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Standing Committee on Tax and Revenue
17/07/2017
Taxpayer engagement with the tax system

CHIU, Mr Osmond, Policy and Research Officer, Community and Public Sector Union (PSU Group)

TULL, Mr Michael, Assistant National Secretary, Community and Public Sector Union (PSU Group)

CHAIR: I now welcome representatives of the CPSU. We thank you for your submission and for attending to expand on this evidence. Although the committee does not require you to give evidence under oath, these hearings are formal proceedings of the parliament and warrant the same respect as proceedings of the House of Representatives. As such, the giving false or misleading evidence is serious matter and may be regarded as a contempt of parliament. It is unlawful for anyone to threaten or disadvantage a witness on account of evidence given to a committee, and such action may be treated by either house of parliament as a contempt. The evidence given today will be recorded by Hansard and attracts parliamentary privilege. Would you like to make an opening statement?

Mr Tull : Thank you for the opportunity to talk today. My opening statement covers a couple of what we submit are the fundamental issues needing to be addressed in the tax system and in the Tax Office. In particular, I want to talk to about staffing cuts, IT or ICT problems, and labour hire as three things we think this committee needs to consider.

On staffing cuts, the situation is relatively straightforward. The ATO has experienced significant staffing cuts, and APS data puts that at a headcount loss of a little over 4,000 staff in the last four years—4,054 or 16.8 per cent of the Tax Office in the last four years. Those cuts have significantly impacted the ability of the ATO to detect and deal with tax avoidance and ensure tax compliance. What we are seeing here is a fundamental disconnect between the public expectations about the ATO's capacity to ensure tax compliance and the ATO's actual capacity. We are happy to talk more about that point.

We would also say that IT and ICT is an area that needs urgent and substantial attention. You don't need me to tell you—and there has been a lot of public comment—that there have been some serious and ongoing problems with the ATO's information and communication tech over the last couple of years. There have been a series of very high-profile public failures, and sitting behind that are a constant stream of service delivery faults and failures and system failures. Those failures would be bad enough in their own right, but it is also the case that the community's expectation of online service delivery standards has increased dramatically in recent years. This is a key point that the CPSU would like to put in front of your committee, as you do your work.

A fundamental thing that is happening in the community and economy at the moment is that digital service delivery and people's expectations of the standards of how those systems work are being shaped by the best of the private sector. Amazon, Uber, Facebook et cetera offer very high-quality, easy-to-use, seamless, intuitive digital engagement, and the public service is a mile behind. There is no case to be made for the public service to be second-rate or second class in this regard, and increasingly the community—and there is quite a deal of evidence in this regard—look at the standard of service provided by the public sector and compare it very unfavourably to the experiences they have elsewhere in their lives. That leads them to form the view that neither the public service—the ATO in this case—or the government have the interest or inclination or ability to offer them services of the standard they expect.

What is causing the problem there in the ATO ICT space and behind this endless series of high-profile failures is decades of overreliance on outsourcing. The ATO has effectively outsourced most of its operation, and in doing so has moved accountability and risk to its external vendors. We submit that what needs to happen now is a fundamental rethink of that. We need to recognise that those decades of outsourcing have stripped the public sector of its technical skills, and we need to commence a program to bring that work back in-house and to skill up the public service and to put the ATO in the position where it can match the best service standards that the community experiences elsewhere.

Another point is about labour hire. While the number of directly employed staff has fallen dramatically, the ATO has significantly increased the number of external employees, labour hire workers, contractors and outsourced contact centre workers. The most recent data the CPSU has been able to get from the ATO indicate that 6,000 of the ATO's staff were not employed directly by the ATO. That's 23 per cent of the ATO workforce employed indirectly. Labour hire staff were initially used to provide call centre staff to respond to queries from the public during peak demand times. However, our members report that labour hire staff are now engaging in compliance and debt work and are undertaking audits and have in fact moved into other ATO core functions. Given the number of external workers and their geographical spread, we believe they engage in the full range of ATO functions. The use of labour hire in the ATO affects the quality of work that is undertaken and the quality of service provided to the public. It is more costly to the ATO and raises some integrity issues that we would be happy to discuss.

The final thing I would like to touch on is regional jobs. The CPSU has been campaigning to keep public service jobs in regional communities for a number of years. The ATO has been cutting jobs from existing regional locations for some years. Townsville has lost 112 jobs, or 25 per cent of its staff. Newcastle has lost 81 staff, or 12½ per cent of its staff. Geelong has lost 15.4 per cent of its staff. Darwin has lost 86 per cent of its staff. And a number of other smaller offices in regional areas have been closed down entirely. The ATO shuts down offices to save money on accommodation and have divested themselves from regional sites in Cairns, Mackay, Rockhampton, Bundaberg, Toowoomba, Grafton, Port Macquarie, Orange, Bendigo, Sale, Launceston and Southport. We are calling for the government to restore those job cuts and to return the ATO to the position it needs to be, where it can provide both a service to the community where the community lives and also essential job opportunities in those communities. There are plenty of other things we would like to talk about, but I will stop there.

Mr LEESER: I have two questions. The first is: in the regional offices, what is the face-to-face role of officials in those regional offices? I mean the public facing role.

Mr Chiu : I guess it would depend on the regional offices. As an example, some of those regional offices that closed down were established as part of the regional tax assistance program, so their role was to directly help taxpayers adopt the new tax system when the GST was introduced in 2000. That's just one example of the direct role the ATO play in the community. We can get some further information to you about particular roles that the ATO plays in particular communities. Obviously, the Townsville office would carry out different functions to the office in, say, Albury. We are happy to provide that information.

Mr Tull : It is the case, though, that the ATO has, over the last few years, the last decade or so, greatly stripped back the number of staff involved in face-to-face contact with the community. That's a product of those office closures and also a move to put more and more work online.

Mr LEESER: The second question I wanted to ask is about a matter from your submission that I put to Chartered Accountants Australia and New Zealand this morning about outsourcing and IT. You may or may not have seen their submission, but they compared the Australian and New Zealand approaches to tax modernisation. In contrast to what you had said about outsourcing and IT issues, this is what they said is one of the three key strengths of the New Zealand system. They said Inland Revenue, which is the New Zealand version of the ATO, has sought to reduce the implementation risk associated with the information technology change program by greater use of outsourcing tax administration software and systems changes to third parties with global experience in working with tax collection agencies. I put to them, as you put in your submission, that the outsourcing in the IT space had been a real problem, and they said that that hadn't been the case in the New Zealand space. I wondered if you'd like to respond to their submission in that regard.

Mr Tull : I can't respond in terms of what's happening in New Zealand. What I can say is this: the public's experience of ATO systems in the last couple of years has been woeful. Each year for the last 10 years, the ATO's expenditure on ICT has gone up, and, as that expenditure has gone up each year, there's no sign that systems are better or that the community's experience of those systems is better. CPSU members report regularly and complain regularly that the systems that they deal with on a day-to-day basis don't meet their standards. We've had a number of well-documented problems from an occupational health and safety and usability perspective with the quality of systems that people use. CPSU members in the tax office would say to you, and do say very clearly, that what would greatly assist them to do their job better, to do their job more quickly and to provide better service would be much better systems. That's our experience there.

I'd also make a point here about ICT and about design. Earlier I was talking about Amazon and Uber, et cetera. The discussion has started elsewhere in the public sector, but not so much in the tax office yet. The reality is that every organisation now has to recognise it is a software company, and deal with that. What outsourcing obliges agencies to do is a series of set projects or product releases. This is what the community sees all the time. You'll go to myGov or some other system that you interact with; you'll have some interactions with it; you'll think, 'That's pretty ordinary'; there are some bugs; you'll complain; we provide feedback; and those things will be fixed in six or 12 months time or longer with the next release of that program. Best practice—and we should be aiming for best practice—in this space recognises that your front-of-house systems need to be clearly linked up with the back-of-house systems, and you need to be able to respond to community expectations and feedback in real time. This obliges organisations to develop their own capacity to do that. Whenever I hear an argument that you can get better outcomes by outsourcing, I think about Uber, Google, Facebook, Amazon and, increasingly, the banks, who are bringing this work in-house and doing this work in-house. You cannot provide the ICT experience that the community needs by way of outsource capacity.

Mr LEESER: Are you able to tell us how many of your members work at the ATO and what percentage of your total national membership that indicates?

Mr Tull : Probably about 28 per cent, I think, in tax at the moment.

Mr LEESER: So how many of your members are there?

Mr Tull : Off the top of my head, it is about 6½ thousand, but I'm not sure.

Mr LEESER: If you could come back to us with that it would be great.

Mr Tull : Yes.

Ms BUTLER: Obviously we've had a bit of discussion about the ICT issues with other witnesses and, as I understand it, there have been at least four pretty serious outages of the website in the past year or so. There were several days in December and five hours or so on the same day as the tax commissioner gave his speech at the Press Club. How are your members finding this affecting the engagement of taxpayers with the tax office? And are you aware of any substantive work that is being done to get to the bottom of why we seem to be having trouble offering a website to the public for their use?

Mr Chiu : The ATO released a report in June, the ATO systems report, which went into the problems that the ATO has had over the past two years. I think one of the things that the ATO systems report highlighted was that Hewlett Packard Enterprise owns and operates the entire computing infrastructure in the ATO, so ATO staff have no direct access to a lot of the technology operated by Hewlett Packard. The report found that over the last year or two there have been a range of potential issues, but the ATO was not made fully aware of the significance of these issues and no evidence had been presented to them about the options being explored by Hewlett Packard to mitigate the risk of errors. As Michael said earlier, the outsourcing of ICT functions has essentially meant that the ATO and ATO staff have had no direct input or direct knowledge about a lot of the stuff that has been going on.

Ms BUTLER: Given all of the outsourcing that has gone on and the reduction in staffing, are you concerned that not only is software design and development not happening in house but you might not have as much capacity and as many skills as you might like for the purposes of undertaking the procurement of the software and procurement of other solutions for the tax office?

Mr Tull : Yes. Quite, is the answer, I think. The Digital Transformation Office itself did a fair bit of work in this space. Their reportage was not ATO specific. Across the APS, their reportage was that the skills gap was a significant issue for agencies and for those who were working in that space. One of the things that is notable, and we see this in the ATO as well, is the high attrition rate of ICT staff and contractors. Many of them come and go and the ATO is constantly recruiting. What we see is the ATO constantly recruiting. Our members who either work with those contractors or our members who are contractors themselves frequently comment on the gaps caused by people coming and going and the constant need to retrain people and the fairly shallow understanding, in some parts of the ATO, of the ATO's mission and it set-up. It is a substantial problem.

Ms BUTLER: I understand that the tax commissioner has had his contract extended to 2024. Is that length of contract reflected in the length of contracts that, for example, IT contractors might have? Do people get appointed for seven-year terms, or are the contractors usually there for shorter periods? Are they on indefinite contracts or are they on fixed-term contracts? How is it ordinarily done; do you know?

Mr Tull : I don't have and I'm not aware of any good quality evidence in that regard. I would be very interested in seeing some evidence about that. I said a moment ago that turnover is a constant problem. It is also the case at the same time that around some particular platforms and some particular work we have CPSU members who are contractors who have been at the tax office for more than five years, and in some cases longer, doing very well paid specialist work, and the ATO is very heavily reliant on those particular contractors. We look at those cases and think that they are clearly jobs that should be in-house work. The agency, the public sector, should own those jobs and that capacity.

Ms BUTLER: How did we come to get a tax office IT system that was not only the property of an external firm, but we do not even have licensing rights that would entitle the Commonwealth of Australia to gain information of the type that you were saying has not been made available to staff within the ATO? That sounds like a failure of procurement in itself.

Mr Tull : Part of your question earlier was around the skills and capacity of the tax office in this space and whether that impacts on their procurement ability or their ability to either form contracts or manage those contracts. There I would point to Paul Shetler, the recently departed head of the DTO, who has had quite a lot to say on that topic in the public arena. Mr Shetler has provided a number of examples in this space. His experience as the head of DTO, not just of the tax office but of the APS, but in particular around the tax office and DHS, was that they were two agencies that lack some fundamental capacity to manage their own procurement. After a long series, an endless series of decades of gradually outsourcing more and more, they are now completely reliant on their external vendors to advise them about what it is that they need. When you reach that space, whether you are a large organisation or small one or tax office, when you reach that space where you are captive to your external advisers, there are serious issues around your ability to do what needs to get done.

Ms BUTLER: Are they different external advisers for the DHS compared to the ATO?

Mr Tull : There will be a lot of overlap.

Ms BUTLER: I am just asking because it is obvious that the DHS and ATO computer systems do not talk to each other. That is evidence that we had in a separate committee in a separate inquiry some time ago.

Mr Tull : Yes. There would be a lot of overlap. I think DHS has just entered into a newish contract to get somebody to manage all of the interactions between their various—it was in that report.

Mr Chiu : I'll double-check.

Mr Tull : I'll check. I think the ATO has just appointed or just entered a new contract to manage that problem.

Ms BUTLER: I ask because last year's Auditor-General's report in relation to the cooperation between DHS and the tax office in respect of child support indicated that DHS was actually paying $7 million a year to the Australian Taxation Office to use their systems to try to chase some people of interest to both agencies. It seems to me that one of the issues that we have with a patchwork of different systems and different external advisers is probably that we have more siloing of departments than is desirable. Do your members in tax find it easy to work with members in other departments?

Mr Tull : As a general statement, the interactions would be limited in this space, particularly in the ICT space, particularly in regard to systems. Our members who were involved in that work were quite hopeful that the advent of the Digital Transformation Office would provide an opportunity and some capacity for a much better whole-of-government approach, and would provide that capacity. It hasn't quite worked out that way, but the potential is still there. It will be interesting to see how the retooled Digital Transformation Agency approaches that task.

Ms BUTLER: You said in your opening statement that there has been a loss of more than 4,000 headcount in the four years to today. Does the union have any sense of what impact that is having on tax collection by the Australian tax office?

Mr Tull : Yes. I could not put a figure on it. We know there are a couple of fairly well-established yardsticks that we can use that indicate what dividend the staffing or funding for the ATO produces. For every dollar it is somewhere between $1½ and $6 in return, depending on the type of work. I am particularly thinking here of work that has been done by the Parliamentary Budget Office and by the Parliamentary Library and others. Particularly at the audit end, there is a fairly high return. I couldn't give you a clear overall figure on that.

What our members would report is that those cuts in the last couple of years have really had a big impact on the ATO's capacity, particularly around audit and compliance. A large number of those redundancies were targeted at long-standing, experienced staff. Our members who work in audit and high-end compliance work regularly report to us that they no longer have the mentors, the backup, the experience that they had previously. They comment very unfavourably on the level of training and advice that they get, and compare very unfavourably their ability to develop their skills compared with what came before them. The impact in audit and high-end compliance is quite substantial. I think the ATO have acknowledged that themselves along the way.

CHAIR: You mentioned Hewlett-Packard earlier and the outsourcing of the centralised computing contract. Or it might have been you, Ms Butler. When did you say that was expiring? It was 2024, was it?

Mr Tull : From a quick look at the report, it looks like they commenced the contract in July 2013 for a five-year contract. If you give me a second I will double-check.

CHAIR: So they obtained the contract in July 2013 for 5 years, we think? So that contract is up in July 2018, on your understanding.

Mr Tull : Yes.

CHAIR: Thank you for your attendance at the hearing today. You will be sent a copy of the transcript of your evidence and you will have an opportunity to request corrections to any transcription errors. If you have been asked to provide any additional material, or if there is any further information that you would like to provide, please forward this to the secretariat by Monday 31 July. Additionally, the committee may provide you with further written questions on notice during the course of its inquiry, with your responses to be taken as additional evidence. Your timely assistance with this would be much appreciated. We thank you for taking part today.

Proceedings suspended from 12:28 to 13:34