 million and $750 million. They have not completed that yet. This brings me to the second point. The fundamental collection mechanism for the surcharge had a number of failings. It had one principal failing: it was government policy and legislation to require the superannuation funds to collect the surcharge tax revenue. The government did that for one reason: it did not want to apply a tax—in fact, it did not even want to call it a tax. That would have been in breach of its election commitment of 1996—no new taxes; no increase in existing taxes—so it applied a surcharge, as it called it, to the superannuation funds and indirectly on the members.

The difficulty—and it was pointed out at the time not just by me but I know by Senator Watson and a range of persons back in 1996—was that it was a very inefficient method to collect a new tax. The tax office had one very significant problem. They had to data-match income across all superannuation funds in order to identify who had to pay the tax, and the fund had to identify who had to pay the tax. The tax office lacked one significant piece of information from a significant group of taxpayers in order to identify who had to pay the tax—namely, they did not have TFNs, tax file numbers. This was pointed out at the time.

The tax office has struggled to reconcile the transactions across superannuation funds. As much as superannuation funds want to cooperate and comply with the law, the super funds at the time of the tax introduction only had, I think, between 50 and 60 per cent of the TFNs of superannuation fund members. It did increase. I understand it is about 80 to 85 per cent of TFNs that have now been made available by fund members to a superannuation fund. It was this central and fundamental flaw that has led to the significant number of exceptions—the 11 million transactions that could not be identified—and the undercollection that went from $360 million to $750 million. That is not the tax office’s fault. The fault lies with the government that introduced a new tax and did not think through the collection mechanism. As I said, there were a number of people in the parliament—not just in the Senate, not just on our side of politics but on the other side of politics—that pointed out this fundamental flaw.

As a result, the tax office is now trying to identify the hundreds of thousands of Australians who have not paid their share of the surcharge tax. Some will never be identified because the problem with the lack of a tax file number, in some cases, still remains. And in eight years, quite understandably, a number of people have died who are supposed to pay the surcharge, and you cannot collect a tax from a deceased person.

So this is a very important report. It highlights a systemic, ongoing failure by the tax office to collect the revenue. It was covered up, and it highlights the systemic failure of this government to think through how it would collect the tax in the first place. Even though the tax has now been abolished, this is an ongoing problem for assessing those for past debts that accrue through a defined benefit fund. That person’s debts through the DB funds are not wiped out; they continue to accrue with interest and are liable for payment. (Time expired)

Question agreed to.