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Thursday, 12 December 2002
Page: 8100

Senator LUDWIG (4:48 AM) —I seek leave to have my speech on the second reading of the Inspector-General of Taxation Bill 2002 incorporated in Hansard.

Leave granted.

Senator LUDWIG —I rise to speak on the Inspector-General of Taxation Bill 2002.

The DEPUTY PRESIDENT —I just gave you leave to incorporate your speech, Senator Ludwig. I went to a lot of trouble to do that!

Senator LUDWIG —May I withdraw that and take the opportunity to read my speech?

The DEPUTY PRESIDENT —At this hour of the morning I am feeling inclined to let you do that.

Honourable senator—Of course, you are not allowed to read. You can speak from your notes.

Senator LUDWIG —I should say quite clearly that I will read the title of the bill and speak to the notes that I have in relation to it.

The DEPUTY PRESIDENT —That sounds infinitely better.

Senator LUDWIG —The Inspector-General of Taxation Bill 2002, as everybody in this chamber clearly knows, embodies the essence of the Howard government. It is a populist piece of window-dressing aimed at assuaging the anger of investors in mass marketed tax schemes and of small businesses over the ATO's handling of the BAS. There is a problem with tax administration in this country, and it is a tragedy that this bill is not going to fix it. The problems in tax administration have been in the spotlight since at least August and have continued through the remainder of this year.

In August, tax agents staged a minor revolt against the government. They demanded that their concerns be addressed and they threatened to end electronic lodgment of tax returns and to flood the ATO with paperwork if tax administration was not improved. In October, the e-tax system crashed as it was unable to cope with the number of users choosing to lodge their returns electronically, and the deadline for lodgment was extended from 31 October to midnight on 3 November.

In November, tax agents and various professional bodies wrote a joint submission to the Minister for Revenue about the taxpayer's burden, raising issues relating to activity statements, capital allowances and the family tax benefit. Their letter states that 300,000 of the 400,000 claims made through the tax system last year are alleged to be incorrect. That means 75 per cent of FTB claims were incorrect. But this is not an election year, so do not expect the government to write off the debt as they did last year. Instead, families have paid the price for the government's administrative failure.

In December, the problems in tax administration reached a crescendo with the release of the Auditor-General's report. The report investigated the ATO's relationship with tax agents. The Auditor-General spelt out a myriad issues and said:

... the demands of tax reform have stretched the capacity of many tax agents ... to breaking point. Problems with the ATO's systems exacerbate these workload strains for both parties to the relationship.

It is hard to imagine how the system could get much worse. The tragedy of this bill is that the Inspector-General of Taxation will not have the legislative capacity to fix these problems. As the legislation is currently drafted, the inspector-general would not have the capacity to review the problems in relation to the family tax benefit. This is one of the major stuff-ups in tax administration in 2002, and yet the inspector-general would be able to do absolutely nothing about it. As the inspector-general's role is currently drafted, the problems in tax administration would not even see the light of day.

This bill has been fundamentally flawed from its inception, as the minister has discretion as to whether to release the Inspector-General of Taxation's reports. In the words of the Institute of Chartered Accountants, this means:

... the Minister could decide not to make public a report by the Inspector-General, to avoid embarrassment to the Government or the ATO.

Let me pose three questions. Firstly, what is the point of having an Inspector-General of Taxation if they cannot make their reports public? Secondly, how can the inspector-general be an advocate for taxpayers if taxpayers do not know what the inspector-general recommends? Thirdly, how useful would the Auditor-General be if his reports could be vetoed by the government? The answer, of course, to that last question is: no use at all. As long as the minister has the power to veto the Inspector-General of Taxation's reports, the inspector-general will be nothing more than a bureaucrat with a title, no matter how fancy that title might be.

Submissions to the Senate Economics Legislation Committee inquiry on this bill were adamant that the inspector-general's reports be publicly available. Amongst others, the Corporate Tax Association, the Business Coalition for Tax Reform, the International Banks and Securities Association of Australia, the Australian Institute of Company Directors, Taxpayers Australia, the Institute of Chartered Accountants and the National Institute of Accountants all recommended that the inspector-general's reports be made publicly available. According to the Business Coalition for Tax Reform:

Taxpayer confidence in and the overall effectiveness of the IGOT will depend critically on the ability of the public to examine its reports.

During the Senate inquiry and in the submissions themselves, it was clear that industry is of the unswerving belief that the power of the minister to withhold the inspector-general's reports renders the office of the inspector-general ineffective.

The other fundamental flaw in the role is that the minister can monopolise the inspector-general's work program. Currently, the minister has the power to direct the inspector-general to conduct a review. The power of the minister compromises the independence of that role. The Australian Institute of Company Directors told the Senate inquiry that this meant that the minister:

... has the potential to overload limited resources and compromise other independent work that the Inspector-General wishes to undertake.

The independence of the inspector-general is fundamentally compromised, as the minister can monopolise the resources of the inspector-general. Instead of the inspector-general consulting with the community and prioritising the most pressing tax administration issues, the inspector-general would have to investigate any frolic that takes the minister's fancy. A submission to the Senate inquiry from Resolution Holdings suggested:

The Office would be nothing more than a puppet to the Minister.

This is exactly the problem which Labor has raised since the bill was first introduced. As a puppet to the minister, the role of the inspector-general is futile.

This role is intended as an advocate for taxpayers. However, it does not fulfil this objective. The hypocrisy of this bill is that this role is supposed to be an advocate for taxpayers, yet there is no mechanism for the inspector-general to consult with taxpayers. As the bill is currently drafted, there is no formal consultation process to provide taxpayers with an opportunity to access the inspector-general. This is in contrast to arrangements in place to enable access to the Auditor-General. Following the Senate committee's investigations, it became clear that access to the inspector-general had not been thoroughly considered. The problem which arises is that big business has the resources to advise the inspector-general of its concerns whereas small investors, with fewer resources, are at a significant disadvantage.

The Senate committee's recommendation that the government consider including a statement that the inspector-general's role is to `promote the advocacy of taxpayer concerns' is a superficial response to a structural problem. The inspector-general is not an advocate for taxpayers, as the inspector-general is directed by the minister and reports back to the minister without consulting a single taxpayer. As the Labor minority report states:

... the lack of independence and transparency afforded to the Inspector-General renders the office ineffectual in advocating the needs of all taxpayers.

The Senate inquiry proposed seven recommendations for the government to consider to improve the role of the inspector-general. In spite of the recommendations of the committee to improve the role, the capacity of the office of the inspector-general to improve tax administration remains fundamentally compromised by the following issues. Firstly, it is compromised by the lack of independence. The minister has a power of veto over the inspector-general's reports and the minister has the power to direct the inspector-general's work program. Secondly, there is the failure of the inspector-general to be an advocate for all taxpayers. Thirdly, the office is compromised by the lack of a mechanism to provide for formal consultation with the general public. Finally, it is compromised by a lack of funding. Labor welcomes the proposal put forward by the Democrats that the Auditor-General review the appropriation provided to this role and certify that the object of the act can be met within the current appropriation prior to commencement of this act.

To conclude, I would like to comment on the arrogance displayed by the Howard government towards this bill. Prior to passing this bill, the Howard government had advertised the position in national newspapers. Without even a thought towards the role of parliament, without a concern for the democratic processes and without any shame, the Howard government advertised this position—a position set out in legislation which had not even been passed by parliament. This exemplifies how little respect the Howard government has for this parliament and for the role of the elected representatives of the people. The Howard government has become so used to being in power that it has forgotten or has just ignored the fact that legislation must be passed by both houses of parliament before it is law. The Howard government needs to be reminded that support for its legislation is not an automatic right but a privilege extended by the elected representatives. Labor supports all the Democrat amendments, aside from those amendments relating to merit selection in clause 28, clause 29 and proposed clause 28A. Should the bill be passed, Labor believes that these amendments will greatly enhance the role of the inspector-general. Labor is opposed to the bill.