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JOINT COMMITTEE OF PUBLIC ACCOUNTS AND AUDIT
Biannual hearing with Commissioner of Taxation
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JOINT COMMITTEE OF PUBLIC ACCOUNTS AND AUDIT
CHAIR (Mr Oakeshott)
Biannual hearing with Commissioner of Taxation
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JOINT COMMITTEE OF PUBLIC ACCOUNTS AND AUDIT
(Joint-Friday, 4 March 2011)
Content WindowJOINT COMMITTEE OF PUBLIC ACCOUNTS AND AUDIT
Biannual hearing with Commissioner of Taxation
CHAIR (Mr Oakeshott) —I now declare open the eighth public hearing of the biannual hearings with the Commissioner of Taxation. These hearings arose out of an inquiry conducted in the 41st Parliament into tax administration. The committee welcomes this opportunity to meet with the commissioner and representatives from the Australian Taxation Office to scrutinise tax administration. Before we move on, I ask that one of my colleagues resolve that the committee agrees that the submission, including appendices, received from the Commissioner of Taxation dated 24 February 2011 be accepted as evidence and authorised for publication.
Mrs D’ATH —So moved.
CHAIR —Although the committee does not require you to give evidence under oath, I should advise you that this hearing is a legal proceeding of the parliament and warrants the same respect as proceedings of the House and the Senate. The giving of false or misleading evidence is a serious matter and may be regarded as a contempt of parliament. Commissioner, do you wish to make an opening statement before we proceed to questions?
Mr D’Ascenzo —Yes. As the composition of the Joint Committee of Public Accounts and Audit has changed, I might briefly touch on what has gone before. The JCPAA’s comprehensive three-year review of the ATO culminated in its Report 410—Tax administration in June 2008. While the committee was concerned about the complexity of the tax laws—a matter outside the control of the ATO—the committee endorsed the ATO’s compliance model. The committee acknowledged that the ATO has a difficult job in convincing individual taxpayers of the public interest of revenue collections. While there is always room for improvement, the committee concluded that the ATO is reasonably successful in balancing fairness and efficiency.
As part of its review, the JCPAA noted the extensive range of advisory and consultative bodies and private sector input that informs both ATO management and operations. Nevertheless, the JCPAA asked for biannual meetings so that it, as representatives of the community and of parliament, could have additional input to the ATO’s processes of governance. As an open and accountable administration, we welcomed ongoing dialogue with the committee whom we believe can effectively examine the operations of the ATO and provide community insights.
Firstly, by way of background it is useful to outline the ATO’s five major areas of responsibility: the ATO is the Australian government’s principal revenue agency; the ATO is a large payer of federal funds; the ATO administers major aspects of Australia’s superannuation system including compliance-based regulation of self-managed superannuation funds; the ATO is the custodian of the Australian Business Register, which amongst other things, provides the unique identifier for online dealings between businesses and government; and the ATO has business operations through the Australian Valuation Office. It is a broad canvas of responsibility.
Today is our eighth biannual hearing. At each hearing we have provided the committee with substantial submissions which show consistency, alignment and achievement in our plans and performance. I commend those submissions to you. As I am formally accountable to parliament and ministers, my annual report to parliament provides a comprehensive account of the ATO’s activities for the past financial year and our plans for the future. I commend them to you as riveting reads.
In the submission we have made to the committee at this hearing, we have provided our mid-year appraisal of ATO performance in 2010-11 and covered aspects of our operations that were of interest to the committee at previous hearings. We have also included a draft 2011-12 corporate plan and we welcome your comments. For the ATO, the financial year 2010-11 started with Tax Time 2010 being undertaken on our new integrated core processing system, complemented by new risk filters to detect incorrect or fraudulent claims.
We began cautiously but overall, as outlined in our submission, we are very pleased with how the new system has worked during our busiest time of the year. Consistent with other independent reviews of our change program, the JCPAA’s own review, outlined in its Report 418 in December 2010, recognised the scale and scope of the program and acknowledged the inherent challenges in implementing such a diverse and complex project. The committee also noted the significant gains in productivity and that further improvements will cause to eventuate.
However, the committee was concerned about the high levels of complaints, particularly in March and April of last year. As you will note, most of these have long since been resolved. The level of complaints has decreased markedly, although there seems to be a proclivity to complain early. In response to the committee’s recommendation 1 in Report 418, we have prepared a report providing a detailed examination of the complaints received as well as our updated change program booklet.
The 2011 calendar year started on a sad note, with natural disasters such as floods, cyclones and fire. The ATO provides significant assistance to those affected. For example, a decision to defer lodgement and payment dates to the end of March 2011 has provided substantial short-term relief from tax liabilities, giving businesses some respite in difficult circumstances. Other assistance includes fast-tracking return refunds, giving people extra time to lodge and pay obligations, helping reconstruct tax records and helping affected taxpayers claim tax hardship concessions.
I began the hearing by highlighting the public interest in revenue collections. This is reflected in our Strategic statement 2010-15. It makes three points: that Australia’s tax and superannuation systems are community assets, that the high level of willing participation in these systems is a sign of good citizenship and that it is our aspiration to build on this willing participation further. I conclude by highlighting the important role of parliamentarians and other influencers of community norms have in progressing this vision. The JCPAA has been doing this through open dialogue with the ATO and by giving the ATO the opportunity to demonstrate to the community and to parliament that it consistently performs at a high standard. Thank you.
CHAIR —Thank you. For the record, I will have to hand over to the deputy chair at 11.30 am. If I disappear at some point, do not think I have walked out in disgust or anything like that!
We just had a private hearing with the Commonwealth Taxation Ombudsman, which would be no surprise or secret to you. In general terms the ombudsman seemed to use some fairly strong words—and, again, this would be no surprise to you—about, to quote him, ‘material and systemic problems’ and ‘institutional rigidities’. How, then, do you state for us in the equivalent of a self-assessment exercise that you are doing ‘a reasonable job’—I think those are the words you used—with regard to the fairness and efficiency principles that you quite nobly try to deliver on behalf of Australian taxpayers?
Mr D’Ascenzo —Those conclusions were actually the conclusions of the JCPAA after an extensive three-year review of the ATO. That is the evidence. It is interesting that the ombudsman might have said that, because he has not said that to me.
CHAIR —In the conversations you are having with the ombudsman, what is he saying?
Mr D’Ascenzo —There is a new ombudsman at the moment. You might want to talk to the previous ombudsman about the progression of the past 12 months. There has only been one report of the ombudsman in relation to the ATO that I know of. It was about TFNs that are being compromised and delays there. We spoke to the ombudsman, and he seemed to accept in the discussions I had with him that it was not put in context that there were nine cases over three years in relation to a body of 3,000 other cases.
CHAIR —Nine cases over three years of compromised tax file numbers?
Mr D’Ascenzo —No, of the nine examples highlighted in that report—there were nine cases over three years compared to the whole body of compromised cases of something like 3,000 that they looked at. So they looked at 3,000 and they talked about nine. I spoke about that. I was saying: ‘How is this providing confidence to the community or a fair description of what has occurred? At least it needed to be balanced in terms of the context.’ I do not know what the ombudsman has said to you. I would be very interested to have discussions with the ombudsman to understand where he is coming from and, if there are areas we can improve, then we would like to do so.
CHAIR —On the compromising of tax file numbers: how many are being worked on now? Is there an internal time frame of how you try to deal with those and clarify and correct them as quickly as possible?
Mr D’Ascenzo —They are actually quite complex, because in the current environment there is a heightened sensitivity to identity fraud, so we have to make sure that we have the right people having the right identification for a whole range of systems. My colleague Mr Duffus might know more about this.
Mr Duffus —In this financial year up to now we have had a case load of around 24,000 compromised TFN cases. But, just for a bit of context around that, that includes about 8,000 to 9,000 TFN records that were stolen from an employer. So we have taken that case load and we are working with the employer to get the security on those tax file numbers. The case load that we have on hand at the moment is around 4,000. Of those, we would regard about 3,000 as low-risk. For example, there might be a case where someone has lost their wallet which contains some of their records. With that group, we are working with the taxpayer not to give them a new tax file number but to put extra proof-of-identity checks on the system and to put a flag on their record so that, if something comes into their account, we contact the taxpayer and ask them that additional question and we do not need to give them a new TFN. We have about 900 that we would regard as truly compromised—that is, where there is probably fraudulent activity taking place on the account. With that group, we issue them with new TFNs and have to reconstruct the account, working out which are the genuine transactions and which are the fraudulent transactions.
Mr CHEESEMAN —What is the time frame around that?
Mr Duffus —With the first lot—the 3,000—we have an outbound telephone call process going on over the next two weeks where we are hoping to get through 2,000 of that 3,000 so we can just secure the additional proof-of-identity check and the flag on the system. We get agreement from the taxpayer that we do not need to issue them with a new tax file number. Some of the other 800 to 900 are over 90 days. I do not have the volume that are over 90 days, but for some of those it just reflects the true complexity of those taxpayers—trying to identify what the fraudulent activity has been, reconstructing the accounts, working out whether it is a fraudulent activity and so on. We are re-engineering our work processes to get through those very quickly. We have issued new TFNs to those 900 taxpayers, but some of them cannot lodge a return because we still have to reconstruct the account.
CHAIR —What are the internal tools that you use for client or community confidence and complaint handling? What are they saying? How are they being used to drive change?
Ms Granger —First of all, in relation to an insight into how we are going, the most immediate insights are from systems such as complaints handling and whether levels are going up in that. We use that not just to resolve the complaint but also to look at whether there is a trend there and things we need to fix. You would have seen in the report that we sent you this time the spike we had around tax time this year. So that is, if you like, an immediate reaction. There is also all of the intelligence that we get—and my colleague Mr Duffus can tell you more—from those who call us in our call centres. We analyse the top 10 issues and those sorts of things.
The surveys are a benchmarking process or a trending process with which we try and track ourselves over periods of time about what the perceptions are of us, what the view is of our service delivery and how well we are interacting. What is fairly unusual is that we do not just do a community perception survey—and some of the results of it are in the report—but we also do a survey called a ‘professionalism survey’. Within that survey we look at some of our interactions that tend to be more sensitive—for example, our auditing and debt collection processes, where it is not so much service delivery. Certainly we like to do it in a service-oriented way, but you would expect that it is harder to get a more positive result because of the nature of the activity. So we do not just shine a light around the service side of things. We also shine a light in relation to those processes as well. Again, those trends are in that report.
A lot of our activity involves interaction with tax agents on behalf of their clients. A bit over 70 per cent of individual taxpayers and most businesses do their business with us through them and we track agents specifically because it is important for us to know how our service delivery is to them as well. So they are a range of insights and we watch them as a trend over time. We actually have benchmarks in those that we want to achieve and, again, we have reported against those to you. There have been some slight dips in those in the last year, but they are still at relatively positive levels for an administration.
Mr D’Ascenzo —At page 6 of the response to recommendation 1 of the JCPAA report No. 418—and I am now drilling down to more specific print analysis—there is a nice little graph, and the graph fully shows a huge spike from about April 2010 in the level of complaints. I just want to contextualise that. You might recall that we implemented our new integrated core processing system starting from 1 February. We took a very cautious approach because we wanted to make sure that the calculations in the assessments were correct. We were ramping up and the system was working well. As we tried to tweak, streamline and finetune the system, we ran into two issues. That caused a further 10-day delay to a number of returns. That caused the media attention and I think part of that media attention did significantly increase the complaints level. A perverse impact of that was that as we tried to handle complaints we had to divert resources from other work. But you will see that progressively over time those complaints have been handled and, while we still have higher than normal complaint levels over a long-term trend for this time of the year, the bulk of those complaints that we had were complaints that were 12 months old and have now been resolved.
CHAIR —Just to clarify this internal traffic light system that has gone from amber to red, can you explain for us as a committee: is it a certificate of assurance on community confidence? Have I got the right name for it?
Mr D’Ascenzo —These are our plenary governance processes. We have plenary governance where we ourselves compare the whole range of deliverables that we have committed to, from the government to our own corporate planning processes to a range of other objectives. We go through each and every one of them and say, ‘How have we performed relative to our commitments?’ If we have performed in a way that has met the commitment, it is green; if we are falling shy of the commitments but still believe that we can achieve good outcomes, it is amber; and, if we feel that we will not meet those commitments, it is red. This is particularly the case in our mid-year plenary governance, which is this one here. It says that at this point of time, tracking against all the various deliverables that we have, the green ones suggest that we are meeting those and tracking well and expect to meet them; the amber ones say we are still on track and still think we can do it but it is an area of risk and an area where we have to put more attention; and the red ones suggest that at this point of time our best estimate is that we will not meet what we wanted to meet.
CHAIR —So, comparing it to the graph that you referred to, where you think you are starting to get a handle on the complaints and they are coming down, why then would you go from amber to red at the same time? Because you think they are two different mechanisms?
Mr D’Ascenzo —They are, but the answer is as simple as this: we have an annual benchmark performance standard which we publish on our website; it is a public document. Even though we will bring it down to manageable proportions, as we have, we are not going to meet it; we have already failed at it because the impact of the spike earlier on meant that we were not able to perform the standard sufficiently to aggregately allow us to meet it.
CHAIR —I think a few others will come back to that. I have one final question; I do not know whether you can or cannot answer it, but it is really for me to get it on the record as part of agreements with the government around the Henry tax review process. Has there been any engagement at your end in that regard or anything that you want to get on the record about the process of tax reform, tax forums, summits or whatever you want to call them—what is looking to be a long-term discussion brewing about tax administration in this country?
Mr D’Ascenzo —Again, when you get into areas of policy, it is really outside my bailiwick, but I think it is perhaps useful to share with the committee what we do in the area of policy. We do work very closely with Treasury. So, in relation to the Henry review, we would work with Treasury and the review people to provide costings of what certain measures might be. We work with Treasury to develop those costings. We try to add the level of administration issues: what are the compliance cost impacts for taxpayers and tax agents and what is the administrative feasibility of certain proposals? We try to work with Treasury in trying to map those out in relation to government proposals. That is part of our role. So we will have a back room role in assisting Treasury and government in trying to work out the compliance costs and administrative impacts of various proposals.
CHAIR —Is there anyone else who wants to say anything on that?
Mr Quigley —Just to add to that, when we identify what we believe are areas of the law that are not working, we advise Treasury of that as well. That could be a situation where there could be revenue leakage. Equally, it could be a situation where taxpayers are being disadvantaged or the interpretation of the law does not seem to reflect the policy.
Mrs D’ATH —I will ask three quick questions and then I might come back at the end if there is time. What does your office consider to be the key areas that need some significant rectification to improve services across the ATO? Do you consider that there are any significant areas?
Mr D’Ascenzo —If you look at our strategic statement, one of the themes is ‘enhance’, so we are on a trajectory of always trying to improve ourselves. There is never going to be a point of time when I am going to say, ‘Yes, I’m satisfied with what we do.’ What I am looking to do and what we are developing is trying to use much more efficient online processes with taxpayers and tax agents. We are trying to build self-help in terms of our website facility—simple, practical guidance that people can use. That is what I am looking to do.
The other side of it is that we do a lot of work with tax agents. We are trying to have a very professional relationship with the tax agents to ensure that they use online processes to make their processes efficient and, at the same time, if they do need some high level assistance then we can provide it on a one-to-one basis. We do have an annual compliance program where we see compliance in trying to support people and also trying to support them by making sure other people are deterred or are doing the right thing. That highlights risks that we develop over time in terms of what we see in the community. Basically, it is more an online, easy, self-help process for taxpayers and tax agents. It is a facility where they can make contact with us and ensure that we understand and are able to resolve their issues upfront and as early as possible. It is like the first point of contact resolution principles. At the same time, it is a very holistic compliance program that provides the help that people need as well as the active compliance to support those who are doing the right thing.
Interestingly, one of the reasons for our major change program and one of the early deliverables of the change program was a client relationship management system. The idea of that was that, when people contacted us, we would have on our own screens not only their current details but also previous conversations that they might have had with the ATO—in other words, a history of their dealings with us—and therefore our being able to resolve their issues at that one-stop shop type concept rather than have what often happens in bureaucratic organisations, which is people being shuffled from one place to another. We are trying to streamline that and so provide a much quicker service as part of the future.
CHAIR —In case you hadn’t noticed, I think there are photographers—and correct me if I am wrong; I am guessing—Fairfax, AAP and News Limited. It is a public hearing; that is part of the deal.
Mr D’Ascenzo —Sure.
CHAIR —Just to get some order in the questions, we will go to the deputy chair and then Josh, Darren, Helen and Deb.
Mrs D’ATH —Based on your comments, which seemed to be more about how you can enhance your existing services, we have heard and also seen from the materials that have been provided that there has been an increase in complaints over the last couple of years and certainly this year we have seen a significant increase in complaints to the Ombudsman’s office. I know that a portion of those are being referred back to the ATO to go through its complaints processes. Can you give us your insight as to why you believe that those increases are occurring?
Ms Granger —At page 6 of the report we gave you—the Commissioner has already drawn your attention to a graph there—if you look at the last two years, you will see that both years have been elevated—more so the last financial year than this one. They reflect two fairly large events for us. The first one was around the tax bonus. We had a lot more people in the system and it was around trying to process and get those payments out quickly. That was an extraordinary workload, which we think was done very well but it also meant that we had a lot more churn in our system in relation to that, which also carried over into our next year as well. The second year, as the Commissioner has touched on, has been in relation to both the tax time and the introduction of ICP. The important thing in terms of your question is: ‘What is the direction from here?’ We are already trending down, which you can see in this graph, in terms of the number of complaints, and we would expect that to continue. We are seeing a heightened level of complaining fairly early in the system compared to before. We are not sure whether that trend will settle going forward and whether that is just a change in the level of expectation in the community of how quickly we can respond. But we are certainly seeing the trend back down. In relation to the service standards, one of our service standards is complaint handling and that is red for the year, but the actual monthly statistics are now moving back up to the benchmark as we have got through that particular area.
Mr D’Ascenzo —You often find that spikes in complaints occur following certain activities or certain things. One was a major change in our IT systems. I think the level of complaints was probably magnified by some of the media that was provided during the March-April period. Previous to that, as Jennie pointed out, we had a very heavy workload associated with the tax bonus, which meant that we had to do some redirecting of resources and which means that sometimes some things have to give in that process. Over the last few years, we have also been quite appropriately impacted by the priority we have given to helping people affected by natural disasters, which has also required some diversion of resources from other activities.
You mentioned that there was an increasing trend. I think if you look at it longitudinally it is in fact a decreasing trend because we had a much higher peak associated with the mass market schemes in the 90s, for instance. So if you take a longer term view it is probably different from that impression.
Mrs D’ATH —I note in your interim report provided to this committee on page 6 it is acknowledged that the ATO agreed with 11 of the 12 recommendations in an Inspector-General of Taxation report on the administration of the superannuation guarantee, which was tabled on 24 November 2010. The report found the system works well, although not as well for the least-empowered or those incorrectly classified as independent contractors. Having agreed with those recommendations, can I ask someone to comment on what is being done to address those issues?
Mr Olesen —We did agree with those recommendations. A number of those 11 recommendations were policy issues and the government has responded to those measures. One of the recommendations related to our debt activities and we have had a particular focus on collecting superannuation guarantee debt over the last period. The inspector made some recommendations about how we might be able to improve our debt collection arrangements around superannuation, and we have made some improvements there that have resulted in some significant increases in the rate of collection of super guaranteed debt, particularly over the last 12 months. It is up some 50 per cent relative to the prior period.
We are continuing to work through the other recommendations that the inspector has made. Some of those were looking at issues around our policies on the application of penalties in the superannuation guarantee. The inspector had a certain view about whether the policy was robust enough and provided enough incentive for employers to make the payments to us that they were obliged to make. So we are in the process of reviewing those penalty practices, for example, to make sure that they provide the right balance of incentives for employers to do what the law requires of them—but equally, it does not take too long a handle in those cases where people are facing genuine difficulties and are trying to do the right thing.
In summary, we are going through the process of implementing those over the current period. We have made some significant changes already, including in our debt activities, and we will continue to do that and track our performance.
Mr D’Ascenzo —I must say that a lot of those activities were on course well before the report and well before the investigation by the Inspector-General.
Mr FRYDENBERG —I first put on the record my appreciation to the ATO for appearing today. I also acknowledge their important but sometimes difficult role. Following on from your answer, Commissioner, to the Chair’s question about the engagement with Treasury and so forth, the government has announced a carbon tax. To what extent has the ATO been engaged in looking at the administration costs and other issues that would arise from that?
Mr D’Ascenzo —I am not aware of the extent of our involvement. Perhaps Ms Granger can answer.
Ms Granger —I am not aware either. We may have to take that one on notice.
Mr FRYDENBERG —So your sense is that the ATO has not yet been involved in any discussions around the implementation of a carbon tax?
Ms Granger —I am not aware of any, but we are 22,000 people, so I would like to do a bit of a check.
Mr FRYDENBERG —It would seem slightly strange to me, where an economy-wide tax with major implications is being introduced, with major implications, if the ATO had not actually been formally engaged in it.
Ms Granger —As a general comment, in very early parts of policy design we may or may not be involved. Obviously we like to be involved as early as possible to influence what is administratively practical, but pragmatically that is not always the case at the initial shaping stage. But, as I said, I would like to check and confirm.
Mr FRYDENBERG —Take that on notice, sure. What about the mining tax? To what extent were you involved in looking at the administration of a mining tax and the costs involved?
Mr Quigley —We did have quite an involvement there with the consultative group. We took a deputy commissioner offline to head up our input. She has a small team that continues to work with the other departments—Treasury and the like—on the input on the administrative side of things.
Mr FRYDENBERG —Is that ongoing?
Mr Quigley —It certainly is, yes. We have been providing input and responses to drafting instructions, for instance, that are sent over to us from Treasury for comment. We have a person seconded to Treasury to assist in the project management side of things, so there has been some quite significant involvement, as you would expect.
Mr D’Ascenzo —A specific area of involvement is in the question of valuations, for instance—whether or not we can develop methodologies that can help in the valuation aspects of that proposal.
Mr FRYDENBERG —What about the flood levy? Has the ATO been actively involved in issues around the administration of that and the costs involved and so forth?
Ms Granger —Yes, we have been involved in the administrative design of that. It would typically be the case that we would be involved in something that is due to be implemented from July this year in terms of adjustments to withholding rates. We are doing what we need to do to get ready for that.
Mr D’Ascenzo —Given the short period of time for the proposed implementation, we have to be very busy right now trying to work out just how that can be implemented in an effective way.
Senator KROGER —In your assessment, how many people will be affected by the flood levy? Obviously you have done computations of how many will be caught up in it. Could you tell us how many you believe will be caught up by the levy?
Ms Granger —Treasury has done those estimates, which they would do at this particular point. I have a figure in my mind, but if you give me one minute I will find it for you. We give input on information we have on taxpayers, postcodes and all those sorts of things, but Treasury actually does the estimating.
Senator KROGER —If you could provide us with the number, that would be appreciated.
Ms Granger —It is an announced figure, so I think I have it here somewhere. The estimate is around 4.8 million taxpayers.
Mr FRYDENBERG —I will keep moving, because I have a number of questions. The Chief Justice of the Federal Court, Patrick Keane, has said that opening the tax act is like going into a parallel universe. At 16,000 pages, it is pretty big. In light of the Henry review and other issues, what are you doing at the ATO to investigate ways to simplify the tax act?
Mr D’Ascenzo —Again, legislative proposals are more in the arena of Treasury. As Mr Quigley pointed out, we often bring to Treasury’s attention areas where the law is not operating in accordance with its underlying policy intent, whether or not it is impacting on the revenue or whether or not it is impacting properly on taxpayers—that is the role we play. We then try to make things simple in terms of where there is a proposal. Because we consult quite a lot with the community, we do make suggestions such as, ‘Rather than doing it this way, it would be easier if you were to do it a different way because that would fit much more naturally into the systems and processes that people and businesses take.’ So I think we do have an influence in trying to reduce compliance costs and, in that way, make the law at least more attuned to what is happening on the ground. In terms of specific proposals and complexities, we have a role where we think there could be technical amendments for the care and maintenance of the law through the tax issues entry point system that we run with Treasury. We really do not have a fundamental role in looking at broad based simplification policy proposals, which are more in the bailiwick of Treasury and government, but we would provide assistance to Treasury and government where they look at those issues.
Mr FRYDENBERG —Should you have more of a role in this regard?
Mr D’Ascenzo —What we do is try to develop administrative arrangements that make it less complicated for the ordinary person to carry out their activities, with a view that the ordinary person is not necessarily going to pick up the tax act every time they lodge their return. Processes such as e-tax, for instance, are part of what we try to do to make life as simple as possible for most ordinary taxpayers, with things such as pre-filling return questions. So we try to make things simple. I mentioned before in answer to the deputy chair’s question about how we would like to in the future continue to improve the service that, to me, there are things like making things simple in terms of how we explain to the community what their rights and obligations are and making it simple for the community to use these online processes to carry out their activities. Behind all of that, there may well be many pages of law, but what I am trying to provide for ordinary taxpayers is the simple guide.
Mr FRYDENBERG —I understand, but the Federal Court has made it very clear that too much of their time is being taken up with poorly drafted legislation as well as cumbersome documents. I just put it on record, Commissioner, that I think it is a priority to look at this.
Mr D’Ascenzo —I make two points that do not disagree with what you are saying. They may well support it in some ways. One is that we have always been very keen to push high levels of consultation, hoping that through consultation we may be able to get more simple and well thought-out proposals that can then be enacted in simple ways. The other point that goes the other way is that a lot of the complexity in the law actually happens because there is a very complex commercial environment.
Mr FRYDENBERG —Yes.
Mr D’Ascenzo —Often the complexity comes because people put forward specific areas based on equity where they need different activities. We have a very sophisticated system that tries to cover a whole range of different equity proposals that have been put forward over time, and this is why when you are looking at simplicity you can do it on a piecemeal basis or you can look at major improvements. But they are both improvements that are very much outside our bailiwick.
Mr FRYDENBERG —The ATO had quite a public battle with TPG in their exit from the Myer stake private equity. I am interested to know: what is the ATO doing to clarify the tax rules around private equity?
Mr D’Ascenzo —I cannot talk about the individual cases, but before a parliamentary committee, I think back in 2007, we indicated that there were areas of risk that we needed to consider. We did consider those and they culminated in two public rulings, which are now finalised after extensive consultation. Through that consultation we found two other issues had arisen as people tried to restructure their arrangements in different ways. They are in the draft stage in the market and we are hoping to finalise those in the near future. What we have heard from the newspapers is that the private equity and selective investment vehicle association of Australia is happy to work with us in trying to provide higher levels of transparency, and we welcome that.
Mr FRYDENBERG —There has been a debate about the taxation of online international sales. I am interested to know from your perspective if you have done any modelling on what sort of revenue would be raised and what sort of costs would be incurred were there to be a zero threshold on the taxation of online sales?
Mr Quigley —We have not done any modelling. Treasury may have done some modelling on that but I am not aware of any. The actual compliance aspects of it are the province of Customs and I know that Customs have been looking at their processes, and I understand that they are satisfied that their processes are robust enough.
CHAIR —Have you got any data that can assist us in proving or disproving the case that there has been a significant rise in online sales in the past 12 months under that $1,000 threshold?
Mr Quigley —I think we would have that data. I can give you some now. For instance, at a macro level if you look at international mail the number of parcels in 2008-09 was around 23.6 million. In 2009-10 that was 36.7 million. The number of postal import declarations was just over 22 million in 2008-09 and that went down in 2009-10 to just over 19 million. As far as air and sea cargo, the number of self-assessed clearance declarations that were lodged was something in the order of 7.1 million in 2008-09 and close to 7.8 million 2009-10. There are some other figures that we could drill down a little bit more, but it is probably best if we took that on notice. It is difficult to get across.
CHAIR —Okay, but you do not have anything in real time? Anecdotally, a lot of the small business community are saying that in the last four or five months everyone has just gone online. I was just wondering whether there was any real-time data that could prove or disprove that.
Mr Quigley —We would have to talk to Customs about that, and I cannot guarantee that we will be able to.
CHAIR —Anything on that would be helpful because we are all trying to work out truth from fiction.
Mr FRYDENBERG —There is talk about setting up this tax system advisory board. Is it right that you are going to be the chairman of this board?
Mr D’Ascenzo —Actually, this is really a matter for government. I have been in the wings rather than in the centre of those proposals. I am really not sure of what will ultimately eventuate.
Mr FRYDENBERG —Are you aware, though, that it has been said that the chairman should really be independent of the tax office, when one is appointed?
Mr D’Ascenzo —I think it comes back down to what the rationale is for an advisory board, and that is a matter that is currently the subject of consultation, which ultimately will go to government for its decision.
Mr FRYDENBERG —Do you think one is of use?
Mr D’Ascenzo —I think it is a matter for government and it is not for me to say.
Mr FRYDENBERG —The front page of the Financial Review today had an interview with you and highlighted the cash economy as a systemic risk. I am interested in which industries you think are creating the most risk here and where you are going to be paying the most attention.
Mr D’Ascenzo —When I talk about the cash economy as a systemic risk it is one of those systemic risks that will be in any economy—that is, you will have some level of cash payments and non-reporting associated with those. It is systemic in the sense that it is going to be inherent in any economy. My own understanding of the situation in the Australian economy is that it is not as bad as in many other countries—in fact, it is reasonably under control, but it is an area that has high public visibility.
If you are going to have people trusting and feeling confident about the system it is an area that you cannot ignore. It is a very resource-intensive area. So we do look at risk areas. One area is business-to-consumer, which is often seen to be an issue in the building and construction trades and other cash economy industries such as the hospitality industries. Those are the high-risk areas. Mr Quigley might have some further amplification.
Mr Quigley —Our activities are risk based. The industries that we focus on mainly—that is, the industries that are largely dealt with through cash arrangements—are probably not surprising. They are, as the commissioner said, building and construction, cafes, restaurants and those sorts of things. They are always areas of interest. Across a whole range of things we have a broad range of strategies, including, at one end of the scale, advisory seminars and specific visits and, at the other end of the scale, in cases where there is quite deliberate evasion, and we take them right through to prosecution. In between we have mail and telephone contacts, for instance. We also have reviews to see how significant any evasion might be, and a review might be escalated to a full audit and penalties and the like may flow.
We certainly have quite a heavy emphasis on that in our strategies, which was reflected in a compliance program that we published in July that said, ‘This is what we’re going to be covering this year.’ That involves a lot of data matching and indirect methods of trying to determine whether businesses are returning the correct amount of tax. We have published over 100 industry benchmarks, and that has a twofold purpose. One is for the businesses and their advisers to have a look, just as a guide, at how they are tracking against others in the same business; the other is that it informs us where a business may appear to be well outside those industry benchmarks. That does not necessarily mean that they are doing the wrong thing and not reporting all the income that they should, but it does give us a bit of an insight. We may, for instance, send letters to those who are outside saying, ‘Can you just give us a bit of an idea why?’ We have a look at the explanation and, if we are not satisfied with it, we go out and follow it up.
Mr FRYDENBERG —The article says that in 2010 just over $200 million was recovered from your efforts. Is this amount on the increase? Do you see the potential revenue for the ATO being a multiple of that?
Mr Quigley —It is going up, but one of the other very significant things we undertook was a voluntary disclosure initiative. That was a letter strategy where we sent out around 110,000 letters to taxpayers falling outside those benchmarks, for instance. The results—which I think went up until the end of December—showed that nearly 60 per cent responded positively to the letter in one of a number of ways; that 18 per cent provided an explanation of their circumstances, which was fine; that 1½ per cent made voluntary disclosures saying ‘we’ve had a close look, and here it is’; and that 45 per cent reported a higher net GST one year after the letter which, while not a direct audit result, is a significant indirect result. So they are the sorts of strategies we are using which are not traditional one-on-one audits; they are less intrusive in some ways.
Mr D’Ascenzo —You mentioned the question about the $200 million that we have raised in liabilities over the past year. That is significant. We have also increased the number of prosecutions in that space. But it is not about trying to recover the $200 million, though that is important; it is about trying to provide the confidence to other businesses to ensure that they are not being undercut by people who are doing the wrong thing, and it is about making sure that the people who are complying with their business obligations believe that the system is fair and there is a level playing field. That is really what all our strategies are about in tax administration.
I have to say that I think with the work we are doing in benchmarks, we now have benchmarks that cover some 600,000 businesses in different industries. This goes back to the point I made earlier in that it allows us to differentiate our strategies by understanding the causes of the differences. When we work through it we find that the vast majority of businesses are within benchmarks, which would suggest reasonably high levels of compliance relative to objective criteria. Of the 600,000, we now find that there are only about 46,000 that are outliers. As Mr Quigley said, we will ask them to explain because there are often reasons for them being outliers.
That then starts to narrow it down. Hopefully, as we narrow it down people will get the message that you just cannot hide anymore. The sophistication of our systems, data mining and benchmarking—which we have done with industry associations themselves—makes them very much more exposed. It is no longer a hidden economy—in some areas, anyhow. I think it has been a huge breakthrough for the strategies that we have applied to the cash economy, and it gives me good hope that we will keep it down to a very minimal and manageable level.
Mr FRYDENBERG —Project Wickenby is obviously a major public initiative. How successful have you been in that? Are there plans to expand it? If you were going again would you do anything differently?
Mr D’Ascenzo —I think there have been three main objectives for me in Project Wickenby. The first objective has been to send a signal to people who abusively use tax havens, or try to hide income or assets that should be taxable in Australia, that there are real consequences. The signal is there to deter people from entering into these arrangements and also to provide some confidence to the vast majority of Australians who do not want to enter into those arrangements. It is hard to work out how much that benefit has applied. To measure that is always difficult. We have anecdotal information from lawyers and accountants that they now have clients coming to them saying, ‘I don’t want any of that international stuff’, which I think is a very positive outcome.
We have indirect tests of the amount of flows going to tax secrecy jurisdictions we have had a focus on, such as Vanuatu, Switzerland and Lichtenstein, and those flows have decreased markedly compared to other tax secrecy jurisdictions. You can see this compliance impact operating in real time. Also, you will see that people we are looking at have significantly increased the amount of tax that they would pay compared to a controlled sample. So I think it has been successful at sending the message. It has also been interesting how hard and ferociously there has been some pushback from the people involved.
The second objective is to have task force approaches that involve Australian law enforcement agencies working in a very coordinated and systematic way. I think that task force approach will help law enforcement more generally in addressing high-risk areas of organised crime. Rather than doing it individually, we work as a team with both Commonwealth and state agencies. We have also been able to bring in relevant authorities from overseas jurisdictions. I think that has been a fantastic benefit that most people do not see but those involved in law enforcement will see great benefits from that in the future.
The third objective revolves around the basis commitments we made in the business case for the funding of Wickenby. Basically all of those business cases have been met and we continue to work on Wickenby. There is still more work to be done. What happens when the funding runs out? It is still a high-risk area for us and we will still be allocating significant attention to it.
In terms of lessons, I think the process of getting people together across agencies had a slow start, but it has really improved and I think one of the positives out of that was the heavy involvement of the Wickenby agency CEOs working very closely together to ensure that the message was sent through to each of our organisations that this was a priority for us. I am sure there are other ways that we can improve, but I think it has been a very big success.
ACTING CHAIR —Thank you. Mr Cheeseman.
Mr CHEESEMAN —Commissioner, I am interested to know whether there are any holes in your ICT systems that at this stage do not enable you to process your responsibilities as efficiently and effectively as you would ideally like.
Mr Butler —We put in place this time last year a new integrated core processing system, as mentioned before. We believe it is one of the largest system deployments ever put in place in Australia. That has been the advice to us by external experts, be they government or private sector. It took some time to bed down. We had some issues we had to deal with initially and a couple of unintended consequences with things, as the Commissioner mentioned before. I do not think, in a system as big and complex as the one we run, that you could ever say that there are no issues at all to worry about. What is more important is to know what those issues are and to be able to do something about them. So I can say that we are confident that if there are any issues we know what they are. We might have a ‘fix’, as they call it, to rectify it, but in the meantime we will have a manual workaround process to deal with it. We have issued, since the new system was put in place, probably close to 22 million assessments. There was one particular issue that we found in April last year, where there was a calculation error in assessments. That calculation error affected fewer than 2,000 taxpayers out of many, many millions. So I think the amounts shown as a tax liability for in the assessment process have been very, very accurate, which has been the key objective for us all along.
Mr D’Ascenzo —One of the areas in terms of systems that I have found difficult over time—and it has some aspects to do with the change program but it is more about what I have found difficult—has been the area of superannuation. The design of superannuation systems is actually quite complex because you have to link sometimes the employer, the fund, the employee and the ATO. That sort of parent-child linkage in systems is quite difficult. We have been refining and redeveloping our systems in super for some time, and they have been difficult and we have had difficulty getting them to the level of performance that we would like them to have. Now we have the super review, the Cooper review, proposals, that will require a very major system upgrade rebuild for us in the super area to make those occur. So that is an area of challenge for me in the system space. If you are saying, ‘Are you totally happy with the current super systems?’ I am saying that I would still like to improve on them. We have been trying to improve their performance but it has been a hard job. Am I concerned about the complexity of the new development? Yes, I am, but we will do it as professionally as we can.
Mr CHEESEMAN —What sorts of faults are there within your ICT system at the moment that do not enable you to conduct your responsibilities around superannuation as effectively as you would like, and what sorts of complaints have come out of that from clients and—
Mr D’Ascenzo —We had some delays in perfecting some fixes to the super system, which delayed some assessments that we were going to issue last year. Mr Olesen might have more details.
Mr Olesen —Perhaps the better starting point would be to say that there is really nothing in our administration that we are not able to do at the moment because of our systems, particularly in the key areas. If you take some of the big pieces of work we do—the government co-contribution, for example, which is a large data matching exercise with a large amount of data that comes in and a large amount of data that goes out to funds to be put into people’s accounts—that system is working better now than it did before we did the transfer into the new ICP system. There were some interesting times along the way, but it is certainly working better now than it was previously.
Other major areas of our super administration are around the superannuation guarantee. There is nothing in our systems stopping us issuing assessments and pursuing employers who have not paid the appropriate superannuation. Would we like those systems to perform better at times or to talk to systems in a better way? Yes, we probably would, and those are some of the things that the commissioner is touching on, but it is not stopping us doing anything at the moment.
Mr CHEESEMAN —You have indicated that it is working better, but that does not indicate to me a great deal of confidence from you that is working perfectly. Obviously these things are difficult, but your saying, ‘It’s working better’ is a relatively low test, I would have thought.
Mr Olesen —As Mr Butler was saying, if your benchmark is perfection, we will never get there with our systems. But for co-contributions, for example, better is a pretty good benchmark, because one of the key tests there is dealing with the significant volumes of data we get in that we have to match and then get those volumes out the door to employers, and the processing times there are working. We do monthly runs on that, and those monthly runs are getting through the volumes in the times that we set for ourselves. So the system is working, if you like, to specification. It is not just that it is better off a low benchmark; it is that it is doing the things that we would like it to be doing in the kind of time that we would like it to be doing it.
Mr D’Ascenzo —When I say ‘better’, I mean that I am even trying to lift those design outcomes.
Mr CHEESEMAN —Obviously there are constant amendments and tax rulings and the like in this space. When you are providing advice to Treasury and others around what some of these amendments might look like, do you have a practical eye for what the ICT systems might or might not be able to do so that we are dealing with that as a part of the drafting stage or the tax ruling stage?
Ms Granger —Yes, we do. I will give you a very practical illustration of that. My colleague Second Commissioner Butler uses this term often. If it is designed in a way that it is in-pattern with our systems and how the businesses or individuals come in and out of the system, that obviously makes it much easier to implement things, because it fits in with normal practices. For example, one of the bits of design that was important to us when we were delivering the tax bonus was that people be able to rely on the assessment of the year before, because that then fitted in with their pattern and they had a record that that they could go to. So that is just a tiny example of how, if you can use the records that people have, it fits in with something they know and understand and it works in our systems, that tends to minimise a lot of issues around that.
Mr CHEESEMAN —You indicated that the Cooper review might require quite a substantial rethink around your ICT systems. What sort of rethink might that be?
Mr Olesen —One of the fundamental recommendations from the Cooper review was a new set of data standards for the superannuation industry which they have put under the target of SuperStream. If we introduce a new set of data standards for the entire industry on how it moves data and money around the system—and, in a sense, we are part of the industry; they report to us, and we push data and money out to them, as I explained before—we need to be a part of that, and we are part of that conversation about how those standards would come into play. Once those standards have been fixed, we will need to make sure our systems are in conformity with them so that we are participating in that standard in the same way as everybody else in the industry.
The Cooper review is also looking for us to offer some new offerings as some of the integrity measures that they have talked about for the system. For example, they are looking to tax file numbers to play a more significant role in the superannuation system and be the primary identifier. They would like us to offer a service to the industry whereby, when somebody quotes the tax file number, they can get verification in real time that it is the tax file number of the person who is quoting it. So it is a new service that we will need to offer, and that has IT implications for us.
Mr CHEESEMAN —You are confident that you can work your way through those challenges more satisfactorily than your last experience?
Mr Olesen —We have been working very closely with Treasury and the Cooper review over the last couple of years to talk about the challenges inside some of these areas, and to think about the schedule and timing. Some of that is implicit in the government’s announcements around this.
Mr D’Ascenzo —If you look at the last experience in an objective sense, it was quite a significant achievement. If you were to look at any other development of that scale and complexity and see what has been achieved, it would be a very important success story. Indeed, when you look at independent experts that is what they say.
Mr CHEESEMAN —Internally that may well be the case but externally I think there was a level of frustration for quite a period of time amongst your stakeholders. There was a concern.
Mr D’Ascenzo —That is right. I think people did not quite appreciate the scale of what these changes meant. I am not sure people quite understood that there was an inevitable six-week delay built into the system. That is why we did ask them to lodge earlier and why we did ask them for some patience over that period of time. It was exacerbated by those early minor issues, but it was just enough to break the camel’s back with people’s patience and frustration.
Senator KROGER —My question is about public confidence in the tax office. The evidence that was given by the ombudsman before you joined us covered the suggestion of institutional rigidity. In my mind when people talk about institutional rigidity—he did not use these words but I do—they are talking about culture. Following that, there was a question about the tax office conceding or appreciating that there were systemic procedural problems in the various operations that the tax office undertakes.
Further to that, the ombudsman talked about the fact that he felt that his office got pushback when he raised concerns with the tax office. There was the suggestion that if the ombudsman was off the phone you would be able to deal with the problems. I am concerned that that may occur when in the ombudsman’s office are an independent arbiter there to assist both the tax office and those who are dealing with the tax office. It concerns me that there is a sense that that might be the case. Whether it is right or wrong is not the issue—the fact that there may be this perception underlines that there is a problem.
Over time I have had many representations from constituents about what they do not consider to be minor complaints. They are not minor to them but in your view they probably are minor. I think what underpins a lot of those complaints is a breakdown in communication and how they feel they have great difficulty dealing with the tax office. I think most people understand the necessity of tax and they support paying tax. I do not think that is the issue here. I do not think they are being aggressive because they have to deal with the tax office, but they do need to see their issues through.
You have mentioned in response to a number of things about a level playing field, being fair and so on, but at no stage have I heard this morning in your evidence that you believe that there is a lot more work to be done in a particular area and that significant progress needs to be made. You referred to a trajectory that you are on, but I do not get a sense that there is any acknowledgement that you might have institutional rigidity or issues in the tax office. I am happy to table many of the individual concerns, but I guess what underpins my comment—and I ask you to respond—is that the tax office sets a very high standard for those who need to comply with what you are expecting of them. If it is queries and questions to taxpayers, you might give them three days notice, 21 days notice or 28 days notice to comply. If it is GST payments and there are disputations about that GST, you provide strict guidelines as to what you require people to do. But when they come back and have legitimate disputes about issues, you seem to have a double standard in terms of the standards that apply to the ATO. It is an issue and I do not think it is one that has been acknowledged here today. I would like your comments on it.
Mr D’Ascenzo —Firstly, I am little bit surprised, and also concerned, about the Ombudsman’s perceptions. As I said, he has not raised them with me. I have certainly been having discussions with the Ombudsman to see where we can improve. That is what I said earlier. Secondly, again, I mentioned to the deputy chair that what we are trying to do is make sure that we can resolve problems for people. If you look at the empathetic approach we have taken with people affected by natural disasters and small business during the global financial crisis, you get a different flavour to what you are providing to me, Senator. If you look at our corporate plan, we have, as part of our strategic statement, a key theme of enhance. Under our corporate plan we have specific strategies to develop our engagement, our culture, our responsiveness and our support, and they are actually listed in the draft corporate plan that was provided to the committee.
It is a difficult job. I made the point that you have to look at things in the context of the wider arrangements. We do have a wide canvas of responsibilities, and we do actually do very careful monitoring of what people think. Ms Granger pointed out that, in terms of community perception surveys, 83 per cent of people believe that we are doing a good job. That means that 17 per cent are people who we want to persuade otherwise, so there is room for improvement, but there are 83 per cent who believe we are doing a good job. If you look at the area of tax agent surveys, 79 per cent overall think we are doing a good job. That is 21 per cent that we can improve on, but there are still 79 per cent that think that. If you look at that from an historical 2003 rating of something like either 28 or 38 per cent, compared to 79 per cent this year, you see continual enhancement and growth in terms of the way that we do things.
In terms of businesses, 88 per cent of businesses believe we are doing a good job. There is 12 per cent there that we can improve on for, but 88 per cent of businesses believe that the ATO is doing a good job. If you look at our professionalism survey, we have an overall professionalism score of 4.06 out of a rating of five. So that is more than 80 per cent who believe that we are professional. If you look at the highest level in that professionalism score, it is 4.33 in our latest survey for people who think that we are respectful and courteous. We can look at areas with 4.15 for staff being fair, reasonable and unbiased. It is a story that says that overall we are a well-performing organisation who have always said that we are trying to do better, and we have given you some examples of that.
Senator KROGER —Can you advise me then: how many disputations do you have on GST determinations in relation to businesses? How many businesses—or individuals, actually—would dispute the GST determinations?
Mr D’Ascenzo —Over their assessments?
Senator KROGER —Yes.
Mr Quigley —I do not have those at hand.
Mr D’Ascenzo —We can provide that to you; it would be a very small proportion.
Ms Granger —What I can give you relates to income tax. With GST we probably do not have quite as formal a tracking system of disputation of assessment, but I can give you the income tax figures. Of the 16.5 million tax returns we did last year, only 0.01 per cent went to litigation, but you can dispute and have your assessment reviewed internally as well. So there is a step before that, which is called the objection stage. Most of those objections, not surprisingly, come out of the audit process. Last year there were a little over 3 million audit activities with 21,000 objections, which is 0.07 per cent—so both are way less than one per cent.
Senator KROGER —I would be interested in knowing the number of disputes over the GST assessments, including timelines. How many of those are resolved at the objection stage? How many go to appeal? How many of the objections are upheld at appeal, and how many are lost at appeal? In what ways are they upheld? And how long do the appeals take?
I have heard of one instance of a relatively small business that objected to a GST assessment. It took three years to come to an appeal. This was a significant difference in GST assessment, I might add, that created a huge income flow problem. On the day that it was looked at, the objection was upheld at appeal. I am really interested to know how many businesses or individuals are affected in this. What it tells me is that if someone is waiting three years for an appeal to be assessed, then that in itself is an extraordinary state of affairs. No matter the size of that GST, it has an impact. I would be interested to know how many get to that stage and how many are outstanding. What that tells me is that there is a process problem there. You either have a resource problem in not dealing with disputations or there is a problem in not dealing disputations and you are taking that long to deal with them.
Mr Quigley —We will be able to take that on notice and provide you with all of those details.
Mr D’Ascenzo —Senator, if you would like to provide us with details of that matter we would be happy to follow that up.
Senator KROGER —The matter was actually resolved. I would need to go back to the person.
Mr D’Ascenzo —I understand, but it would be nice to know if there were two sides to any of those delays.
Mr Quigley —Also, it helps us to have examples of that so that we can track down and see where our processes fall down—if they did.
Mr D’Ascenzo —Or we can use it as a case study to make improvements.
Senator KROGER —I have one further question that relates to advent of WikiLeaks. I am wondering whether that has turned the mind of the commissioner to look at security. Has that raised issues that have led you to go back and look at the security of your processes, and assess whether what you have is sufficient?
Mr D’Ascenzo —Coming back to the area of culture and improvement, we were very concerned a number of years back when Her Majesty’s Revenue and Customs in the UK had serious issues of lost data. What we did was to bring in an independent review of our security arrangements. That was some years ago, and we have implemented the findings of that review as part of our improvement processes. So yes, we are very conscious about security issues. We have a security—
Senator KROGER —How long ago was that?
—I think that was two years ago. We have the security committee which Mr Butler chairs.
Mr Butler —We take our IT security very seriously. We have employees who try to get round our systems externally through all sorts of things to make sure that the systems are robust.
Senator KROGER —To try and test them.
Mr Butler —So we are very, very conscious of that. I am the chair of the security committee for the department. It has a program of work. The review the commissioner mentioned to you will implement those recommendations and we keep talking to others, looking at other organisations. We have looked at the WikiLeaks situation. It is essentially people taking information out of organisations and doing other things with it.
Senator KROGER —I understand.
Mr Butler —So we have checked our processes there as well but we have quite robust processes. The information we have is very confidential. In fact, secrecy applies to it so we treat it very seriously at all times.
Senator KROGER —For instance, if the AFP are doing an investigation—and you talk about joint agency activities, which I applaud—when there is a joint agency activity, what is the process in terms of you being allowed to provide access to private information?
Mr D’Ascenzo —It is a quite difficult exercise. It depends whether or not it is a taskforce. If it is a designated taskforce, the law allows us to provide and share information within the taskforce. If it is not a designated taskforce, we have to apply the other rules which say we can only refer matters to an appropriate law enforcement body on an individual basis, not on a collective basis, where there is not a serious offence. So we have very, very strict requirements about people to ensure that they comply with the law. They write questions about whether or not that area of the law requires some change to facilitate the way that law enforcement is moving into the future as under current arrangements we are very careful to ensure that whatever information is exchanged is done according to the rules that are there for us. We document that in our annual report as well.
Senator KROGER —Who ultimately signs off on access?
Mr D’Ascenzo —There are different delegations and authorisations within the organisation.
Senator KROGER —I suppose Project Wickenby would be an example of one of those, although that was—
Ms Granger —That is in relation to the referral of serious information. That is done, I think, at assistant commissioner level.
Senator KROGER —If it was a drug trading issue and we were trying to track the money source, where would that authorisation come for you to be able to provide income information?
Ms Granger —Typically to be able to provide information, it will be at the senior executive level. To do the authorisation process, the second commissioner—there are quite strict protocols.
Mr D’Ascenzo —We do have extensive guidelines, and the former ombudsman highlighted those guidelines. We do have significant checks and balances in place and they are public. So it would be there. I am not sure about the precise details.
Ms O’NEILL —I have just a couple of questions. Earlier you indicated that you were able to respond to requests to provide information about a tax implementation in the mining sector and also that you have been engaged recently to deal with the flood levy matter. Are you anticipating a request to consider the carbon tax?
—My understanding is that we are waiting on a draft cabinet submission and we will be asked for coordination comments on that draft cabinet submission.
Ms O’NEILL —So the matter is being progressed in a timely fashion and you are prepared for when that arrives at your offices?
Mr Quigley —Yes, certainly. In responding to any draft cabinet submission there are quite short turnaround times. We have people who will turn their minds to what is in the submission and the impacts from a tax perspective and an administration perspective and provide those comments.
Ms O’NEILL —Excellent. I am glad to hear that. I have another question related to the matters that have come up regarding the Ombudsman today. I noticed on page 7 of 8 you refer to page 6 of the briefing we received today and there is a commitment to community complaint handling within three working days of receipt of the complaint and resolution within 21 days, but the footnote there says:
This timeframe can be extended where we advise the complainant of a different resolution timeframe.
It is of concern to me that the time frame is set by the person to whom the complaint is made. What sort of time frames are we talking about there? We have heard it is about three years for resolution for some of these matters.
Ms Granger —In relation to complaints handling, what that requires is talking to the taxpayer. If it is a very complex complaint, it may not be able to be resolved in 21 days and you go back to the taxpayer within that time. Typically, a lot of times we need more information from them, so you may reset the time frame. It is not just extending because of workload type issues; it is extending because there is something complex here that might take more time to resolve.
Ms O’NEILL —What are the time boundaries around that adjustment?
Ms Granger —We have the standards that you have just mentioned of three days to actually acknowledge a complaint and 21 days to resolve it. In terms of negotiated extra time it has to be by mutual agreement in relation to that. We also monitor how long complaints have been outstanding. So we work on trying to resolve what has gone wrong in the older ones, why they are taking so long and whether we need to put more expertise around that issue to resolve them.
Ms O’NEILL —I take onboard the comments about the high success rate and high satisfaction rates that you have noted today, but the nature of our job is that we are dealing with the other 12 per cent and the other 17 per cent. The reality is that for those who are in a position of power it looks like a storm in a teacup but the people we are dealing with are right in the middle of that teacup.
Mr D’Ascenzo —I understand that. In fact, the goal would be to try to reduce the gap between the high standards that we have and a much more perfect solution. It is just that we talked about community confidence and, if the community is getting a story that is reflective of a very small tip of an otherwise effective organisation, it actually dilutes the community’s confidence about the effectiveness of the system and the trust and confidence it can have in its administration. That is what I am conscious about.
Ms O’NEILL —I understand that but I am very concerned about the individuals who are in that storm. Is there a different level of response to individuals who might be quite marginalised in terms of Centrelink applicants? I read some of the guidelines here about businesses where they have a case officer and a senior officer whose name they are given. Are there different courses for people from business as opposed to people who are perhaps Centrelink recipients?
Mr D’Ascenzo —It comes back down to how we allocate our resources. For most people, the strategy is to have a very light touch—in other words, not to be unnecessarily involving them in matters that do not need their involvement. We are trying to reduce the overall compliance costs for people. If you look at the concentration of resources that we put into small business and large business, it is higher than what we put into individuals, particularly from an active compliance perspective.
But there is no discrimination against people coming into our system through out various client contact areas. We do make opportunities for people to seek interviews with us—in other words, they can make an appointment with us and we will happily talk through their issue. People have the same rights of internal escalation if they are not happy with the way we have been treating them, as well as the extra rights that they have elsewhere. Indeed, the former Ombudsman said in his annual report as recently as two or three years ago that he believed that the ATO’s client complaints area is best in practice and that it gives individuals more than they are entitled to under the law and has gone that extra step. That is in the actual report, so I just—
Ms O’NEILL —I guess we live in a consumer focused society, and expectations continue to rise.
Mr D’Ascenzo —I think that is right. That is why we just have to try to meet that expectation. You are saying there is some marginalisation of people. I am saying that we do not have each taxpayer with a client contact person but there are mechanisms that I think allow every opportunity for people to have their matter mentioned. I mentioned beforehand that my goal would be to get problems resolved on first contact, and that applies particularly to individuals who come in through our client contact area. While we do have more focus in compliance on different areas of risk, as Mr Quigley pointed out, there are facilities that we provide to individuals. We also work very closely with other agencies like Centrelink and we are piloting one-shop type service arrangements from where individuals at, say, Centrelink can access some of our services.
Ms Granger —I have a couple of things to add. We also have interpreter services and services for deaf people et cetera to access if they are dealing with us. The major interaction most individuals have with us is the annual filing of their tax return and for the vast majority of those it is a refund issue. That includes Centrelink customers. There are of course some issues about child support payments et cetera. At tax time we also run a tax service run by volunteers, many of whom are retired practitioners, which is a free service that helps people with their tax returns. It is set up in community centres and in fact it is also in the offices of some MPs. The volunteers are there to assist people—maybe the elderly or, as you said, people who are marginalised. We do actually pull the stops out to try and help through that period with some really great good citizenship by people prepared to volunteer to be part of that process.
Ms O’NEILL —Of the senior management that is represented here, is there any one of you who has particular responsibility for the management of complaints and looking after advocacy issues? Ms Granger, how many people do you have to enable that sort of response capacity? At what point do you trigger somebody to become an advocate within your system and go in and, as my colleague eloquently put it, ‘knock down doors’ in quest of justice? It is not just about access to help; it is about the whole sense of disempowerment that people often have. They get a ‘no’ on the phone and—unlike more privileged people, who will continue to push—they withdraw.
Ms Granger —I will answer your question broadly; I do not have the numbers here with me today. It is a major component of the role of one of my team, who is at deputy level, to run the complaints process. But in terms of the actual resources, it is more complex than his small team. We have a network of complaints resolvers throughout the organisation whose job it is to also be part of that and to make sure complaints move on. Anybody can make a complaint to that process and they can escalate at any point. Obviously, it is important to resolve something at first point if we can. Among other things, his job is to analyse trends in that area and bring them to attention. We see those reports at the executive level each month. Obviously in recent times there has been a trend around the processing of refunds, which has been a particular focus for us. Perhaps Mr Duffus will want to give you some more detail, if there is time, but we have put in place special task forces to try and resolve those as well.
In addition to that—and again Mr Duffus may want to say more—during the course of the period where we needed to have down time and then start to do further processing, there was the ability for people to say, ‘I am in particularly difficult financial circumstances. Can I have my refund speeded up?’ There was a special phone service for that process for people who were in those very difficult situations. Obviously, the more who go into that starts to slow the system as well. But we did promote that as part of that, and there were people who used that service too.
Mr CHEESEMAN —I just want to follow that up. Politicians get judged for what we do wrong more often than what we do right. I suspect the ATO is probably in a similar situation. I have found where there is a level of concern and criticism around complaint-handling processes and procedures that it is often because there is not someone in place who a client can go to that will become an advocate for that person within the organisation, and—as we put it—kick down doors or do what is required to ensure that that client has satisfaction with our process. Often bureaucracies put up walls, not deliberately, to frustrate complaint handling. Have you received any advice from external stakeholders and/or consultants that might help you restructure how complaint handing takes place? It is the tip-of-the-iceberg stuff where the ATO will either be condemned or praised. It is not the 99 per cent of people that have no complaint and do not have an issue; it is the one per cent and how you deal with them.
Ms Granger —Obviously, along the way there has been some learning about dealing with the volume of complaints we have recently had. We have just started a review process and we have invited the ombudsman to be part of that process to look at, having had this experience, what we can do better or differently now. Obviously, we will be able to tell you about that at a future hearing. It is also very typical practice of the tax office to do that kind of review.
Mr CHEESEMAN —Have any of your employee satisfaction surveys identified internal stakeholder concern with complaint-handling processes? Have you asked?
Mr D’Ascenzo —We had an engagement survey, and we had very positive responses from that which are really reflective of a very enthusiastic and dedicated professional culture. That did not come out in those surveys at all.
Ms O’NEILL —In terms of the ombudsman as a key resource for you to identify these issues, is there a requirement that you meet with the ombudsman on a regular basis to advance the issues that he is aware of?
Ms Granger —It is not so much a requirement, but we do have regular meetings with the ombudsman.
Ms O’NEILL —Monthly? Bimonthly? Quarterly?
Ms Granger —With the ombudsman it was quarterly, but because we have just had a new ombudsman in place, we are still settling down the new meeting arrangements. We have had an initial meeting with him, but the idea is quarterly. We also have regular liaison-level meetings with the ombudsman’s staff, and they happen very regularly.
Mr D’Ascenzo —Indeed, the senior tax adviser from the ombudsman’s office now works with the ATO because he could see that the organisation is one that is always trying to improve its processes.
Mr Butler —When we have major system delivery situations, like a tax time release, we meet briefly well before that with the ombudsman’s office and then keep them informed as to how things are progressing through that particular period. There are a range of examples of how we engage with the ombudsman’s office.
Mr Duffus —I will give you an example of the compromise TFNs. I am meeting with the ombudsman’s office—his staff—in the next couple of weeks or so just to work through and advise them on all the things that we have done to implement the recommendations they gave us in their report. It is a regular dialogue at senior level.
Ms O’NEILL —Because one of the particular concerns seems to be about the loss of a tax file number and the serious impacts that is having on people who are right at the very edge of the margins. I am on the health and ageing committee, and we are talking about mental health and wellbeing—processes are all well and good, but the process should serve the people, not the other way around.
Can I ask one question in a completely different field, regarding the High Court decision about Youth Allowance and students claiming study expenses as a deduction. Particularly in light of the uncapping of places for university and the efforts to encourage people from less represented parts of the community into tertiary education, what is the ATO doing to facilitate the implementation of that decision and to enable students to take advantage of the new rules which should make life a little easier for them. I am sure we all remember what it was like to be a student.
Mr Quigley —We will be writing to all the people we have identified as being entitled to the deduction and offering an automatic amendment to their returns of $550 per year, going back to, I think, the 2007 or 2008 year.
Ms O’NEILL —And they would not have to provide any documentary evidence for that?
Mr Quigley —No documentary evidence at all. If, however, they believe that they are entitled to more, they can notify us. We give 28 days. If you do not get back to us then we will just auto-amend so you automatically get your refund. If you believe you are entitled to more, then just respond on that basis. But you will need to provide some form of evidence that there has been an additional amount. I think those letters will begin to go out either today or Monday, and over the next month.
Ms O’NEILL —That is good to hear. Would a course outline requiring students to have books and notes be satisfactory evidence or would they have to have a tax file number from say the Co-op Bookshop at my local university?
Mr Quigley —The exact evidence I suppose would depend on the thing. I think, off the top of my head, that just a course outline saying these are the required books would probably fall short of going above that automatic amendment amount. We would need something a little bit more than that. Diary notes might even be sufficient, depending on what the particular expenditure is.
Ms Granger —So an example in this electronic age is that often people have their book expenses on their credit card or debit card statements. There have been cases where we have been able to use that. So we are not absolutely slavish about precise receipts but, if we can, we make some credible connection—and that is not just for this one; that is the general practice of the tax office.
Ms O’NEILL —I am just thinking about my students. I do not know how many of them have credit cards. There may be a lot more than I realise.
Ms Granger —I think you will find that there is probably the case and also they will have debit cards most probably.
Ms O’NEILL —I am sure they have debit.
Ms Granger —Precisely.
CHAIR —I am aware of the time so I am going to pass over to Ms Brodtmann.
Ms BRODTMANN —Thank you. I am mindful of the time too, so I have a number of questions and I will just ask you to provide evidence on them: the number of micro businesses who have made complaints; the number of small businesses who have made complaints—and I know you have a gradient on what is a small business, so if I could just get a breakdown on that; also the investment you have made in project Wickenby—you have highlighted here how much you have got back—at what cost, and that is to include FTE; and also the cost on the work you are doing on the cash economy, again to include FTE.
The number of people who use a tax agent to do their tax return is still at about 70 per cent. That is, I think, one of the highest rates in the world, if not the highest. What are you doing to reduce that rate? I know that people want to comply and they use a tax agent to do the right thing, but it is still high and it is costly. So what are you doing to try and help out with that? I will run through these because I am conscious of the time.
Secondly, I used to have my own business, and I used to have to stand on my head to actually understand what was going on with the missives I got from the Tax Office—what I was being advised to do and asked to do. I am still getting that sort of material, particularly on the superannuation stuff relating to payments I am meant to make for 2007-08 returns. You have a lot of communicators in your agency, why are you not using them to design the missives you are sending out to the individual and business person?
Finally, about the culture, and the review announced last year by Senator Nick Sherry when he was Assistant Treasurer, one of the anecdotal issues about the tax office that people tell me—being the member for Canberra—is that you do not have much movement in your senior management. It all tends to be home grown, so I wonder if I could get some idea about EL2s and who is coming in from other departments, and also, particularly, from business, to give that business perspective? I would also like to know about SES band 1s and senior management—how many people are from business backgrounds and other government departments, and how many are home grown from within the tax office?
ACTING CHAIR —They are a lot of issues! If there are any particular ones that you are in a position to respond to now—obviously, there may be some of those that you want to take on notice—we would appreciate some comments.
Ms Granger —I will just make a very broad response because I do not have the statistics here on SES and EL2s. It is certainly the case with most of the 22,000 staff in the tax office—and there are some that come and go—that we tend to grow people for their career.
We are significantly different to many other Commonwealth Public Service agencies in Canberra in that only 14 per cent of our organisation is here in Canberra—we are out in many cities—and so in that context of moving across departments, our base is actually drawn from the community of the cities to start with. I myself am a country New South Wales small business person. I joined the tax office in Sydney and have worked in a number of places around the country. The colleague to my right has been a commissioner in New Zealand.
We deliberately try to encourage people with different backgrounds to ourselves; but they do have to compete on merit. We quite deliberately, for example, target law firms, accountancy firms and the IT industry. In fact there is a lot more movement in our IT space because it is here in Canberra, and you would know the story of those skills.
So it is a more complex story in relation to that. We do have some quite notable successes—including our Chief Information Officer sitting down at the end there, who we recruited from Qantas—and we can tell you about those in more detail. But, contextually, what is very important is, given that broad requirement of skilling up in tax and superannuation administration, and with people having very varied careers and often in cross-locations in one organisation, that we do try to supplement—I will get you the figures—but that—
Ms BRODTMANN —What I am trying to address is whether there is groupthink happening at the senior management level?
Ms Granger —Yes, I understand that, and I am trying to say that there is actually another path—
Ms BRODTMANN —Yes, evidence of—
Ms Granger —We do have figures on that precise issue, and we would be happy to give them—
Mr D’Ascenzo —Of course, the other side of it is that we are probably more in touch with different aspects of the community through the 50-odd formal advisory forums that we have. Day-in and day-out we talk to people from different walks of life and different industries. We are not cloistered like some other departments.
Mr Quigley —Can I just respond to some of the things we are trying to do as far as individuals lodging their own tax returns? That is the whole focus of e-tax and prefilling—
Ms BRODTMANN —No, this is about the material you send out to people to advise them of a liability or whatever: it is not in plain English.
Mr Quigley —That was one issue, but I thought you were also asking—
Mr D’Ascenzo —The 70 per cent of people who—
Ms BRODTMANN —The 70 per cent? Okay.
Mr Quigley —Our focus for that is e-tax and pre-filling. For instance, for 2009-10 more than 2.4 million people used e-tax. That was up significantly from 2008-09. Equally, the number that used the pre-filling option has risen significantly over the years since we introduced that. I have a breakdown of figures going back to 2003.
Ms BRODTMANN —Is it down from about 72 per cent now? I think it was 72 or 73 per cent that use a tax agent.
Ms Granger —I think it is down to around about that figure now. When it started it was 23,000 tax returns. The actual trend has been increasing and the pre-filling effort in itself has been a major attractor to people being able to do their own. We also typically find that there are a number of things that drive why you might want to use an agent, including ‘What did your parents do?’
Ms BRODTMANN —I know. There are a whole lot of reasons. It is essentially doing the right thing; I am just interested to know if the figure has actually fallen.
Ms Granger —Yes, it has.
Mr Quigley —On the pre-filling, for instance, around 70 per cent of e-tax preparers used the pre-filling service in 2010. That was up nine per cent from last year. Those things are all incremental but it is trying to make it much easier for individuals, in particular, to lodge—
Ms BRODTMANN —To do it themselves with confidence.
Mr D’Ascenzo —While there has been a quite sizeable shift down—I think it was something like 75 per cent a few years back and now it is down to about 71 or 72 per cent—it is not grand in the scheme of things. But there are some other features of the Australian population that tend to go to tax agents: much higher claim and value for workload expenses, rental properties have increased to something like 1.7 million cases, and a lot more in terms of franking credits and share transactions. A larger number of individuals have got business income issues, so over time you are finding the Australian population moving out from a more homogenous employee status to have different ranges, and then the question for them becomes, ‘Yes, I can go through all of these areas,’ and e-tax helps them do that, ‘but I might want to make a choice of going to a tax professional.’
Ms BRODTMANN —The same scenario is world over.
Ms Granger —There are a lot more people now who have a range of sources of income than there were 10 years ago. The trend is significant, as the commissioner said, in terms of shareholdings, etc. So we also find, just adding to what I said previously, that it also might be a shift in your circumstances that triggers you going to an agent, such as more complex—
Ms BRODTMANN —But we are still comparatively high, and there would be those situations happening internationally as well, in terms of share buying—
Ms Granger —It is very difficult to compare, because—
Ms BRODTMANN —I am not saying it is apples and apples. I would just be interested to know the rate.
Mr D’Ascenzo —The other interesting point you made was about the plainness. I actually mentioned to the deputy chair that really what we are trying to do is to get things on our website, in our communications and in our correspondence that is practical, that makes sense and that produces the opportunity for people to understand and then comply with their obligations and also access their benefits.
There has been a shift, which I actually discussed with the last joint committee of public accounts, from a requirement which was being pushed very strongly by the tax profession to put things in a sense that is binding on everybody and that has to cover the legalese that is required in those sorts of environments. I was actually arguing back saying, ‘It is easier sometimes and more practical and more easily understood if we talk in more colloquial terms that people can understand and therefore can do it.’
We have had over the years many plain-English-writing projects, and we have had external consultants come in to help us. We recently did one associated with our change programs to improve the forms sent out. Obviously we still have not skinned that cat as well as we could do, and that is a direction we would like to improve. We will take on the advice and have another look.
Ms BRODTMANN —Yes. Have another look.
Mr D’Ascenzo —If you have a few examples that you could send us, that would be a useful start.
Ms BRODTMANN —Okay.
ACTING CHAIR —I will take the opportunity to end the discussion there. Thank you very much for attending to give evidence today. This committee does acknowledge the very important job that you perform and that you are there to serve the whole community. We appreciate your coming along today and giving evidence.
I note that you have been asked to provide additional information. A number of questions were put to you today which you have taken on notice. Would you provide that information to the secretariat by 5 pm on Friday, 18 March. If the committee have any additional questions, and that may arise, they will send those in writing through the secretariat.
Resolved (on motion by Mrs D’Ath):
That this committee authorises publication, including publication on the parliamentary database, of the transcript of the evidence given before it at public hearing this day.
Committee adjourned at 12.31 pm