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Thursday, 26 June 2008
Page: 3463

Senator WATSON (10:16 AM) —On behalf of the Joint Committee of Public Accounts and Audit, I present the 410th report of the committee, Tax administration. I seek leave to move a motion in relation to the report.

Leave granted.

Senator WATSON —I move:

That the Senate take note of the report.

Today’s report on the Australian Taxation Office is the first involving that agency since the 1993 Joint Committee of Public Accounts report An assessment of tax, which had such a lasting impact on taxation administration in Australia together with its associated improvements to self-assessment that were made at the time. In today’s report, the committee is satisfied generally with the tax office’s overall performance. Good tax administration requires tax authorities to strike a delicate balance between efficiency and fairness—and, generally, the tax office achieves this balance.

The inquiry commenced in December 2005 and it received 58 submissions from such peak bodies as Treasury and the tax office, external scrutineers such as the Audit Office and the Inspector-General of Taxation, professional groups, and individual taxpayers. The committee held five hearings in the second half of 2006. Following this, the committee held biannual meetings with the commissioner and his staff. These meetings have helped the committee to stay up to date in the world of tax, which is fast-moving—as all in this parliament know. Submissions generally focused on the complexity of our tax laws. In 2004, Australia had the third most complex tax system of the 20 largest economies in the world. Admittedly, the recent repeal of the inoperative tax law has made Australia’s tax laws a little less complex. However, on this league table of complexity, Australia has probably only dropped from third to fourth place.

Complexity is important because of the self-assessment system. Taxpayers take the risk of penalties and interest if the tax office amends their return and finds a tax shortfall. Complex tax law increases the chance of taxpayer error and taxpayer risk. Simplifying the tax law depends on coherent, simple tax policy, which in turn depends on thorough consultation. This is exactly what the committee recommended in 1993 but, unfortunately, neither side of politics has been able to deliver it in a significant way. Redrafting the tax law into plain English was well intentioned; however, it has not simplified our tax law. Anthony Mason, a former Chief Justice of the High Court, has publicly confirmed this. The current government has commenced a tax review—and that is welcome—entitled Australia’s Future Tax System. This has the potential to conduct the thorough consultation on tax law that the committee recommended 15 years ago. I wish the review panel well in this challenging but important task.

Another important issue in the report is the court case of Essenbourne, decided in late 2002. Broadly, the Federal Court found that a particular transaction between related entities did not attract fringe benefits tax but was not an allowable tax deduction. The decision meant that the arrangements were no longer financially attractive. The tax office, however, took the unusual step of neither accepting the decision nor appealing it. Instead, the tax office stated that it would attempt to bring another test case on the fringe benefits tax question. In early 2007, the Full Federal Court gave its decision in Indooroopilly, which confirmed Essenbourne. The tax office’s conduct increased taxpayer uncertainty. If taxpayers followed Essenbourne, they faced the risk of tax office litigation. However, if they took the tax office view, they might be paying unnecessary tax. More importantly, the case raised the question of whether the tax office was actually following the law.

The tax office has received legal advice that it may take the course of action decided on if it acts quickly. However, the committee believes that a court decision represents the law and should be followed. This was the view of the Full Federal Court in Indooroopilly, where Michael McHugh, when he was a High Court Justice, also made a statement to this effect. The committee recommended that the tax office should either appeal or accept court decisions. If the tax office has concerns about how a court decision will affect the tax system or the revenue, it can always refer the matter to Treasury. The committee’s report confirms the view of senior judges. Given this consensus between the parliament and the judiciary, it may be appropriate for the tax office to publicly announce, in the near future, that it will implement the committee’s recommendations.

In tabling this report, I would like to acknowledge the many people who contributed to it. In particular, I note the contributions of the peak bodies, agencies and all the individuals who gave their time and their expert knowledge to the committee. By listening to them, I believe we have improved our own degree of expertise. I would also like to thank the secretariat, who drafted the report according to the committee’s requirements. Finally, I would like to thank my fellow members of the Joint Committee of Public Accounts and Audit, the most senior committee of the parliament, for their constructive, collegiate and professional attitude to this inquiry and for their work on the committee. I note that this is my final report for the Joint Committee of Public Accounts and Audit concerning tax, and I wish the committee well in the future. I commend the report to the Senate.