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Standing Committee on Tax and Revenue
28/03/2018
Australian Taxation Office annual report 2016-17

JOSEPH, Mr Jarrod, Director, Tax Complaints and Review, Inspector-General of Taxation

McLOUGHLIN, Mr Andrew, Deputy Inspector-General of Taxation, Inspector-General of Taxation

NOROOZI, Mr Ali, Inspector-General of Taxation, Inspector-General of Taxation

Committee met at 15:30

ACTING CHAIR ( Ms Owens ): This is the first hearing for the inquiry into the review of the 2017 annual report of the Commissioner of Taxation. The hearing today provides the opportunity to examine the key administrators and monitors of Australia's taxation system: the Commissioner of Taxation and his executive and the Inspector-General of Taxation, his deputy and director. Proceedings will be recorded by Hansard and the hearing will be broadcast on the parliamentary network.

I welcome to the hearing the Inspector-General of Taxation and senior representatives of his office. We thank you for making yourselves available to give evidence today. 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 of false or misleading evidence is a serious matter and may be regarded as contempt of parliament. The evidence given today will be recorded by Hansard and attracts parliamentary privilege. Thank you for your submission to the inquiry. Before we proceed to questions I invite you to make opening remarks if you have them.

Mr Noroozi : I think the submission speaks for itself, so over to you.

ACTING CHAIR: Thank you. That's cool. It is an unexpected privilege to be chairing today, as you might understand. There was a lot of reading to get through in a very short period of time. I'd like to start by asking about Operation Elbrus. The next step in the process regarding the operation is the inspector-general's report to the Senate Economics References Committee in June 2018. Could you comment on the broader integrity control work undertaken by the ATO?

Mr Noroozi : Because that review is in progress we are precluded from speaking about it, but I can give you a progress report. The very first draft of the preliminary draft is being sent to the ATO tomorrow. We have processes where we have to provide them with an opportunity to comment and then there will be a further draft. We will complete it by the due date. Where it contains a recommendation to government then I have to provide it to the government for them to release.

ACTING CHAIR: In its review of the 2016 annual report the committee supported one of your recommendations that the ATO report on the amount of debt written off as unrecoverable at law and that which is uneconomical to pursue. The ATO agreed to do that in its government response, but it doesn't appear to have been addressed in its annual report. Could you comment on this in the context of comments you made in your submission on the ATO reporting on comparative tax debt information?

Mr Noroozi : Yes, as we mentioned in our submission, in the current annual report they report collectable debt not total debt, but my understanding is that the ATO had undertaken to do the more detailed reporting in the 2017-18 annual report, so in next year's annual report. Yes, you're right—only collectable debt is reported; we don't have figures for disputed debt, insolvency debt, debt irrecoverable at law or debt uneconomic to pursue. We don't have that information, but my understanding of the ATO's response to your recommendation 13 is that they will provide that in next year's annual report.

ACTING CHAIR: Not this year?

Mr Noroozi : That's my understanding, yes.

Mr McLoughlin : Strictly speaking, it was a government response, in totality, to the committee. There were certain recommendations that were adopted for the financial year just passed, but, as the inspector noted, some were in relation to the year ahead.

Mr Noroozi : Of course, this information's quite useful, but also it's particularly useful when you're trying to compare things with prior years. Much of this information was provided, for example, in the 2013-14 and 2014-15 financial years, but it ceased to be provided in the 2015-16 and 2016-17 annual reports. So not only do we not have the information but also we can't make direct comparisons. It is useful to have that information.

ACTING CHAIR: Is it usual for tax offices to change the way they report so frequently that you can't see trends?

Mr Noroozi : I don't know whether they do. In this instance, obviously they stopped doing it in 2015-16 and they've given an undertaking to do it next year, but there are certain things that all of us as Public Service agencies are required to provide in our annual reports, and I'm sure the ATO has abided by those, although we haven't checked it. From year to year, sometimes there is variation in all annual reports, but obviously things like tax debt are quite important and people do scrutinise them. Information like this is quite useful.

Mr McLoughlin : I'm not sure whether the ATO are proposing to do this, but in most annual reporting you would provide a prior year comparative, so it could be that those numbers are provided in relation to the prior year in 2017-18; I don't know for certain, though.

Mr FALINSKI: Why don't you know that?

ACTING CHAIR: Because they're not the ATO.

Mr Noroozi : Yes, probably that question is better directed to the ATO. I'm not sure why they haven't reported it, but certainly we have also previously asked for more information about that rather than less.

Mr FALINSKI: And what's their response been?

Mr Noroozi : Sorry, that was in response to a review we did in 2015. This ceased to happen post that, so we haven't asked that question recently.

Mr FALINSKI: What are the implications of them not providing comparable information and statistics?

Mr Noroozi : We can make some comparisons. We can see, for example, that collectable debt has increased in 2016-17, but we don't know, for example, how much total debt had increased or, particularly, things that could be quite useful, such as knowing how much of it was insolvency and the effect on small businesses, for example.

Mr FALINSKI: Are these important statistics to have?

Mr Noroozi : Yes, I think so.

Mr FALINSKI: Once again, when you asked them to do it, what has their reply been?

Mr Noroozi : As I said, we've identified it in preparing this submission for you, but we have not put that question specifically to the ATO with respect to this year's annual report.

Mr FALINSKI: Do you think that the ATO should engage in the private sector in preference of how people provide tax information to the ATO? Or should they be commercially neutral in their dealings with taxpayers?

Mr Noroozi : I'm not quite sure I follow.

Mr FALINSKI: Do you think the ATO should, for example, make comments that clearly lead taxpayers to view one channel in preference to others?

Mr Noroozi : Channel for what, sorry?

Mr FALINSKI: Channel for lodging tax.

Mr Noroozi : Obviously, the government as a whole is encouraging people to interact with government agencies electronically rather than in paper form. I think the reality is, if everybody lodged in paper form, it may clog the system now. So I don't think—

Mr FALINSKI: But, if you go to a tax agent, don't they lodge your return electronically?

Mr Noroozi : Yes, tax agents generally do, but there may well be some who still do it by paper.

Mr FALINSKI: If the ATO were to say, 'We would prefer to see tax agents putting returns in electronically, rather than in paper form,' that would be, in your view, defensible?

Mr Noroozi : Yes, because that's how we are all set up these days. In my office, for example, whilst we will accept phone calls and we accept it in writing, it's a lot easier when we receive it electronically. It's quicker, it's easier to use that information—

Mr FALINSKI: It's OK to point that out, but it would be wrong, for example, for a government agency to start spruiking one particular way of lodging a tax return over another?

Mr McLoughlin : If that's about electronic platforms and competition—

Mr FALINSKI: No, it's not. It's about using tax agents versus doing it yourself.

Mr Noroozi : No, I think that would probably fall—the reality of it is, there is such heavy reliance on the use of tax agents, and a citizen should always have the right to choose from whom they seek advice—

Mr FALINSKI: So the Commissioner of Taxation shouldn't necessarily be going around saying at seminars and conferences that taxpayers should feel comfortable not using a tax agent?

Mr Noroozi : If you're referring to the commissioner's recent speech to the Tax Institute—

Mr FALINSKI: I am.

Mr Noroozi : I think these questions are probably in the first instance best addressed to the commissioner, but I can tell you my impression from that speech. I think what he was saying was—and I'm going off memory now—with respect particularly to work-related expenses in the samples they had looked at when they had done some random audits, the data had shown that those who had used agents may have contained more errors than those who hadn't used agents. Of course, we don't have that data.

Mr FALINSKI: I'm sorry; I'm going to stop you. That's my point. How can a public servant be making comments which impact on people's livelihoods without the factual basis on which to back that up? I'm not asking you to comment on the specifics, but as a matter of principle.

Mr Noroozi : Yes, I think it would have been preferable for the facts to have been shared and the basis for which those comments were made when they were made. It's a relationship that can, at times, be fragile. We've seen that in the past, so one has to be very careful. And, at the same time, given how many people use tax practitioners or tax agents in this country, it's best that the tax administration—

Mr FALINSKI: I go back to the question: should a public servant be interfering in a market in that form? Especially now that you've told us, which was actually one of my questions, that the fact base on which he made his statements is not—

Mr Noroozi : He has said that they will be providing that information, but it hasn't been provided yet.

Mr FALINSKI: Shouldn't you let the facts speak for themselves?

Mr Noroozi : At the end of the day—what I was getting around to was that the relationship between tax practitioners and the administrators is a very important one for the healthy running of the tax system, and therefore one has to be very careful and mindful—

Mr FALINSKI: So, as the Inspector-General of Taxation, are you not concerned that the recent comments by the Commissioner of Taxation are damaging that very fragile relationship, which impacts on our variability as a government to collect tax?

Mr Noroozi : It perhaps wasn't the most prudent course of action. It would have been best to have released the facts at the same time. Yes, as I've said before, we shouldn't fetter an individual's right to use an independent adviser.

Mr McLoughlin : With respect to people having choice of service, if people believe that they need independent advice and support, then we've always supported that as an office. We aren't about trying to pick favourites, but we do support the central integrity of the system, which is obviously dependent upon having an administrator that is capable of managing the core functions. In the report that we are working through at the moment as a review process about the future of the tax profession, there will be quite a bit of dialogue about some of the challenges in that regard.

Mr Noroozi : We have actually tackled the very point you raise in a review we did into ATO's support and services for tax practitioners a few years ago. We talked about how the relationship had gone somewhat sour or strained and that they were making efforts to improve it. But, as you say, those comments at the Tax Institute conference have stirred up a reaction from tax practitioners.

Mr FALINSKI: Normally, I'd like to tease out these issues over a couple of hours, but I have to go. The evidence that you are presenting so far in your excellent report is of an organisation that, whether it is deliberately or inadvertently, not publishing statistics that you consider to be important and that a number of people in the tax base consider to be important. They're presenting statistics in a manner and form such that it is difficult to determine whether things are improving or getting worse. They are making commentary in public that is clearly designed to encourage taxpayers to cease using independent advisers in terms of how they fill out their tax advice, while not providing the fact base on which that commentary is based.

Mr Noroozi : Yes? Well—

Mr FALINSKI: That sounds like a healthy organisation we have in front of us.

Mr Noroozi : All I would say is this, though. I don't think the commissioner's remark was saying, 'Don't use tax agents.' He did say that this is what the result of their random audits are, but I do agree that he did not produce the factual basis.

Mr FALINSKI: We have seen too many random audits done by too many government regulators that are designed to get a headline which, when they are looked at more closely, actually tell the opposite case of the one that the regulator is trying to put. And, in this particular instance, they're not even bothering to present the fact base on which those comments are made. But, if you don't mind, because my time is limited, I just wanted to ask about the outages that we had. At our last meeting, it was uncovered that the ANAO did a report into the outages. Those outages do not include outages that go for less than four hours; is that right?

Mr Noroozi : Yes, I think they covered the major outages.

Mr FALINSKI: If the portal is down for three hours and 30 minutes, it wouldn't count as an outage for the purposes of—

Mr Noroozi : Again, this is probably best addressed to ANAO, but my understanding of their report is that they had looked at the major outages only.

Mr FALINSKI: So, if you're a tax practitioner who basically makes money by selling their time, do you think that having three hours taken out of your eight-hour day constitutes a major outage?

Mr Noroozi : Yes. Depending on the size of your practice, it can be major. What I have said publicly is that, in submissions made to our Future of the Tax Profession review, almost every submission raised the outages, and the comments were that one of the expectations of an agency that is encouraging you to go digital is that they provide a stable system.

Mr FALINSKI: Did the ATO say that they'd had a wonderful year in information technology?

Mr Noroozi : They've certainly said that they had three reviews done into the outages, and they believe that they have and are addressing the issues. I'm not here to apologise for them. I think this is the—

Mr FALINSKI: Absolutely not. Unfortunately, you're the one in front of us. They had outages on the website, they had outages on the portal and they had outages on the lodgement service, but that's a good year in IT for the ATO?

Mr Noroozi : Those are not my words; those are the ATO's words.

ACTING CHAIR: Ms Butler.

Ms BUTLER: I had a group of frontline workers from the tax office come and visit me recently to raise concerns about the extent of outsourcing of frontline services by the Australian Tax Office to privately owned and also publicly listed companies. They told me that it's not just the peaks of work that are being accommodated through outsourcing but that a lot of business-as-usual work is being outsourced as well, and they told me that what that means is that around 30 per cent of frontline work is done by people working for private firms or publicly-listed companies, through the outsource process. Does the IGT take any interest in the level of quality of service provided by the private providers compared with the quality of service provided by directly employed ATO employees? Do you keep any statistics on the complaints that you get from individual taxpayers, in respect of the outsourced services, compared with the publicly provided services?

Mr Noroozi : The only major outsourcing that we have considered in the past was the outsourcing of debt collection to certain agencies. That was also in our debt collection review back in 2015. In that instance, we did ask the tax office to make more information available. The reality, in that instance—and Jarrod can also share his thoughts—was that what they were outsourcing was debts that they would not otherwise be chasing. So it was in addition to what they were already doing. We did make a number of recommendations. I think the major one was about providing information, being more transparent and assuring the public. I know that, often, in this space, people make a comparison to the US, where debt collection was outsourced—or aspects of it were—and then subsequently it was brought in-house. But those were very different circumstances because, in this instance, the same level of taxpayer information is not shared with third-party debt collectors, whereas in the US it was and it caused some concern. So that's really the main thing. If you wanted us to look at it, probably early in the next financial year we would be looking at a new work program and we would be very open to whatever suggestions you have on what you'd like us to review. But we haven't systemically looked at how much and where they're outsourcing and whether there has been a diminishing in the quality of the service provided.

Mr McLoughlin : I think it's fair to say, though, that we're manifestly interested in service delivery. Running, obviously, as we do, the complaints facility for everyday Australians, we do look to provide them with the kind of intellectual support to get across the tax system, and it is tricky. So anything that we can do to improve service delivery collectively for the benefit of the system, through the ATO as the main administrator, we'd be happy to consider. As a feature, we look at the service delivery holistically, but we do look to always unpack what makes up that kind of service delivery. So we would look at the nature of contracting arrangements, as the inspector said. We haven't had to do that in a lot of reviews more recently, but we have certainly looked at it in the past.

Mr Noroozi : As to those people who came to you, the other area where I know there is outsourcing is in the helpline; there is a certain amount there. There is also a certain amount of outsourcing of litigation. So those are things that we're certainly aware of, but—

Ms BUTLER: I'm not particularly concerned about litigation. I'm concerned about the contracts where big companies, household names, have got contracts to do things like call centres. In Maroochydore, Biggera Waters—places like that—there are big pods of people delivering ATO services who aren't ATO employees, and I'm really interested in that. I think that, with litigants, they're kind of big enough and ugly enough to look after themselves, but, when you're talking about individual taxpayers who are having an interface with the tax office—

Mr Noroozi : I understand your concern. The reality of it is: we probably would not get a lot through our complaint line, because most taxpayers would not even be aware they're talking to a contractor as opposed to an ATO employee.

Ms BUTLER: And I'm not suggesting they would be. I'm suggesting that you could disaggregate the complaints data by the source of the complaint.

Mr Noroozi : Yes. But that's something we would have to do. It's not something we are currently doing.

Ms BUTLER: Were you going to say something, Mr Joseph?

Mr Joseph : I was just going to add to the inspector's earlier comments about the use of external debt collection agencies, which we looked at as part of the debt collection review in 2015. As part of that we did look at the types of cases which were being given to these external collection agencies, and these were largely the more simple cases, and the ATO kept internally the more difficult cases. As part of that outsourcing of the more simple cases, there were essentially scripting requirements that those collecting agencies followed, essentially the same internal policies as the ATO's own staff. But also built in with those contracts with these particular firms, there are mechanisms to deal with complaints and service related issues as well, including some pecuniary penalties in egregious cases.

Ms BUTLER: Yes, but they're just contractual obligations; they're not the same legislative obligations that the ATO has as a Public Service agency.

Mr Joseph : I believe, for example, the comments in the APS Code of Conduct similarly applied to these collection agencies as well as industry, by contracts as well.

Ms BUTLER: That's what I just said, isn't it—by contract rather than statutorily?

Mr Joseph : Correct, yes.

Ms BUTLER: You just rightly said, IGT, that the debt collectors didn't have a large amount of personal information, which is the distinguishing point between what happens in Australia and what happens in the US. But it would also distinguish what happens with other forms of frontline services, wouldn't it?

Mr Noroozi : I acknowledge that it's a valid thing to be looked at. And, as I said, once we are done with our current work program, at the beginning of the next financial year, we'd be looking to consult about a new work program. But you can raise these at any time, and we have a watchlist, and we do consider them as we move forward. It's great that you bring it up, because, as I said, the average punter would not know that to raise it as an issue for us.

Ms BUTLER: And I guess the point I was making there is that, if you're calling as a punter—I got in trouble for using the word 'punter' recently—someone who is a layperson, not a tax practitioner or a tax expert, just an ordinary taxpayer, getting one of these outsourced people on the telephone, you are going to be giving them your tax file number, your name, maybe your income, maybe what your tax issue is. That's a lot of personal information to be giving to a non-government entity, isn't it? That's different to what happens with the debt collection.

Mr Noroozi : Admittedly they are looking at voice recognition and other forms of proof of ID. The issue of proof of ID has—

Ms BUTLER: I'm not worried about fraud on the part of the taxpayer; I'm worried about the security of the data once it has been received by a private firm.

Mr Noroozi : Yes. I appreciate your concern.

Ms BUTLER: I guess the related issue to that is how the application of the Taxpayers' charter would operate in respect of outsourced service providers. So, again, I suspect it would just be merely contractual. But I assume that you've got a strong interest—

Mr Noroozi : Well, it is not just the Taxpayers' charter. There are also secrecy provisions and confidentiality. In addition to some of the issues you raise, there is also legislation that governs it. So what you're saying is an important point—

Ms BUTLER: I am specifically referring to the Taxpayers' charter now; I am sorry to interrupt.

Mr Noroozi : It would fall under that. With the Taxpayers' charter, some things have a legal basis; some of them are basically expectations and representations.

Ms BUTLER: Obviously I'm not suggesting that the charter is the only thing that affects privacy obligations. But my question is: how does the Taxpayers' charter apply to outsourced providers? Is it just contractual, and if that's something that needs to be taken on notice—

Mr McLoughlin : In certain circumstances it can be that a tax officer can include a consultant. So, for the purposes of the TFN legislation, it's very severe.

Ms BUTLER: That would be useful to know.

Mr McLoughlin : The nature of having TFNs and maintaining them has to be done by way of strict secrecy arrangements. We have to deal with that within our agency, so receiving people's TFNs is a very serious matter, and consultants can be bound directly by the act.

Ms BUTLER: You would be aware, I am sure, that there have been, despite all the contractual obligations in the world, despite privacy legislation, data breaches by private sector firms contracting to the Commonwealth government. The obvious one is MHS, where some data that it had obtained was inadvertently released by a subsidiary or by a contractor to it, in respect of some Defence personnel. So a similar concern would arise, from my perspective, in respect of any outsourcing in the tax office. What is done to ensure that contractors are complying with any obligations that they might have in respect of data-breach notifications under the new data-breach legislation, contractual obligations in respect of security and privacy, and other legal obligations in respect of security and privacy, and who is overseeing the way the tax office makes sure that those things are complied with?

Mr Noroozi : I think the short answer is: you're making valid points; it's not an area we've looked at but we are happy to consider it as part of our work program in the next financial year.

Ms BUTLER: I'd appreciate it. I just wanted to make sure I had given you a clear picture of the cluster of issues that are worrying me.

Mr McLoughlin : If I've understood you correctly, it's the totality of what we would call the control arrangement, from an audit perspective. It's not simply that there might be a legislative power to conduct or provide some sort of remedy against an individual; it's the control environment that that sits within.

Ms BUTLER: That's quite right. So the control environment and the quality issues. Thank you, Chair.

ACTING CHAIR: Mr van Manen? You've probably got seven to eight minutes each, at the moment, or we'll run out of time. I'm going to put you on the clock now.

Mr VAN MANEN: Thank you, Chair. Thank you Ali, Andrew and Jarrod. I want to return to one of my favourite topics, and that's the ATO's handling of disputes and the way they raise disputes in the first place. I still get regular correspondence and I'm having discussions with a constituent, at the moment, about a matter, which I believe, Mr Noroozi, you are aware of. It just appears to me, on the surface—and I'd be interested in your observations—that despite the ATO saying they are trying to improve the system or do it better I remain unconvinced that they are making progress, or progress as quickly as they could be. I just wonder whether some of it is an internal cultural resistance to changing their systems and processes to bring them up to best practice in the 21st century.

Mr Noroozi : As you would have seen in our submission, we have suggested that both this committee and my office conducted reviews in the ATO's tax dispute a couple of years ago. And what I suggested in the submission, even though some of those, both the committee's recommendations and ours, were ultimately not accepted by the government but what the ATO did do was to do something halfway between what they had and what we'd suggested. So what I've said is, now that some time has passed, it may be a good time for the committee to discover whether the changes they made are yielding the desired effect and whether further improvements are desired. That's something we have identified here.

In addition to that, this is what I have always said. In any large organisation you cannot guarantee that everything will go according to plans or all procedures will be followed at all times. I would say, and this is not backed up by hard evidence, in five per cent of cases there are, likely, things to go wrong. And that's why the government has officers like mine, to make sure we address that five per cent.

You've put this to me before and I've recently had media approach me about, 'It's all very well people are satisfied with your office but we've got all this evidence. You've said something and the tax office hasn't necessarily agreed with what you've said.' But I would say that that's a rare event. In the vast majority of cases there is some level of agreement between what our finding is and what ATO eventually accepts. The main issue—or not main issue, but one of the sticking points—seems to be where the ATO does admit fault, and it comes down to compensation and whether the right level of compensation is being offered and accepted.

Compensation is a difficult issue. First of all, self-assessment means that we are all expected to bear a certain amount of the compliance burden, such as filing our tax return or going through an audit. Secondly, it's not like where a small company wrongs you and then you sue it. If the tax office does something wrong, all the taxpayers eventually have to pay that compensation. So, these are difficulties.

Secondly, in terms of quantifying compensation, there's the issue of valuations. Valuations can vary drastically. Even the best experts can have different views, and sometimes things like mental stress or emotional angst are hard to quantify. So, there are these issues. Sorry; I'm going on a bit, but it's only because this is very topical at the moment and I think it's good to get it on the record.

In addition to that, unfortunately most of the people who suffer are often unrepresented taxpayers who do not have the funds to take the tax office to court. The ATO has trialled something called Dispute Assist. I read about it in their annual report when I was preparing for this. It would be interesting to see the result of that and whether they roll it out. There are some who feel it's great, but I wouldn't really want to be assisted by the organisation that I'm in disagreement with. The US has a model where roughly the equivalent of my office gets some funding, and, in conjunction with academics, operates these things called tax clinics, which effectively fund the taxpayer to continue their dispute with the tax office when they don't have the funds.

There are various options, and I think the ATO is also aware of them—that's why they're trialling Dispute Assist—but they are difficult issues. I would only point out that we mustn't lose sight of the fact that, in the vast majority of cases, the tax office and my office have a high level of agreement.

Mr VAN MANEN: In the cases that you are seeing, are you seeing a common thread, in terms of an issue that is triggering the dispute in the first place? It could be a breakdown in the processes in the ATO, or a miscommunication, or a failure by the ATO to update records, even though they've been advised that people's details have been changed and therefore correspondence has gone missing. All those sorts of things have been pointed out to me as issues people have with the tax office—where somebody's advised of the ATO six or nine months ago that their address has changed, and it's not reflected in the ATO system, yet, when it's pointed out, they do find the notification. Therefore, notices have been sent to wrong addresses, and, because people haven't responded to them, that's triggered further action. Are you seeing a common thread of reasons for these disputes escalating?

Mr Noroozi : Sometimes it's the mere facts of processes. Generally the tax office has good processes and procedures. What we find is it goes wrong when individuals may not closely follow or adhere to those processes. Sometimes it may be a lack of supervision. As I said to you, from what we're seeing, I would say that it's going back to the five per cent again, where, in a large organisation, even with the best intentions and the best processes, things will go wrong.

Mr VAN MANEN: I'm happy to accept that proposition. My concern is, when it does go wrong, how the ATO responds and handles it.

Mr Noroozi : We have found a greater willingness on their part to apologise and try and correct it. There are still instances where we choose to disagree. As I've said before, the committee and my office suggested a separate appeals area where people would have their matters raised afresh. We thought that, by having people completely independent from the initial decision-making, that would give taxpayers at the objections stage a real chance to correct things. What the tax office did was move the appeal or the objection function out of the compliance area into the technical tax area as opposed to somewhere separate again. What I have suggested in the submission is that the committee may like to see whether that has yielded better results. In the submission, we do share with you some statistics from the annual report about the level of objections and past disputes for the last three years. I think that is also helpful, so the committee may like to consider that—maybe not immediately but, after another passage of time, it may be worth looking at again.

ACTING CHAIR: I'm taking Mr Dicks' questions for the minute, and I'd like to ask you about the government's transparency of taxation debt laws that will allow them to provide information on non-paying tax businesses to the credit agencies. Can I start first by just asking you about the level of complaints you get from businesses that have difficulties in negotiating payment arrangements now.

Mr Noroozi : What I can tell you is that, ever since we've had complaints, over 20 per cent have always related to debt collection. Of that, a fair portion would be about payment arrangements. Some would be about garnishee notices. So it's fair to say that it's not an uncommon complaint to the office and, in the majority of cases, we are able to come up with arrangements that both parties can live with.

ACTING CHAIR: The new law requires that businesses effectively engage with the tax office in order to avoid providing information to the credit agencies. Are you satisfied that the definition of 'effectively engage' is clear enough?

Mr Noroozi : The legislation also includes a role for my office to play. I can address your concerns by talking about that some more. The intention is that my office provides a safeguard to make sure that in those instances where, as I said, in the five per cent of cases where things don't go right, my office catches them so that a small business or an individual does not have a devastating effect of having their credit rating trashed, if you like, mistakenly.

I think the measure can work with the right safeguards. I believe the spirit of the legislation is getting us there, but I have a submission, which is on the public record—it's also on our website—where I've tried to make it crystal clear at a practical level what needs to happen. It's by way of clarification. What I've said is: when the tax office is considering doing this, they should approach the taxpayer and tell them, 'If you haven't lodged a complaint with the IGT, or inspector of tax, you have 21 days to do so.' Then they have to check with me seven days after those 21 days have expired to see whether they have lodged a complaint. If they have lodged a complaint, then the tax office should wait until we have investigated and the ATO should then consider our findings in deciding whether the matter should be disclosed to credit agencies. I believe that's workable and achievable. The matter is being consulted on. I've put in my tuppence worth, if you like, and others have too. I think the Department of Treasury is conducting the consultation. There are a number of parts to this. There is the legislation, there's a legislative instrument, there's a tax office guidance and there's the explanatory memorandum. So we are waiting to see what changes are made to those and to take it from there.

Mr McLoughlin : You mentioned effective engagement. I think it's really important to appreciate that, for the draft structure of the bill, we have some technical suggestions that I won't bother the committee with right now that we think should be expanded and incorporated within it as a technical test. But, as a consideration, being able to complain to the inspector-general is part of effective engagement, I think—because people are able to engage with the matter through our office's assistance and the ATO's as part of the atmospheric that sits around the provision. You can't just look at effective engagement as being the narrow little statutory test at the back; there are all these other things that are about effective engagement through being able to complain to our office.

ACTING CHAIR: I have one more question, which is about the skill level in actually negotiating payment plans for the complexity of small business. A small business may be intending to pay their tax, but another supplier has gone broke. Sometimes there is volatility in the market which causes cash flow, not viability. There can be a range of things that are very difficult to understand, and I would question whether within the ATO—particularly since I hear that the junior staff are quite often dealing with the small businesses at the moment, rather than senior staff—there is a skill level that is capable of negotiating appropriate payment plans.

Mr Noroozi : In our 2015 review into debt collection, we did talk about competencies and we did talk about appropriate supervision. Now, the tax office accepted a lot of those recommendations, and I understand most of them are now implemented. However, if the level of complaints about debt, particularly garnishees, continues the way it is, it may well be that we have to at least look at particular aspects of debt collection again. So I appreciate what you are saying, but, really, in coming to a payment arrangement, an ATO offer is supposed to consider all of the issues that you raise. That's why you have payment arrangements; otherwise, you should really pay your debt on time. You have a payment arrangement where you have valid reasons for not being able to meet those obligations.

ACTING CHAIR: But it's not exactly an even negotiating table when it comes to small business.

Mr Noroozi : Yes. Well, the tax office was always going to be in a stronger position in most negotiations. But there is a reason for that too.

ACTING CHAIR: There's a very good reason for the policy as well.

Mr Noroozi : Yes.

ACTING CHAIR: It's just the practicalities sometimes are difficult.

Mr LEESER: You will have seen reports of, or you may have even been there for, the speech that senior tax practitioner Mark Leibler recently made about the administration of the tax office. He was quite complimentary about the role of the inspector-general and the role of the tax office. I wondered if you had any particular comments to make in response to some of the things that he said about the awesome powers of the tax commissioner and the way in which the tax office exercises its functions.

Mr Noroozi : The government relies on the tax office to deliver it with revenue. So, by necessity, the tax office has got enormous powers, both in terms of information gathering and in terms of actually extracting the taxes due from citizens. So, much of what Mark Leibler says is true. However, that's why, when a public service agency like the tax office does have such enormous powers, it's important to have the right governance and scrutineering arrangement. It is the Westminster systems of checks and balances, and it's important that we have those checks and balances.

I think Mark Leibler was also quite complimentary about the tax office, too, in his speech. But he is also pointing out that we really should always be very conscious of these far-reaching powers, and ensure that the right arrangements are in place to have those necessary checks and balances.

Mr LEESER: Do you concur with his basic contention that effectively the present tax commissioner, at least, has helped change the culture of the tax office and made it more 'relationship oriented', more 'outcome and future focused', more 'collaborative' and so on—to quote the tax commissioner's own words?

Mr Noroozi : Look, it is true that as part of their reinvention program they have really sought to be more user-friendly, if you like. But previous commissioners have also made great strides, and I think Mark Leibler also acknowledges that in his speech. Unlike the ANAO, I am not there to give a performance audit of the ATO; I am there to investigate what are issues or problems in the system. It is more the ANAO's role to give a report card, but certainly there have been improvements in a number of respects. One of the things we mentioned earlier, even though they don't have a separate appeals area, I think it was an enormous improvement to move the objection from the compliance area into the technical area. To have the appeals as well as the original decision makers in the same area was probably not appropriate.

Mr LEESER: On page 3 of your submission, in relation to the annual report, you look at the tax collecting and reporting requirements, and there is some reporting in relation to insolvency debt in early years and not in more current years. Is that because they are not collecting that information and publishing it in the same format, or is that because that information just isn't available at this time?

Mr Noroozi : I don't know the reason. I know you missed the opportunity to talk to the tax office last time. We can ask on your behalf but, if they are appearing here, it is probably best addressed to them. I don't know why they don't appear. I think it is really helpful to have that information on disputed debt, insolvency debt, what is uneconomical to pursue. I think all of these are important information. Maybe I am more interested in it than your average citizen, and I can probably request that information. We finished the debt review back in 2015, so we have not had occasion to look at this level of data until we prepared this submission.

Mr LEESER: Taking into account what you said about your role being more to deal with individual complaints, I'm just interested in whether you think there needs to be more investment into the tax agent portal, given that so many people continue to use tax agents in Australia.

Mr Noroozi : We do also look at systemic issues, and that is what our reports are for. We did look at this very issue in our review into the service and support that the ATO provides tax practitioners. At the time, we did mention that the tax agent portal is not ideal in its current form. But the ATO said they intended to address the issues by moving to this new platform. But they also said that, in the meantime, they would maintain the system, but they wouldn't really carry out any improvements to their existing system, because they were moving to a new system. At the time they said that they would expect to be moving to the new system in two years. I know they have started that, but there is no timeline. Two years have passed, and we don't know what the timeline is for it to be completed. So understandably, some tax practitioners and probably some of your constituents are uneasy about continuing to work with the current tax agent portal because of the issues that they encounter. So it would be useful for the ATO to provide a timeline as to when they expect a complete migration to the new platform, and how some of the current issues will be addressed.

Mr DICK: Just on that point, do you think that time period could or should we extended? I have had a number of smaller tax agents come to me to say they are dealing with small traders and a lot of the tradies are still doing orange dockets or on the back of an envelope, and people are getting quite anxious about it. Interestingly, the concern seems to be coming from the small tax practitioners, rather than tradespeople. Do you think more awareness or education should be happening in the sector?

Mr Noroozi : Sorry, education for the taxpayers or tax agents?

Mr DICK: Yes, for both, really. I don't know if you are picking up any feedback.

Mr Noroozi : The ATO does do broadcasts for tax agents. There is material out there. The concerns we get mainly from tax agents are their frustration with various things, such as the portal and so on. The education process with taxpayers is never-ending. You constantly have to do it. And it is a question of how do you reach all of the taxpayers. I think the ATO does some education. I haven't looked at it recently, but they used to start at schools to get them into good habits early on. I don't think that is such a bad idea, because, if you drum it in early, it is likely to stay.

Mr McLoughlin : Is that a Single Touch Payroll related, a system change?

Mr DICK: Yes.

Mr Noroozi : We have made observations about the Single Touch Payroll, because we did a review into employer obligations, which included looking at Single Touch Payroll. At the time, the government proposal was that it wouldn't apply to the very small businesses, I think 20 employees or less. We suggested to the ATO that there should be some low-cost or no-cost solutions, because there is a cost involved with adopting single touch payroll. Their response was that small business is not being affected—so effectively not necessary. But now that it is going to be rolled out to all businesses, we raise it in the submission that it is even more important that the tax office look at those no-cost or low-cost solutions. Definitely a lot of education is required, particularly for small businesses, and how they do their reporting through single touch, especially if it's going to be compulsory.

Mr LEESER: I held a tax practitioners forum in my constituency, because, being on this committee, I was interested in what the local tax practitioners were saying. One of the questions I was asked by tax practitioners to put to you and the commissioner is the idea that incorrect assessments were being sent out—and there was a bit of media on this last year—and this can be disturbing for taxpayers, given the powers that the ATO have. As this practitioner writes, 'If your bank website is difficult to use, you can change to another bank. You can't do that with relation to the ATO.' Is there a sanction, as it were, for the ATO for getting those things wrong, for the distress that they might cause individual taxpayers and tax practitioners?

Mr Noroozi : As I have said many a time, the commission is a monopoly service provider by necessity. People don't have the choice of going somewhere else. I totally agree with what the tax practitioner has said. In terms of what they can do, they can come to us. That is what we are there for. The other thing that I have offered to some of the members of the committee, if you do have such forums, either myself or somebody from my office would be more than happy to come and deal with some of these issues firsthand. Given that you are in Sydney and we are Sydney-based, it would be very easy to manage. We would be happy to do that.

Mr LEESER: I might take you up on that. Thanks, Mr Noroozi.

Mr McLoughlin : The important point is there a compensation scheme for detriment caused by defective administration. It is a scheme, it is voluntary and it is slightly challenging to get through, but there is the opportunity to at least consider that. We are certainly in a position to review those sorts of matters where people would like to raise them with us.

ACTING CHAIR: Do you get many complaints about garnisheeing? I understand that junior officers are now authorised to garnishee up to $50,000 from a business account without senior officer approval. That's my understanding. Are you getting complaints about that?

Mr Noroozi : Yes. In the last financial year and in the current financial year to date, about two per cent of all of our complaints are to do with garnishees. In the last financial year, that was about 45 complaints on garnishees. Admittedly not everybody with a garnishee problem knows about our office or comes to us necessarily, so there may be a lot more. I don't know. The issue you raise is a valid one. We raised it in our 2015 report—that fairly junior officers can garnish up to $50,000. I think it was APS2 level at the time. Having said that, they have to undergo training before they are allowed to do things like that. However, given the juniority—I talked before about competency and supervision; this was a particular area where we suggested there needed to be more supervision.

ACTING CHAIR: A number of times you have referred back to the 2015 debt collection review.

Mr Noroozi : Oh, it's a goodie! It's a must-read!

ACTING CHAIR: I have read it. It's among all these papers. It's in here somewhere. I'd like a comment from you about whether or not you think it is still current now in 2018 or whether most of the issues that you raised have actually been addressed.

Mr Noroozi : We are told—and Jarrod can correct me—that the recommendations that they agreed to have been largely implemented. Is that right?

Mr Joseph : According to their implementation plan to agreed recommendations, they are all scheduled to have been completed by this time.

ACTING CHAIR: But there are some they didn't agree to?

Mr Noroozi : There were a number that they didn't agree with, yes. For example, one of the ones they didn't agree with, even though they did say they would look at it as they look at restructuring, was where we had suggested that the debt collection area should be within the compliance area. They disagreed with that. The reason we had said it should be in the compliance area was that the compliance team know the taxpayer; they know what kind of payment arrangement, for example, they may be able to afford. That was the reason. For example, that was one that they disagreed with, but they said that nevertheless they would look at it. There were a number of others. That is a matter of public record—the things they didn't agree with. As I said to you earlier, though, given the level of complaints we were getting, particularly if the committee feels there are particular things, like garnishees, we should review again, then please share that with us, because we will be looking at it and the next financial year is not that far away.

ACTING CHAIR: I only raise it because of the new tax debt provisions, which are related, I guess.

Mr Noroozi : I appreciate that.

ACTING CHAIR: Thank you very much. I think we are going to have to call it a day.

Mr VAN MANEN: I just want to ask a brief question off the back of that. The ATO make the comment in their submission, in relation to that point about the referral of debts to the credit reporting agencies, that businesses that are working with the ATO to resolve their debt will not be reported, and debts genuinely in dispute will not be reported. Who determines whether a debt is genuinely in dispute?

Mr Noroozi : The legislation does set out a number of things. In our submission, we've asked for it to be expanded to include a number of other things. They do mention, for example, people that have entered into a payment arrangement. But we have also said that a number of other things, like where there has been a deferral or a hardship case, should also be included. But ultimately these things would be in the hands of the ATO. But, as I said to you before, if what we have said in our submission gets taken up, what we have said is that the taxpayer should be informed, that they can complain to us. The tax office should wait for us to investigate any complaints lodged and to take into account as they judge whether they have engaged with them effectively or it is genuinely at dispute.

ACTING CHAIR: Before we conclude your evidence today, is there anything else you'd like to add?

Mr Noroozi : No, other than happy Easter!

ACTING CHAIR: Of course. We don't have three-day weeks. It's really unusual. We're all a bit confused. Thank you for your attendance at the hearing today. You will be sent a copy of the transcript of your evidence and will have an opportunity to request corrections to any transcription errors. I do have about six questions I'd like to put on notice if that's okay.

Mr Noroozi : Sure.

ACTING CHAIR: They are not bad ones. We just didn't get to them. If you've been asked to provide additional material or if there's any further information that you'd like to provide, please forward it to the secretariat by Friday, 20 April 2018. Additionally, the committee may provide you with further written questions on notice—as I said, there are about six—to finalise your contribution to the inquiry, with your responses to be taken as additional evidence. Your timely assistance with this would be much appreciated. Once again, thank you very much.

Mr Noroozi : Thank you.