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Economics Legislation Committee
Australian Taxation Office

Australian Taxation Office

CHAIR: I welcome the Department of the Treasury Revenue Group and the Australian Taxation Office. I understand the commissioner is not with us, but Ms Curtis is here as the acting commissioner. Senator Seselja, I understand that you have a statement.

Senator Seselja: Yes. I just want to add some information to an earlier discussion. There were questions around the $3.5 billion Climate Solutions Package and the economic impacts. I've got some figures. The estimate from the department of energy for the Snowy Hydro is 5,000 direct and indirect jobs. Hydro Tasmania, Battery of the Nation: 3,000 direct and indirect jobs. The Tasmanian government did that work. In the land sector under the Climate Solutions Fund, direct and indirect jobs should be between 7,875 and 15,750. The Carbon Market Institute did that work.

CHAIR: Thank you very much for that, Minister. Acting Commissioner, do you have an opening statement for us?

Ms Curtis : No, I don't have an opening statement. The commissioner did want to pass on his apologies. He had longstanding leave arrangements. He's very disappointed not to be here today.

CHAIR: I'm certain! Does the Revenue Group have an opening statement? No. Senator Ketter, why don't you kick us off.

Senator KETTER: I'll start with my letter to Mr Gaetjens of 3 April. I understand that the Revenue Group can assist me with a couple of the dot points in that letter, the first one being the year-by-year breakdown of the full Personal Income Tax Plan. Is someone able to assist me with that?

Ms Mrakovcic : Yes, I'm aware of the letter. I believe that the secretary addressed those issues this morning. In terms of the first item, which is the year-by-year breakdown of the full Personal Income Tax Plan, the government did actually set out in statement 3 of this year's budget, on page 313, a breakdown by the various depths of the Personal Income Tax Plan over the forward estimates period and the 10-year period. This is consistent with the level of detail provided during last year's process and information released on the Personal Income Tax Plan in the 2018-19 budget.

Senator KETTER: Okay. What are you referring to there? Is there a table?

Ms Mrakovcic : On page 313, box 2.

Senator KETTER: Of?

Ms Mrakovcic : Sorry, of Budget Paper No. 1. You'll see that there is information provided on each of the individual steps of the enhanced tax plan with a figure provided for the total cost over the forward estimates period and then over the 10-year period.

Senator KETTER: Can you give me a year-by-year breakdown through to 2029-30 of the low- and middle-income tax offset as per the 2018 budget?

Ms Mrakovcic : As I indicated, the government has released information at this level of disaggregation, and this is consistent with the level of disaggregation that was provided last year in response to the original personal tax plan set out in the 2018-19 budget.

Senator KETTER: So you're not prepared to provide that information.

Ms Mrakovcic : Basically, as you will recall, this was an area that was traversed last year, in terms of a discussion around the preference of the government and the department in terms of setting out the information at that level of aggregation. There was a conversation around the challenges and the inherent uncertainties that lie in year-by-year and point estimates over a long period of time and the fact that there is more confidence in the aggregated data than in looking at year-by-year estimates.

Senator KETTER: Okay.

Ms Mrakovcic : But, certainly, you'll recall that, at this level, providing a disaggregation by each step in the personal tax plan—and in Budget Paper No. 2 there are detailed annual estimates for the package year by year over the forward estimates, and then there is also information on the full cost by step for the full medium term out to 2029-30. In fact, I should have been clear that that cost is over the medium term from the start of 2018-19.

Senator KETTER: I think your answer's going to be the same, but I'm just going to ask for a number of other pieces of information as well. The LITO as per the 2019 budget—is that something you can provide on a year-by-year basis?

Ms Mrakovcic : Sorry?

Senator KETTER: The low income—the LITO?

Ms Mrakovcic : The LITO?

Senator KETTER: Yes.

Ms Mrakovcic : A year-by-year estimate for the 2019-20 enhanced tax plan component going from $530 to $1,080?

Senator KETTER: Yes. But, again, I'm looking for the year-by-year breakdown through to 2029-30. What's your response to that?

Ms Mrakovcic : The only information available on that would equate to the first line, which indicates $15 billion in the period to 2022-23, and then the total to 2029-30 also is $15 billion.

Senator KETTER: What about increase in the upper threshold for the 19 cent marginal tax rate from $37,000 to $41,000 as per the 2018 budget?

Ms Mrakovcic : I don't have it handy, but I believe we would have given information on the $37,000 to $41,000 cost last year in the information that was provided to the Senate at that time. In all cases this is the disaggregated data.

Senator KETTER: All these questions relate to the year-by-year data to 2019.

Ms Mrakovcic : But the $37,000 to $41,000 is not in this year's budget; it was last year's budget.

Senator KETTER: Yes.

Ms Mrakovcic : And the full information—which was not provided on a year-by-year basis; it was aggregated over the medium term—was provided last year, but not at the level of disaggregation of the year-by-year estimate.

Senator KETTER: So, for the increase in the upper threshold of the 19 per cent marginal tax rate from $41,000 to $45,000 in this year's budget, is it the same answer?

Ms Mrakovcic : Yes.

Senator KETTER: And for the 32½ per cent, is it the same answer?

Ms Mrakovcic : Yes.

Senator KETTER: What about removing the 37 per cent tax bracket and increasing the threshold for the 45 per cent tax bracket from $180,000 to $210,000 as per the 2018 budget?

Ms Mrakovcic : We have no additional information to provide.

Senator KETTER: If you can't provide a year-by-year breakdown, can you provide forward estimates and medium-term figures for each of these elements?

Ms Mrakovcic : We'll have a look at what we provided last year, and I'm happy to take the question on notice as regards this year.

Senator KETTER: So you don't have those figures to hand. There's nobody here today?

Ms Mrakovcic : I don't have them to hand, no. But we're just having a look at what we provided last year. Could I just take down the details of exactly what you're after?

Senator KETTER: Yes. I will go through them. It's the LMITO as per the 2018 budget, the LMITO as per the 2019 budget, the increase in the LITO as per the 2018 budget and, separately, as per the 2019 budget, the increase in the upper threshold for the 19 per cent marginal tax rate from $37,000 to $41,000 as per last year's budget, the increase in the upper threshold for the 19 per cent marginal tax rate as per this year's budget, the increase in the upper threshold for the 32½ per cent marginal tax rate as per last year's budget, removing the 37 per cent tax bracket and the increase in the threshold for the 45 per cent tax bracket as per last year's budget, and reducing the 32½ per cent marginal tax rate to 30 per cent as per this year's budget.

Ms Mrakovcic : And the level of disaggregation you're asking for now is over the forward estimates.

Senator KETTER: The forward estimates and medium-term figures for each of these elements.

Ms Mrakovcic : I think that we have addressed the issue of the year-by-year estimates over ten years—or, indeed, over the medium term. The issue there is that we have always indicated, as we indicated last year, and that answer remains consistent with this year, that we are comfortable talking in terms of a level of aggregation, but, given the inherent uncertainties in those point estimates, we don't believe that there is benefit in releasing the year-by-year numbers.

Senator KETTER: Okay. All right.

Ms Mrakovcic : In terms of the forward estimates, I'm happy to take that on notice and look at what we provided last year to see if there is anything more that we can provide. But I would note that my understanding is that certainly what we have provided in this year's budget is consistent with the level of disaggregation that was provided last year.

Senator KETTER: Has Treasury prepared legislation for the 2019-20 budget personal income tax changes?

Ms Mrakovcic : I'd have to take that question on notice.

Senator KETTER: Is there somebody in the room or in the vicinity who might be able to help us?

Mr Writer : We've certainly done some work to prepare legislation for proposed amendments, but, as you would have noted, no legislation has been introduced by the government.

Senator KETTER: What's the stage that it's up to at the moment? Have you finalised?

Mr Writer : Given it has not been introduced, no, it's not finalised.

Senator KETTER: What stage is it at, at the moment?

Mr Writer : I'd have to take that on notice and come back to you.

Senator KETTER: The other request, which is in my letter and which I understand you're able to assist us with, is the figure for unconstrained tax to GDP as a percentage in 2029-30. Are you able to provide that?

Ms Mrakovcic : As the budget documents set out, the tax to GDP cap that the government has of 23.9 is set. Its revenues are expected to remain under that cap until 2029-30, and that is the year in which normally the cap would apply. When estimates of the medium term are set out in the budget documents, they apply that cap of 23.9 in that 2029-30 year. It's not normally the practice to provide what the unconstrained numbers are, but, given that it is the last year of that medium term and the close proximity of it, we can say that it is 24 per cent of GDP.

Senator KETTER: I do have quite a few other questions, but I'm happy to go to other people.

CHAIR: We might go to Senator Spender and then come back to that issue.

Senator SPENDER: I just want to ask about effective marginal tax rates. Is it correct that through the additional offset changes in the budget we're going to get a further reduction in EMTRs for people on incomes of between $36,000 and $48,000 at the bottom end, but we're going to get an increase in EMTRs as that offset phases out from roughly $90,000 to $126,000?

Ms Purvis-Smith : As the LMITO—the low- and middle-income tax offset—phases out, it will have the impact of increasing the EMTRs by a small amount, by three percentage points, on taxable incomes of between the phase-out incomes, which is between $90,000 and $126,000. Other parts of the package and the package as a whole, taking last year's and this year's, affects EMTRs by either keeping EMTRs unchanged or reducing EMTRs, and that's due to the changes in the thresholds, which move some taxpayers into lower marginal tax rates, and also to the changes to the rate.

Senator SPENDER: What I'm interested in is an elasticity—the change in income for a change in your effective marginal tax rate. Do you have that sort of information for different levels of income? For instance, for someone who is on between $36,000 and $48,000, how responsive are they to the EMTRs compared to people in that $90,000 to $126,000 range? Do you have any data on those sorts of responsiveness measures?

Mr Brine : We don't have detailed information like that to hand—labour supply elasticities. Normally, we would work with the Macroeconomic Group on those. I guess a lot of the literature suggests the most elastic people are going to be those at the very high end of the income spectrum they might move overseas, or thenon-working partners, and lower incomes. I think those are the factors that come through the literature about being important for labour elasticities.

Senator SPENDER: I've not done it myself, but some people who were very quickly analysing over the first two days of the budget have said that this might have a net effect of discouraging working and saving, because you tend to think that the people at the higher end are more responsive. I know that people who are on beyond $126,000 are eventually going to face some lower effective marginal tax rates, but $90,000 to $126,000 seems like a pretty key income range. There would be reasonably responsive people in that range.

Mr Brine : You wouldn't think the two groups which we spoke of would naturally fall in that range. There could be some.

Senator SPENDER: Are you arguing that the most responsive would be beyond that income range?

Mr Brine : One category might be people who move overseas to access a lower jurisdiction. They are generally on high incomes, and I would suggest they would be above that range. Lower-income people and people perhaps not working at all or working one or two days a week generally, I think, would be below that range. That would be my thinking. I wouldn't jump to the conclusion that that is going to be the part of the population that has the greatest labour supply elasticity.

Ms Mrakovcic : You would be aware that the effective marginal tax rates usually take into account the interaction of the tax and transfer system and the kind of movements that we're talking about in the marginal tax rates, and their contribution to effective marginal tax rates tends to be relatively small compared to the withdrawal of transfer payments and such like. I think our view is that for much of the broad range of incomes that the package covers, the impact of effective marginal tax rates on the actual tax package is relatively small. Certainly we'd expect that a large part of the income span, as you pointed out, would actually being having lower effective marginal tax rates. I'm aware—like you, I suspect—of some of that sort of research, including recently by Dr Breunig and Shane Johnson. That certainly would seem to suggest the elasticities are higher at the higher end. But I think you keep in the perspective by the magnitude of what we are talking about.

Senator SPENDER: It's a couple of percentage points. I don't want to create too much hassle, but if there is any existing collation, maybe in macro, can I ask you to take on notice advice on your understanding of different degrees of elasticity at different income ranges, even if it's just a general thing, like, 'It is our understanding that it rises over income ranges.'

Ms Mrakovcic : We are happy to take that on notice and perhaps pull together something including some of the recent literature.

Senator SPENDER: That would be great. That's it from me.

Senator KENEALLY: Thank you to Revenue Group. Has the Treasury been asked by the Treasurer's office over the past few weeks for more information on issues relating to negative gearing, franking credits or family trusts?

Ms Mrakovcic : Senator, we don't normally comment on what advice has been asked of us by the Treasurer's office. It does go to policy advice to a minister.

Senator KENEALLY: Has Treasury been asked by the Treasurer's office for any analysis or modelling that relates to negative gearing, family trusts or franking credits?

Ms Mrakovcic : Do you mean within the same time span? I don't know that I heard the time span.

Senator KENEALLY: Let's say in the last two months.

Ms Mrakovcic : Again, we don't comment on what advice has been provided to government.

Senator KETTER: We're not asking for the advice.

Senator KENEALLY: Well, actually, this morning both Fiscal Group and Macro Group did comment and said they had not. So is there some different rule for Revenue Group?

Ms Mrakovcic : I don't know that it's a different rule. These questions have come up before, and generally the approach I take is to not comment on what advice has been provided to government.

Senator McALLISTER: Ms Mrakovcic, arguably, by an extension of that logic, everything Treasury does is advice to government, and it would render the estimates process entirely pointless. Every other official who turns up here is willing to discuss the work that they are undertaking. There are obviously things which are narrowly confined within the process of cabinet decision-making, and we accept they are excluded from discussion. But Senator Keneally is asking a much more general question. I don't imagine that Labor Party policies in relation to negative gearing, family trusts or franking credits are part of the cabinet decision-making process of this government. I think there really isn't any reason for you not to answer those questions.

Ms Mrakovcic : Senator, I understand the point you're making and the speculation around what may or may not have been considered by cabinet. In my view, it still would be inappropriate for us to comment on what advice we have provided to government on policies.

Senator McALLISTER: I am going to seek advice from the secretariat about your response because I don't believe it is consistent with the standing orders. I'm just looking for some advice about how you're approaching this.

Senator KETTER: While we're seeking that advice, just to clarify the question, we're not asking what advice you've provided; we're asking whether you have been asked by the Treasurer's office for information on issues.

Senator KENEALLY: For analysis or modelling that relates to negative gearing, family trusts or franking credits.

Senator KETTER: Have you been asked to do work in this area? We're not asking for the advice that you may or may not have given; we're asking a much broader question.

Senator KENEALLY: Again, I point out that this morning both Macroeconomic Group and Fiscal Group were able to answer these questions.

Senator McALLISTER: I have now also sought clarification from the acting secretary about the way the Clerk has considered this in the past. Advice to government is not a sufficient ground for not providing an answer. You need to demonstrate some harm to the public interest.

Senator Seselja: Ms Mrakovcic has given the answer.

Senator McALLISTER: No, she has not.

Senator Seselja: She has.

Senator McALLISTER: She has refused to provide an answer.

Senator Seselja: She's given an answer.

Senator McALLISTER: No, no. She's been non-responsive, and she is not entitled to do so under the standing orders.

Senator Seselja: She's given you an answer which you don't like.

Senator McALLISTER: No. She's been non-responsive.

Senator KENEALLY: She's not making a public interest—

Senator Seselja: She has. She's given an answer.

Senator McALLISTER: No, she's been non-responsive.

Senator Seselja: She's answered your question. You may not like the answer she's given, but she's—

Senator KENEALLY: What is her answer, Minister?

Senator Seselja: Sorry?

Senator KENEALLY: What is her answer? Can you—

Senator Seselja: Her answer was that it hasn't been practice to provide that information in the past.

Senator McALLISTER: It's not her decision.

Senator Seselja: But that's her answer.

Senator KENEALLY: We've had a ruling from—

Senator McALLISTER: She's subject to the Senate standing orders. This is a ridiculous argument. You may wish to seek some advice about how you approach this. There are, in fact, ways out and around for the government—and more skilful practitioners than you might know what they are—but just asserting that you can say this is not correct.

Senator Seselja: The official has given the answer. Now I'm answering the question. I'm very happy to take that question on notice.

Senator KENEALLY: Is the Treasury making a public interest immunity claim here?

Senator Seselja: No. I'm answering the question, which I'm entitled to do under the standing orders, and I'm taking the question on notice.

Senator KENEALLY: Why can't you just say yes, because obviously you're hiding—

CHAIR: I think the minister has now been asked this question twice.

Senator Seselja: The question has been taken on notice.

Senator KENEALLY: Do you know, Senator Seselja?

Senator Seselja: I've take the question on notice, so we'll get you an answer.

Senator KENEALLY: There's someone sitting right next to you who knows.

Senator Seselja: The question has been taken on notice.

Senator KENEALLY: You can't just turn to her and ask her? She's actually required to answer our question under the standing orders.

Senator Seselja: No. I understand the standing orders, Senator Kenneally, as do you. A minister can choose to take a question, which I've chosen to do, and I've taken it on notice.

Senator KENEALLY: Has the Treasury been asked by the Treasurer's office in the past two months for costings that relate to negative gearing, family trusts or franking credits?

Senator Seselja: We'll take the question on notice.

Senator KENEALLY: Has the Treasury been asked by the Treasurer's office over the past two months for more information on issues that relate to negative gearing, family trusts or franking credits?

Senator Seselja: Again, we'll take the question on notice.

Senator KENEALLY: I think we know the answer.

Senator McALLISTER: Based on the evidence today, is it correct to say that the Treasury has done no modelling on a major government package—the Climate Solutions Fund—but is undertaking modelling work on a whole range of Labor policies, including negative gearing, family trusts and franking credits?

Senator Seselja: No-one has said that. What I've said is I'll take the question on notice.

Senator McALLISTER: I'm asking the question: is that correct?

Senator Seselja: You were implying—and what I've said is that I'm taking the question on notice.

Senator McALLISTER: Sorry, the question I've just asked you—you're taking that on notice as well?

Senator Seselja: Was it different from the previous questions?

Senator McALLISTER: Yes, it was.

Senator Seselja: You'll have to restate it for me.

Senator McALLISTER: Is it correct to say that both of these things are true—that the department has done no modelling on the signature climate policy promoted by Minister Taylor and Minister Frydenberg, but it has undertaken modelling and analysis on a range of Labor policies on negative gearing, family trusts and franking credits?

Senator Seselja: I'm not saying that.

Senator McALLISTER: What are you saying?

Senator Seselja: I'm saying that the questions you have asked have been taken on notice, so you will get an answer as to whether any of that has been requested.

Senator KENEALLY: Were you here for Fiscal Group? I'm trying to remember, Minister.

Senator Seselja: Sorry?

Senator KENEALLY: Were you here for Fiscal Group this morning?

Senator Seselja: I was here for part of Fiscal Group, yes.

Senator KENEALLY: Why did they answer the questions? Why didn't you take them on notice then?

Senator Seselja: I'm sorry, I'm not—

Senator KENEALLY: They answered these questions. They answered very similar questions. Why didn't you take them on notice then?

Senator Seselja: I'm not sure that I was here while those particular questions were being asked.

Senator KENEALLY: Why didn't Minister Cormann take them on notice?

Senator Seselja: That's something you'd have to ask him.

Senator KENEALLY: Actually, you were here for all of Fiscal Group. Minister Cormann was not here for any of Fiscal Group.

Senator McALLISTER: That's true. He left.

Senator KENEALLY: He left. You were here for the entirety of Fiscal Group. The same questions went to Fiscal Group, and you allowed them to answer them.

Senator Seselja: They're not the same questions.

Senator KENEALLY: They were questions asking whether or not the Treasury had done modelling in relation to Labor policies. You allowed those questions to be answered. Why won't you allow them to be answered by Revenue Group?

Senator Seselja: Sorry, you got an answer which you didn't like.

Senator KENEALLY: No, I didn't get an answer.

Senator Seselja: Yes, you did. We can go back and forth over it.

Senator KENEALLY: I'm asking you now—

Senator Seselja: You were given an answer which you didn't like. I've now undertaken to take that question on notice for you.

Senator KENEALLY: That's not the question I'm asking you. I'm asking you why, given that you sat here for the entirety of Fiscal Group and they were asked very similar questions, seeking the same kind of information, you allowed the questions to be answered by Fiscal Group but you're taking them on notice now for Revenue Group? Why?

Senator Seselja: I've just answered the question. I can answer it again for you.

Senator KENEALLY: It is a double standard.

Senator Seselja: From an official, you got an answer which you didn't like and which you didn't accept. Under the standing orders, I'm entitled to take the question. I've taken the question. The question has been taken on notice. We will come back to you.

Senator McALLISTER: Ms Mrakovcic, I want to ask you a different question. Will you undertake to seek advice prior to the next time you come to estimates about your obligations in terms of this committee under the Senate standing orders?

CHAIR: I think that's out of line, Senator McAllister.

Senator McALLISTER: Ms Mrakovcic is a very experienced public official—

CHAIR: She is, and I think that you are—

Senator McALLISTER: and she has chosen to be non-responsive. She persisted even when provided the information provided by the Clerk about the nature of public interest immunity. I'm actually quite surprised by it. There are other ways we can deal with this. But we cannot have an estimates process where officials just don't answer questions. That is not an acceptable way.

Senator Seselja: That's not what has been happening here. You just didn't like one of the answers that was given by an official and now that question has been taken on notice.

Senator KENEALLY: Senator Seselja, you are misunderstanding the plain English meaning of the word 'answer'.

Senator Seselja: She responded to your question in a way in which you didn't like.

Senator KENEALLY: She was non-responsive and was not in accordance with the standing orders. You decided to act in a certain way. You decided to act in a way that was contrary to how you acted earlier this morning.

Senator Seselja: No. I acted under the standing orders as you know, Senator Keneally. I have taken the question on notice.

Senator McALLISTER: To protect Ms Mrakovcic because she had no leg to stand on. That was not acceptable grounds to not answer—

Senator Seselja: That's your assertion. I reject that. I have taken the question on notice, as is appropriate, as you well know.

CHAIR: Thank you, Senators McAllister and Keneally. I will come back to you.

Senator McALLISTER: Chair, can I get some advice from you about this?


Senator McALLISTER: Do you consider it acceptable to just not answer questions?

CHAIR: How about I ask Ms Mrakovcic some questions and see if she answers for me?

Senator KENEALLY: No, that's—

Senator McALLISTER: No, I'm asking advice from you, as the chair.

CHAIR: That's exactly right. My understanding, Ms Mrakovcic, is—

Senator KENEALLY: Are you not making a ruling?

Senator HUME: Excuse me, Senator Keneally. I'm now asking the questions. Ms Mrakovcic, can you please explain how this works? My understanding is, and perhaps correct me if I'm wrong, Treasury doesn't actually undertake modelling of opposition policies. What it does undertake is modelling of government proposals as appropriate. Is that correct?

Ms Mrakovic : Yes.

CHAIR: Right. So, if you undertook modelling, it would be of a government proposal? Is that correct?

Ms Mrakovic : Yes. This issue has arisen a number of times and we've always said that we cost what the government asks us to cost. Our specifications are provided to us by the government.

CHAIR: Thank you very much. When I was working in funds management and in superannuation, we had an understanding that past performance, while it was no guarantee of future performance, was the best indicator of future performance. Is that something that Treasury would adhere to?

Senator McALLISTER: In every circumstance or in any in particular?

CHAIR: Generally? Past performance, while no guarantee of future performance, is a good indicator.

Ms Mrakovic : I think I couldn't agree to that as a general proposition without understanding the specifics.

CHAIR: I understand.

Ms Mrakovic : It is one indicator and it can be a useful indicator.

CHAIR: It's one indicator. I had always worked on the assumption that taxes always went up under a Labor government and always went down under a coalition government. That's something we have always said in the catchcry. So I did a little bit of research to make sure that was entirely true. I'm specifically looking at personal income taxes. I'm wondering if there's anybody here at the table that can talk me through—has anyone been here for 10 years or 20 years?

Ms Mrakovic : Do you mean in the tax space?

Senator McALLISTER: What about debt over the last—

CHAIR: Excuse me, Senator McAllister. I'm now asking questions. I didn't interrupt you.

Senator KENEALLY: What are the top 10 tax—

CHAIR: Senator Keneally, I didn't interrupt you either.

Senator McALLISTER: But we asked you for a ruling and you didn't provide one—

Senator KENEALLY: You didn't give it.

CHAIR: You can continue to wait until I have finished asking my questions and then I will decide whether I'm going to give you a ruling on a stupid, bloody question anyway.

Senator McALLISTER: Well, it's a point of order, actually, and you are obliged to rule.

CHAIR: Has anybody done any work over the last 10 years or even 20 years as to whether personal taxes have increased under coalition governments—ever?

Ms Mrakovcic : I don't believe we would have information on that. We would have to take it on notice.

CHAIR: Have personal income taxes decreased under Labor governments?

Ms Mrakovcic : Again, we'd have to take it on notice.

CHAIR: You've done no work on this at all?

Ms Mrakovcic : I'm sure we would have done work, analysing this, but I do not have the results of that to hand.

CHAIR: Have tax brackets changed in such a way that would increase personal income taxes under a coalition government in the last decade?

Senator SPENDER: The deficit levy.

CHAIR: Yes, you're right: the temporary budget deficit levy in 2014-15. In fact, from my analysis, that's the only time that taxes have increased under a coalition government—and, in fact, that's now been removed. Is that your understanding, Ms Mrakovcic, or Ms Purvis-Smith, as this is your department?

Ms Mrakovcic : We have not looked at the evolution of the personal tax brackets in detail under different governments. I can't comment on the specific questions that you are putting to us. If you asked me whether bracket creep featured as an increasing issue in a situation where thresholds do not change and more people are moved up into a higher bracket, we can talk about general themes like that. But the specificity of the questions that you're asking in terms of dates et cetera is not something we can ready answer. We're happy to take the questions on notice and give you as fulsome answers as we can on the analysis that may be back in the department.

CHAIR: Okay; maybe I will give you some questions on notice. I have done analysis of the last 20 years, and I can see only one incident where personal income taxes have increased under a coalition government, and that was the temporary budget levy of 2014-15, and I have seen only one incidence where they have gone down under a Labor government, and that was the compensation package linked to the clean energy future package or the carbon tax. The second tranche did not proceed and, of course, the carbon tax was repealed. So I can see no evidence that personal income taxes have ever gone down under Labor or have consistently gone up under the coalition without being repealed.

CHAIR: Senator Keneally, do you have some questions?

Senator KENEALLY: I might follow on from your questions. Does Revenue Group have any information on the top 10 highest-taxing governments since 1970? Can you confirm that they are Howard, Howard, Howard, Howard, Howard, Howard, Turnbull, Howard, Hawke—in that order?

Ms Mrakovcic : Senator, as I indicated, we don't normally look at the personal income tax system under different governments, however they are categorised. I'm happy to go away and do some work on the evolution of the personal tax system over time.

Senator KENEALLY: Just as Senator Hume can do research, so can I. Could you confirm that in 2004-05 tax to GDP under John Howard was 24.2; in 2005-06 tax to GDP under Howard was 24.2; in 2000-01 tax to GDP under Howard was 24.1; in 2002-03 tax to GDP under Howard was 24; in 2003-04 tax to GDP under Howard was 23; in 2006-07 tax to GDP under Howard was under 23.7; in 2007-08 tax to GDP under Howard was 23.7; in 2019-20 tax to GDP under Turnbull was 23.2; in 2001-02 tax to GDP under Howard was 23.2; and in 1986-87 tax to GDP under Hawke was 23.2? I would appreciate it if that can be confirmed. I am happy for you to take that on notice.

Ms Mrakovcic : We will take that on notice.

Senator KENEALLY: Right. Do we want a ruling from the chair, Senator McAllister?

CHAIR: What was your question?

Senator McALLISTER: Whether or not advice to government is sufficient in terms of making a claim of public interest immunity.

CHAIR: I think that the minister has taken that on notice.

Senator McALLISTER: He's taken that particular point of order on notice?

CHAIR: Yes. The ruling is clear.

Senator McALLISTER: I see; so you are declining to provide advice—

CHAIR: Senator McAllister, I have been extraordinarily gracious today.

Senator McALLISTER: I am just trying to understand.

CHAIR: I have given an exceptional amount of time to ask questions. If you can't land a blow in the time that you have been given, that is not my problem. I have given you extra time. Now don't turn it on me.

Senator McALLISTER: I'm just trying to seek a ruling and I'm trying to understand how you're approaching your role as the chair in that regard.

CHAIR: You've seen the ruling. You've seen the secretariat's advice. I have taken that advice. The minister has taken the question on board and will come back to you at a suitable and appropriate time.

Senator McALLISTER: It is just that the secretary's not in a position to—

CHAIR: I don't know why you're bothering arguing with me, Senator McAllister. It's not my—

Senator McALLISTER: Because the secretary is not in a position to make a ruling. You're in the chair, so I was seeking you to exercise that role.

CHAIR: As I've said, the rule applies and the minister is bound to answer the question, and he said that he will take it on notice. What more can I give you, Senator McAllister?

Senator McALLISTER: Is that your ruling?

CHAIR: Do you want to put Ms Mrakovcic in the stocks and we can throw some dead fruit at her and see what happens then? The question has been taken notice. I don't know why you are cross at me.

Senator McALLISTER: I'm not; I just asking for you to make the ruling.

CHAIR: I have.

Senator McALLISTER: I think you maybe now have.

CHAIR: And it's been done and the question has been taken on notice.

Senator McALLISTER: It is just a little unorthodox. The reason I asked—

CHAIR: Would you like to ask some more questions of the department or would you like to ask some more questions of me?

Senator McALLISTER: I would like to have a private meeting to discuss this, actually.

CHAIR: You can't be serious.

Senator McALLISTER: I am serious.

CHAIR: Would you like to ask some more questions of the department?

Senator McALLISTER: No; I'd like a private meeting to discuss it.

CHAIR: Fine. I'm happy to call a private meeting. The committee will suspend while we have a private meeting.

Proceedings suspended from 14:56 to 15:10

CHAIR: The committee will now resume. The committee has confirmed that, as advised by the secretariat before we broke, the mere fact that information consists of advice to government is not grounds for refusing to disclose it; some harm to the public interest must be established. The minister has appropriately taken the question on notice, and we can now move on. That is my ruling. Senator Keneally, do you have further questions for this witness?

Senator KENEALLY: I'm going to cede the rest of my time to Senator McAllister.

CHAIR: You have two minutes and 39 seconds to go.

Senator McALLISTER: Senator Ketter wrote prior to these hearings, seeking some specific information in relation to a year-by-year breakdown of the full personal income tax plan, including the elements that were announced in 2018-19 and the elements announced in 2019-20 budgets. Are those available?

Senator Seselja: This question was asked and answered earlier in the session.

Senator McALLISTER: It's difficult, in some ways, to have the proper discussion, isn't it? Last time this happened, at budget estimates last year, we were trying to work out what the impact of the tax plan was on women. You recall we talked about it then, Ms Mrakovcic. Is still Treasury's view that the tax system is gender neutral?

Ms Mrakovcic : Yes.

Senator McALLISTER: Are you aware of the joint media release by the Treasurer and the Minister for Jobs and Industrial Relations and Minister for Women on 19 March titled 'Labor's Retiree Tax to hurt women more than men'?

Ms Mrakovcic : No, I don't believe so. If I was aware of it at the time, I don't have the recollection of it.

Senator McALLISTER: You were aware?

Ms Mrakovcic : No, I don't believe so. I'm just flagging that, if I did, I don't have a recollection of it.

Senator McALLISTER: Understood. Was Treasury asked to carry out any work in preparation for this media release?

Mr Brine : I'm not aware of us being asked for any work.

Senator McALLISTER: It would have been your area, Mr Brine, that would have done the work?

Mr Brine : That's correct.

Senator McALLISTER: Was the table on the bottom of the media release produced by Treasury?

Mr Brine : I'm not aware of the table; I'd have to check. I know that this type of information is available from the tax statistics document the ATO puts out.

Senator McALLISTER: Was Treasury asked to fact-check the media release? I think the answer is no, based on your earlier answers, but I ask for clarity.

Mr Brine : Not that I'm aware of. I don't have any recollection of being asked to fact-check that document.

Senator McALLISTER: Ms Mrakovcic, you confirmed earlier that it's Treasury's view that the tax system is gender neutral. Can I ask a slightly different question: is it Treasury's view that gender analysis is important when considering tax policy?

Ms Mrakovcic : Let me answer the question as best I can. I think that within the tax system, if a male and a female, a man and woman, are earning the same amount of income, then they face exactly the same tax consequences for that. The tax system itself does not deliver different outcomes for men and women. That is a completely separate issue to the question around the distribution of income and broader issues around what men may earn verses what females may earn. The point is that when you look at it through the prism of the tax system, if a male and a female are earning the same amount of income, they pay the same tax consequences. In that regard, we say that the tax system is gender neutral.

Senator McALLISTER: Okay. That's an explanation of your earlier answer. I am asking a different question, though, which is: is it Treasury's view that gender analysis is important when considering tax policy? I think—

Senator IAN MACDONALD: As you and anyone who's been around the Senate estimates committee for a long time knows, you do not ask public servants for a view or an opinion.

Senator McALLISTER: I am really asking about the operating—

Senator IAN MACDONALD: This is simply an opinion. This is an opinion not of an individual office; it's an opinion of Treasury. I'm not sure how Treasury has an opinion but it's asked of this officer and it's asking for an opinion and it is not allowed under Senate rules.

CHAIR: Senator Macdonald has made a point of order. Please rephrase the question, Senator McAllister.

Senator McALLISTER: Is it Treasury's practice to conduct gender analysis when considering tax policy?

Ms Mrakovcic : It depends on what you mean by 'tax policy'. For example, the tax system has a very wide range of tax expenditures associated with it. If the objective that a government were to set was to use the tax system to achieve particular gender outcomes then you may want to undertake gender analysis to assess whether or not your policy objectives were being achieved. It's a very broad question that you're asking. What I'm trying to say is that, in terms of the tax settings at the general level we're talking about, the tax system is not influencing the outcomes on the gender. It's not the operation of the different marginal tax rates or thresholds which are achieving different gender outcomes; that goes to underlying distribution of income issues. If the objective was set differently and with regard to making a specific issue then one might have a different conversation.

Senator McALLISTER: I think you're answering a different question to the one I asked, which was: is it Treasury's practice to undertake gender analysis when considering tax policy? I think you're sort of trying to explain the circumstances when you might and the circumstances when you wouldn't, but it doesn't really tell me what your practice to date has been.

Ms Mrakovcic : I think then the way I would answer is to say that we would not have that practice if there was no objective of gender behind the policy that was being proposed.

Senator McALLISTER: So have you done any gender analysis around any of the personal income tax policies that have been developed in the last two years?

Ms Mrakovcic : Not to my knowledge.

CHAIR: I would like to ask questions about the instant asset write-off, please. The government has accelerated tax cuts and has included in the budget an expansion of the instant asset write-off program to $30,000 for businesses with turnover below $50 million rather than $10 million. How many businesses have previously used the $20,000 instant asset write-off?

Mr Hirschhorn : If I talk to you about the 2016-17 numbers, there were 362,000 claimants of the instant asset write-off, as per their tax returns.

CHAIR: How many businesses are eligible under the new measure?

Mr Hirschhorn : I would not have the exact number with me, but we estimate about three million businesses are entitled to claim.

CHAIR: So what proportion of businesses, approximately, as a thumbnail, that were entitled to claim did claim under the old system?

Mr Hirschhorn : In a rough sense, it's somewhere between 10 and 15 per cent of businesses in any one given year have been—I might answer more precisely—disclosing in their tax return that they have claimed the instant asset write-off. It may well be that other companies have claimed it but have disclosed it as a general deduction rather than specifically as an instant asset write-off.

CHAIR: The old cap was $10 million turnover. How many businesses did that include?

Mr Hirschhorn : The three million was in relation to the old cap. Unfortunately, I would have to take on notice how many additional companies are included in the new cap.

Mr Brine : I think it's about another 20,000 that get brought in. It's 22,000 that are brought in under the extended cap.

CHAIR: Did you say '22,000' businesses?

Mr Brine : Yes.

CHAIR: Do you know how many people those businesses employ?

Mr Brine : I don't have that figure to hand, I'm afraid.

CHAIR: So if you were a small company, a little local supermarket, and you made a taxable profit of $100,000 a year, how much would it reduce your tax bill in the next two financial years if you used this instant asset write-off? It would depend on how many items you purchased and wrote off, wouldn't it?

Mr Brine : That is correct. As Mr Hirschhorn said, it's difficult to be 100 per cent accurate because sometimes they use the general deduction label, but, of those using the instant asset write-off label, it's an average claim of about $11,000.

Senator IAN MACDONALD: For some clarification on this whole issue, the original instant tax write-off was for a limited period of time, wasn't it? Is this new arrangement limited by time? If so, what sort of time?

Mr Brine : It is still limited by time.

Ms Purvis-Smith : The new arrangements are as from budget night out until 30 June 2020.

Senator IAN MACDONALD: Not 2030?

Ms Purvis-Smith : No, 2020.

CHAIR: I will leave it there.

Senator SPENDER: Just going off the question before about gender analysis of tax matters, I'm assuming you would potentially be able to do so because, for income tax, you know about males and females. But you couldn't really do it with indirect tax because you don't know about male and female drinkers, smokers and drivers. Is that fair?

Mr Brine : Yes, that is correct.

CHAIR: I was looking forward to the next one after that, Senator Spender.

Senator KETTER: Ms Mrakovcic, I will revisit the question I asked about the unconstrained tax to GDP. You were helpful enough to tell me what the figure was for 2029-30. If I take you to box 2 on page 3-14 of budget paper No. 1, which shows the difference between the tax to GDP ratio as per the 2019-20 budget, what would happen if tax receipts were unconstrained and there was no personal tax relief?

Ms Mrakovcic : Sorry, do you mean statement 3?

Senator KETTER: No, I am talking about budget paper No. 1, page 3-14, which shows the difference between tax to GDP ratio as per the 2019-20 budget and what would happen if tax receipts were unconstrained and there was no personal tax relief. Firstly, the scenario under which there is no personal tax relief, is that the position of any major political party, to your knowledge?

Ms Mrakovcic : Sorry, can you repeat that question?

Senator KETTER: Is the scenario under which there is no personal tax relief the position of any of the major political parties?

Ms Mrakovcic : I can't comment on it. I think the chart is just providing an analysis of where the government would say that tax receipts would be heading without their personal tax plan of last year or this year. That's all it purports to do.

Senator KETTER: Is the 2019-20 budget line based on constrained tax receipts?

Ms Mrakovcic : Yes. As I mentioned earlier, the 23.9 per cent tax cut comes into play in 2029-30.

Senator KETTER: Are you able to provide the data and figures for what it would be if there were unconstrained tax receipts?

Ms Mrakovcic : That's the answer we gave you earlier of 24 per cent of GDP.

Senator KETTER: Okay.

Mr Brine : I will add that the data underpinning this chart is available on the website. So, if it were the unconstrained percentages of GDP you were interested in, that data is available.

Senator KETTER: I now want to go to the R&D tax incentive and refer to Budget Paper No. 1, page 5-35, and table 14.1. It's the table that refers to the expenses on mining, manufacturing and construction for this year's budget. I will be referring to versions of that table from earlier budgets to put this year's budget in context. Firstly, can I confirm that the figure of $1,967 million is the estimate for the cost of the R&D tax incentive for 2018-19?

Mr Brine : Not quite. It's the estimate for the refundable component. So it's not the non-refundable component which is earned by companies over $20 million; it's just the refundable component. This is a little bit tricky. I should predicate this by saying this is a Department of Finance table. So they are the experts, but I can try to help a bit. This table is predicated on the economic transaction method. So what it's trying to show is the amount of refundable claims that relate to economic activity undertaken in the 2018-19 year. So it may be that the tax return is not put in until one, two or three years later. They then try to estimate, from those tax returns, how much of that economic activity relates to the 2018-19 year and then they forecast that forward.

Senator KETTER: If I refer to the equivalent table and figure from 2017-18 budget, it was $2.8 billion. Would you have those figures here?

Mr Brine : I do have the figures for the 2018-19 budget and the 2018-19 estimate for that same figure was $2,373 million, so that has gone down by $406 million since the 2018-19 budget.

Senator KETTER: So has the cost of the scheme fallen from 2017-18?

Mr Brine : That is correct. The estimate that is provided by Finance is lower. It's $400 million lower in the 2018-19 year. That's driven by two components. So $200 million of that is driven by observed outcomes or the claims that are coming in through the door to the ATO for the 2018-19 year. The other half of that is due to a technical accounting treatment of this ETM-type table. Since the 2018-19 budget, the ATO and Finance have become aware that their estimates for 2017-18 and 2016-17 were a little bit too high. Their estimate about what economic activity would be subject to the R&D refundable component in 2017-18 and 2016-17 was a bit high. The way these tables work is that that $200 million correction is fed into the 2018-19 table. So $200 million of the $400 million change is due to an accounting technicality, and $200 million is due to what we would call observed claims. The $200 million which is due to an accounting technicality affects that year only. The $200 million which relates to observed claims affects the base year and is carried on through the future years. The difference in the future years: it's $200 million in 2019-20, as you'd expect, and it then grows to $317 million and $397 million. That larger difference in those years is due to the company tax rate reduction commencing. You'll remember in the 2018-19 budget the government amended the refundable scheme so that the amount of the refund is tied to the company tax rate. As the company tax rate for small businesses goes down, the gross amount of payments that are picked up by these tables will go down.

Senator KETTER: When I looked at the 2016-17 figure, it was $2.8 billion. Is that your recollection?

Mr Brine : I'm not able to reconcile back to 2016-17, sorry. I could reconcile back to last budget, but that would be going back two budgets and I just don't have that paperwork in front of me.

Senator KETTER: Okay. Does the answer you've just given me give the full reason as to why the cost of this scheme has fallen?

Mr Brine : Compared to the 2018-19 budget. None of that is policy change. That's just those other factors I alluded to.

Senator KETTER: What about going back to the 2016-17 budget?

Mr Brine : There was a significant change to the R&D tax concession introduced in the 2018-19 budget, so part of that would be policy. I'd have to take that on notice to reconcile back to 2016-17. But policy changes would be the main driver there, I suspect.

Senator KETTER: If we look at the forecasts in table 14, we see that the expenditure forecast for 2018-19 was $3.2 billion, and this is the projection for the 2017-18 budget.

Mr Brine : Sorry, Senator; I'm not able to help with numbers from the 2017-18 budget, but I can take those on notice.

Senator KETTER: All right. My questions go to the fact that, three years ago, Treasury thought the government would be spending $3.2 billion in 2018-19, but now it turns out the cost is $1.9 billion.

Mr Brine : I'd need to take that on notice. That's going back a few budgets now. As I said before, there have been changes to the design of the policy, and that will explain some of that.

Senator KETTER: I can table an extract from the 2017-18 budget, the comparable table from that budget. It's got my squiggles on it, so excuse those. So I'm looking at table 14.1, and the figure for 2016-17 is the $2.8 billion that I was referring to. If you look at the 2018-19 figure—you might find it difficult to read, but that's actually the $3.2 billion projection for 2018-19.

Mr Brine : The figure I have here for the 2018-19 budget is $2.3 billion.

Senator KETTER: This figure comes from the 2017-18 budget.

Mr Brine : That's correct. That's correct. I just can't read—is that 3.2?

Senator KETTER: Yes, I apologise. That was a three.

Mr Brine : I'd have to take that on notice. There were policy changes announced in the 2018-19 budget, and this is a volatile revenue head, an area of the budget that sort of goes up and down a fair bit.

Senator KETTER: So, in last year's budget, which you have been referring to, the cost was $2.3 billion for 2018-19. That was down $400 million from last year's estimate.

Mr Brine : That's correct.

Senator KETTER: Now, that reduction is before the implementation of the measures announced in last year's budget; is that correct?

Mr Brine : No, that would be predicated on the government's announced policies. That assumes the government's—

Senator KETTER: The implementation—

Mr Brine : The implementation of the government's policies—that's right.

Senator KETTER: Okay.

CHAIR: Senator Ketter, your time expired some time ago. I'm conscious that we've got Senator Patrick, who's been waiting very patiently.

Senator KETTER: I'm happy to come back later.

CHAIR: Senator Patrick.

Senator PATRICK: I want to raise issues of public interest disclosure. I don't know who the best person to chat to is.

Ms Curtis : That would be me.

Senator PATRICK: Ms Curtis. Thank you. In the context of your policies—and I know the act is silent on this—if someone inside the department wishes to make a public interest disclosure, what are the mechanisms for them preparing a disclosure?

Ms Curtis : In the tax office, obviously we follow the guidelines that are produced by the Commonwealth Ombudsman and the advice that he has available, which is made available to our staff on the internet and by other communications. We take the whistleblower act, or Public Interest Disclosure Act, very, very seriously, so we want to make sure staff are informed about that. I can't go into the detail because I don't have the actual guidelines with me, but staff are encouraged to, and supported to, make disclosures if they feel that they have something to disclose that's in the public interest that constitutes serious misconduct or wrongdoing.

Senator PATRICK: Okay. So I'm an ATO staffer and I think my immediate supervisor's doing something wrong, and what I allege about that person is quite serious, but that supervisor, of course, has placed expectations upon me about my work and what I need to be able to complete on a daily basis, How is someone in that environment, working closely with that person, able to sit down and clearly articulate the issue that needs to be disclosed?

Ms Curtis : Normally, they would just raise their concerns via some sort of written disclosure, but equally—

Senator PATRICK: I'm going to how they get to write that down. There was a former ATO employee who was dismissed whilst engaged in disclosure activities—in fact, trying to assist the IGT—in relation to a PID that they made. I put it to you that it's very difficult if you want to make a disclosure about your area of work, which is what you're most likely going to make a disclosure about, in that environment, because to do so you have to, in a sense, use time that is supposed to be for doing work, and you are very likely to be in the presence of the very people whom you are making an allegation about. What do you put in place to make sure that someone is there? Is there some weekend spot they can come to? How do you manage that?

Ms Curtis : I'm not really clear on your question. There's nothing to stop an employee in their break, for example, writing whatever it is that they want put forward as a public interest disclosure or going home and doing that from home. But I don't know the specifics of the type of claim that you're discussing. However, I do think that the case you're referring to, which is in the public eye, is the case of—

Senator PATRICK: No, I'm not referring to any particular case at this point. There's a good reason for me not doing that.

Ms Curtis : Yes, that's where I was going. I can't comment on specific cases. I do have our general counsel here, Mr Todd, who is actually the person who really has the expertise on public interest disclosure, and he might be able to answer, or we may be able to take it on notice.

Senator PATRICK: Sure. That's great.

Mr Todd : I think you could do the work on the public interest disclosure in the workplace or at home, but you can only disclose what is reasonably necessary to make that disclosure. You can also seek advice from someone internally in the ATO—for instance, in ATO People if it's in your immediate management area—or you could seek advice from the Commonwealth Ombudsman's Office. You can also seek—

Senator PATRICK: Yes, but, at the end of the day, I'm trying to get down to the actual act of writing. You said you can do something at home. That might require you to, for example, take some documents home. Where this in some sense comes to is that the act is silent on where the protection starts, but one would reasonably presume that the protection starts from the moment you decide to make a disclosure and protects any act of which the dominant purpose is to bring the disclosure to the attention of the organisation. Would that be a reasonable proposition?

Mr Todd : I think the act protects you from the time you've made a disclosure, and in making a disclosure you've got to be cognisant of the requirements of the PID Act and other laws.

Senator PATRICK: So you think that is only at the point you make the disclosure? Obviously, you're an expert in this area.

Mr Todd : Once you've made a disclosure, the protections apply.

Senator PATRICK: But, if you're going to make a serious disclosure, you need to sit down and work through it properly. Some disclosures will require care and attention. For example, in the preparation for this particular discussion, I may have had many discussions with many different people, all protected by parliamentary privilege because it's a discussion that is incidental to the proceedings of the parliament. In legal matters, before you get to the court, there are protections offered in respect of legal professional privilege. They're common-law protections. In making a disclosure, it would be reasonable to say that, for someone who is preparing for a disclosure, acts that are done for the dominant purposes of making that disclosure would in some sense be protected.

Mr Todd : That would depend on the particular facts. It's hard to comment on intentionality.

Senator PATRICK: Actually, you need to spend time preparing a disclosure. That's clear.

Ms Curtis : I think these questions are best directed at the Commonwealth Ombudsman, who actually has—

Senator PATRICK: No, they go to your policies, actually. I'm trying to understand. If you have no understanding of these, it tells me the ATO hasn't thought this through.

Ms Curtis : I also think that this is getting a little bit close to the case of the—

Senator PATRICK: Respectfully, I am entitled to ask questions about the general manner in which you are giving effect to the Public Interest Disclosure Act. I haven't mentioned anyone or anyone's cases. These are very general questions, and just because there's a matter before the court doesn't mean the Senate can't ask questions about process inside the ATO. So I would appreciate an answer to my question.

Ms Curtis : They are specific questions which I would like to take on notice, because we would have to give that due consideration.

Senator PATRICK: All right. So it's clear to me you don't really have a policy about the acts conducted prior to making a disclosure.

Mr Todd : The act has requirements. We can give you detail on that.

Senator PATRICK: Sure, but the act's silent on that particular matter. I have had a look at it.

I might actually go to the specific matter now, the matter of Richard Boyle. I am aware that that matter is before the court, and I will not be dealing with any questions that that court will be asked about illegal conduct for Mr Boyle. I'm just trying to understand the processes that took place prior to charges being initiated, so I'm dealing with matters that are executive matters, not matters dealt with by the judiciary. Can you give me the date upon which the ATO started its investigation into Mr Boyle?

Ms Curtis : I have to be very careful now in what I can actually say, because there is a risk of prejudicing the trial.

Senator PATRICK: If there's a risk, you can state what you think that risk is and what the harm would be, and the committee can make a decision in respect of that. But, to give you an example, the Attorney-General has provided all the dates related to witness K. The CDPP provided all of the dates. They're not matters that are at question before a court.

Ms Curtis : I can provide the dates.

Mr Todd : I think the date was in February 2018. I don't think I have the precise date.

Senator PATRICK: That's when the ATO commenced its investigation?

Mr Todd : The investigation of the criminal offences?

Senator PATRICK: Yes. So, you needed to conduct an investigation to prepare a brief for the CDPP?

Mr Todd : Yes. And there was a warrant executed with the AFP's assistance.

Senator PATRICK: Sure, but that's some time after February, one presumes?

Mr Todd : That's 4 April 2018.

Senator PATRICK: That was when the raid occurred—4 April?

Mr Todd : The warrant was executed, yes.

Senator PATRICK: Sorry, the warrant. I apologise. In some sense, this is unusual in the context that the ATO has investigative powers and normally, as a matter of course, would use its investigative powers, presumably, against taxpayers who are in breach of the law.

Mr Todd : We didn't use ATO investigative powers for this. The AFP executed the warrant.

Senator PATRICK: I had a conversation with Commissioner Colvin yesterday. He made it very clear to me that they did not prepare a brief and they did not conduct an investigation—

Mr Todd : You were talking about the warrant though.

Senator PATRICK: No, I'm talking about the investigation. They did assist you with the warrant, because you don't have powers in respect of the ability to execute a warrant with a side-arm, for example.

Mr Todd : Yes, that's right.

Senator PATRICK: I'm talking about the investigation. It must have been initiated. What I think is unusual in this case—I just want to get a feel for how you typically deal with this—is that, if I want to raise a matter, or a normal department wants to raise a matter with the AFP, the AFP have a prosecution guideline, which is a series of steps they go through where they independently assess whether or not they wish to proceed with the investigation. I want to know what happened in this particular instance, because, in some sense, there's no independence. Someone has decided to conduct an investigation. Normally, if you'd done that with the AFP they would have looked through their prosecution guidelines and come up with a decision about whether or not to prosecute. How does that work in the context of the ATO trying to investigate an internal matter?

Mr Todd : We investigate the matter. The AFP assisted us with the execution of the warrant, and then we handed the investigation over to the—

Senator PATRICK: No, I'm talking about the start of the investigative process. The AFP, when it conducts an investigation, goes through a process to decide whether to proceed with an investigation.

Mr Todd : Our internal FPII people would have similar access to similar guidelines and advice, so—

Senator PATRICK: Can you provide to the committee those guidelines for your own internal decisions about how you initiate an investigation.

Mr Todd : Yes.

Senator PATRICK: I might go now to the disclosure that Mr Boyle made—once again, these are not matters before the court; this is really to do with him having made the disclosure. He made a disclosure on 12 October 2017—that's my understanding. Can someone let me know: was that disclosure accepted or rejected? There are obviously many outcomes. You can just say: it's not disclosable conduct; it is disclosable conduct, but we didn't find that there's any issue; or it is disclosable conduct and we did find there was an issue.

Mr Todd : Well, I think this does go to matters that may be in a jury trial, so I don't think we want to answer that.

Senator PATRICK: Sorry? There's a question in the court as to whether he lodged a PID?

Mr Todd : It's on the public record that he lodged a PID.

Senator PATRICK: I'm looking at executive actions here, not questions as to his criminality and things that he may have done. I'm looking at what the department has done in complying with law. I'm simply asking: was the disclosure that was made dismissed, did someone just ignore it, or did it progress to a point where someone made a decision that it was or wasn't disclosable conduct?

Mr Todd : The processes required under the PID Act were followed.

Senator PATRICK: So, my question is, very specifically: what was the outcome? Was it determined that this was a public interest disclosure? Or was it not?

CHAIR: We might make this the last question.

Senator PATRICK: All right. I will come back to it. Thank you.

Mr Todd : It was determined it was not a public interest disclosure.

Senator PATRICK: It was not a public interest disclosure. So, it didn't meet the disclosable conduct in accordance with the act?

Mr Todd : No. That's right.

Senator PATRICK: He certainly raised issues of unethical conduct, breaches of the Public Service Code of Conduct, and they fit within the meaning of 'disclosable conduct'.

Ms Curtis : Senator Patrick, we can't comment on the contents of the PID itself. You know that.

Senator PATRICK: Actually, I'm not going to take a response like that. Just so you're very clear, the Senate has enormous powers with respect to its inquiries. If you think that you can't answer a question, you are welcome to turn to the minister and ask to raise a public interest immunity—okay? That's the way it works.

Mr Todd : We've been trying to answer the questions we can.

Senator PATRICK: Sure, and I appreciate that, but I'm not accepting a blanket, 'I'm sorry, we can't talk about that,' because you can.

Ms Curtis : He did answer the question.

CHAIR: Senator Patrick, I'm happy to come back to you.

Senator PATRICK: Thank you.

Senator Seselja: Just to be clear, officials are being as helpful as they possibly can, but it is challenging when there are court processes. You're right: it's not a blanket ban. No-one's suggesting that. I think the officials are rightly being cautious in their answers.

Ms Curtis : Senator, I wasn't trying to say we wouldn't answer your question; I was trying to say that we can't comment on what was in the public interest disclosure. What we can say—

Senator PATRICK: Because?

M s Curtis : Because the public interest disclosure is protected information. What we can say—

Senator PATRICK: We've been through this with the tax office before. Protected information does not apply in this forum.

Mr Todd : We're not talking about tax-protected information.

Senator PATRICK: No. The law is very clear in this country. Unless an act of parliament prohibits the disclosure to either house of the parliament, you cannot claim that it's protected, it is secret, it's covered by privacy laws.

Senator Seselja: Senator Patrick, just to counter that for a moment, as you know, there is a range of conventions in this place and the Senate rarely uses all of its legal ability, for good reason and that includes when there are court processes. That's why we have conventions, such as sub judice conventions, and so we seek to balance those concerns.

Senator PATRICK: I'm happy to follow that.

Senator Seselja: It's not as clear-cut as you always being able to demand an answer on everything, because the Senate also expresses a view, as do committees. I think you're trying to paint a picture which is a little more black and white than, in fact, how things operate. There is a series of conventions and the Senate effectively self-restrains itself in the public interest from pursuing every question that it could and having every matter in the public domain.

Senator PATRICK: I have the resolution here on how this is supposed to be handled. I will go back to the Chair.

CHAIR: Thank you, Senator Patrick. Senator Ketter.

Senator KETTER: I want to return to the tax incentive. You've previously said the 2018-19 measures have been factored into the projections for the cost of this particular measure. Is that correct? I see you nodding.

Mr Brine : In the budget.

Senator KETTER: This committee provided unanimous advice to the government with respect to what is called the intensity threshold, which you'd be aware of, Mr Brine. Do you know whether the government has accepted that advice?

Ms Purvis-Smith : Senator, the government's not made any further decisions on the R&D tax incentive as yet. So the policy that the committee inquired into is as it stands.

Senator KETTER: Can you tell me whether the government is considering the intensity threshold measure?

Ms Purvis-Smith : I can't tell you a level of detail. I know that the intensity threshold was one of the issues that the committee asked to be looked at. We are looking at the report and the government will consider its position. But it has not changed its decision on the R&D tax incentive.

Senator KETTER: So it's an open question as to whether the government will proceed to implement those measures from the 2018-19—

Ms Purvis-Smith : Sorry—in terms of the legislation that's currently before parliament?

Senator KETTER: Yes.

Ms Purvis-Smith : There has to be a government decision to change anything to do with their current policy. There has not been any further government decision to change what's before parliament.

Senator KETTER: So we've got the saves from that particular intensity measure and they have been included in the budget, but we haven't got a decision yet as to whether the government will be proceeding with that?

Ms Mrakovcic : I think the issue is that until the government changes a decision, and they have given no indication at this point of any intention to change the decision, the budget documents reflect the decisions that have been taken by government. As you will recall, that decision was taken at the time of last year's budget and it was incorporated into the estimates, and that remains the position.

Mr Brine : I will add one further clarification. The intensity threshold affects the non-refundable component of the scheme. I think the table we're looking at is the expense side, the refundable component. So that one aspect, the intensity threshold, isn't really relevant for this table, but there are other measures in that package that would affect the refunds.

Senator KETTER: Alright. Is the save from the 4 million cap on the refundable part of the incentive incorporated in these estimates of expenditure on the scheme?

Mr Brine : All the government's policies would be included.

Senator KETTER: I think that some stakeholders think the government might be reconsidering its position on some of these measures from 2018-19. Are these stakeholders not correct?

Ms Purvis-Smith : To make a change there would need to be a government decision that is a different government decision, and there is no different government decision that's different to what's in parliament at the moment.

Senator KETTER: Can you tell me whether there's any chance we'll get clarity on the government's position before the election?

Ms Purvis-Smith : I think that would be a matter for government.

Senator KETTER: Minster, are you able to—

Senator Seselja: I've got nothing to add to what the officials have said.

Senator KETTER: Mr Brine, can you remind me what was the value of the save that was arising from the measures proposed in last year's budget?

Mr Brine : The estimated net impact of the changes announced at the 2018-19 budget over the four years to 2021-22 in underlying cash balance terms were $44 million in 2018-19, $581 million in 2019-20, $693 million in 2020-21 and $648 million in 2021-22.

Senator KETTER: Is that adding up to about $2.4 billion?

Mr Brine : The 2.4 is adding a different set of numbers. That is adding the fiscal estimates. That's slightly higher. The numbers I read out were the underlying cash. The fiscal figures would be 314 in 2018-19, 641 in 2019-20, 763 in 2020-21 and 718 in 2021-22. The fiscal numbers there are a little bit higher, because they reflect the timing at which the liability is raised and generally the cash amounts trail that.

Senator KETTER: So this reduced business expenditure on R&D is making a contribution to the so-called government surplus? Is that correct?

Mr Brine : Those figures would all make a contribution to the surplus, that's correct.

Senator KETTER: What's the ATO advice to companies who are thinking about research and development and what they might or might not be able to claim? Is anyone able to assist with that?

Mr Hirschhorn : In conjunction with AusIndustry, who have responsibility for eligibility criteria, we provide a range of guidance material based on particular industries to help people make good applications for registration and high-quality claims in their tax return.

Senator KETTER: We have got a unanimous committee recommendation that there are some aspects of this measure from last year that need to be looked at. Can you understand why industry might be concerned about not knowing what the government's position is on this matter?

Mr Hirschhorn : I will make two comments. One is that I don't think I'm in a position to speculate as to what industry is thinking. The second is that I administer law as it is, so I leave questions of policy to my Treasury colleagues.

Senator KETTER: Mr Brine, are you in a position to tell us whether you're experiencing some of the concern that industry has in relation to the uncertainty around this area?

Mr Brine : This is probably more a question for Ms Purvis-Smith.

Ms Purvis-Smith : I would have to take that on notice. We did a lot of consultation and we were aware of industry's concerns and we were looking at the report. I'm not sure as to whether we were getting, more recently, further industry representations or concerns. I would have to take that on notice—and I can.

Senator KETTER: You're under no illusions as to what the majority of the sector is concerned about?

Ms Purvis-Smith : We undertook consultations and we're aware of the industry's views.

Senator KETTER: I understand the PBO has released an advice on the budget impact of unlegislated measures that reduced the value of the proposed save that we're talking about here to $1.6 billion. Are you aware of that?

Mr Brine : I am aware of the paper; I'm not aware of that figure.

Senator KETTER: You're not aware of the figure?

Mr Brine : No, sorry.

Senator KETTER: So you couldn't tell me whether or not you agree with the PBO's estimate?

Mr Brine : No, I wouldn't know how they'd approach that. Our general approach in the budget papers is that, if it's possible for the government to enact the legislation, to meet the commencement date that the government's announced, then we wouldn't make an estimates variation; we would leave the policy intent as announced by the government. And our assessment is there's still sufficient time for the government to legislate this measure for a 2018-19 commencement. Given that companies have 10 months following the end of the income year to register for R&D with AusIndustry, that gives them till March 2020.

Senator KETTER: Can you tell me why the PBO might come up with a lower estimate?

Mr Brine : You'd have to ask the PBO, I'm sorry.

Senator KETTER: In last year's budget, in the footnote to table 14.1, Treasury indicated that the expenses of the R&D scheme would increase by 5½ per cent from 2018-19 to 2021-22 because of 'changes in the number and size of expected claims from eligible companies with an annual turnover of less than $20 million'. But this year's budget paper says that the expenses are expected to increase by only 0.4 per cent from 2019-20 to 2022-23. Can you tell me why there is this revision down from 5½ per cent to 0.4 per cent?

Ms Purvis-Smith : This is a Finance table, so with that text we'd need to get some advice from the finance department.

CHAIR: To follow up the R&D questions, there are a number of senators at the hearing today that were on that committee, but there are some that weren't. I wonder whether you could explain to the committee why there are concerns about the integrity measures around the R&D tax incentive.

Ms Purvis-Smith : The government's decisions in relation to the R&D tax incentive came about over a number of years and started in what's colloquially termed the 'three Fs' review, from Messrs Fraser, Finkel and Ferris. They looked at the incentive and came to the conclusion that it wasn't meeting its objective, in particular in relation to incentivising spillover effects and additionality, and in particular additional R&D that wouldn't otherwise have taken place in the absence of the R&D incentive. They undertook quite a lot of consultation, including with not only direct industries and direct companies but also advisers and practitioners who were advising the companies in relation to the R&D tax incentive, and found that it was being used, almost in retrospect, to find things that would be calculated and comprised of R&D but would have been—

CHAIR: Which is why the cost had blown out.

Ms Purvis-Smith : That's right. So the cost had been increasing over many years for that. So the government's responses weren't directly in line with the three Fs review. The three Fs review recommended some quite stringent, you could say, policy recommendations, including a $2 million cap on the refundable part of the R&D incentive. So there was further consultation undertaken, including with the innovation and science review—I think I have the name wrong, I apologise. That came up with some alternate recommendations and the government eventually decided upon some recommendations that still gave an incentive but tightened the incentive up so it was trying to get at the additional R&D that wouldn't have otherwise taken place in the absence of the incentive.

CHAIR: My understanding in that inquiry was that, while business wanted certainty and they wanted the government to act as quickly as possible, the last thing they wanted was the wrong policy implemented or a policy that had unintended consequences. That committee reported only last month?

Ms Purvis-Smith : I think it might have been a month-and-a-half ago, so it wasn't very long ago.

CHAIR: So the time for the government to respond appropriately is a little limited but you would expect government would respond in as timely a manner as possible. I just want to ask some questions about multinational tax avoidance, which we normally would direct to the commissioner because he loves to talk about it. I specifically want to ask about the result that the ATO has seen since the implementation of the multinational anti-avoidance laws and the diverted profits tax.

Ms Curtis : You're quite correct. If he were here, he would definitely like to take that question. Given he's not here, we will give it to Mr Hirschhorn.

CHAIR: Mr Hirschhorn knows almost as much.

Mr Hirschhorn : Perhaps even more, Senator. I will approach this in two parts. The multinational anti-avoidance law is a law that is really directed at business models where people had a selling presence in Australia but billed from overseas. So you thought that you were buying a service and dealing with a salesperson in Australia, but, when you finally got the bill, it came from Ireland or somewhere else. The multinational anti-avoidance law said that, where that was a deliberate structure to avoid having a taxable presence in Australia, it would apply to strike out those schemes. The great news about the multinational anti-avoidance law is that 44 companies have restructured or are in the course of restructuring their operations to move to a model where they actually bill from Australia and recognise a taxable presence in Australia. That has brought about $7 billion of sales per annum onshore—so billed by the Australian company instead of being billed from Ireland, say, or somewhere else—with the consequential increases to tax. Obviously, those companies are allowed reasonable expenses against that $7 billion, but that is leading to significant increases in income tax and also in conjunction with some of the GST measures—some significant increases in GST collections.

CHAIR: What does that translate to in terms of revenue raised or forecast?

Mr Hirschhorn : If possible, I might come back with the numbers.


Mr Hirschhorn : The multinational anti-avoidance law operated as all good anti-avoidance laws should, in that it encouraged companies to come into the fold and proactively address their affairs. That was very significant and it helped us address back years for those companies where we were already in dispute over whether that model was effective. The order of magnitude of liabilities we raised across e-commerce companies in that sort of model was in the order of $1 billion in back-year liabilities as well as the continuing stream of increased future tax.

So it was a fantastic success, and most of the major internet and e-commerce companies have made public disclosures of various sorts that demonstrate their tax has gone up very significantly. If you look at the most recent corporate tax transparency report, you will see that the sales acknowledged by those groups have come up dramatically, with the small proviso that the data is a couple of years old, so you see a couple of the companies mid-course in changing from their old to the new model.

The diverted profits tax, which was more recently introduced, only applies for years of income start after 1 July 2017. It relates to more specific forms of manipulation of the international tax system, usually involving a combination of anti-avoidance or avoidance and transfer mispricing. The first returns that could possibly be subject to the diverted profits tax were lodged in January this year. Again, I would say the effect of that provision has been to encourage people to come to us to talk about their business models. I would say that we have a handful of companies where the application of the diverted profits tax is in contemplation. But the first returns that were potentially subject to the diverted profits tax were only lodged in January this year.

CHAIR: Can I ask about the introduction of country-by-country reporting and how that is manifesting. That is part of the tax avoidance taskforce?

Mr Hirschhorn : There are two forms of reporting that are new as part of the government's base erosion of profit-shifting suite of measures. One is called the common reporting standard, and that is the sharing of bank information in relation to Australians who hold bank accounts offshore and vice versa. Country-by-country reporting is a measure that applies more to multinationals, and that is that these companies are required to produce reports and a tiering of reports will provide additional information in relation to their international operations, where they're booking profit and where they're paying tax. It's a multilateral measure. It is starting to bear fruit. I think we have received about 4,000 country-by-country reports so far. So that measure is coming in and we are getting very useful information from those reports.

CHAIR: The anti-avoidance task force, just for my benefit, how many people work in the anti-avoidance task force, or it is something spread about the organisation? Are they just specifically looking at multinationals or are they looking at domestically domiciled organisations and individuals as well?

Mr Hirschhorn : With your indulgence, I might go a little bit into the history of the task force. In 2016-17 the government launched the tax avoidance task force in its current form. That rolled up a few previous task forces and also gave a significant extension—in the order of, I think, 300 to 400 people focused on public groups and multinationals, so both foreign multinationals and large domestic companies. That suite straddles not only public businesses and multinationals but also large private groups and high net-wealth individuals. So the task force has a broader remit than just internationals, although the expansion element was really focused on public groups and multinationals.

To put rough numbers on it, public groups and internationals focuses on—as the name would imply—public groups and multinational companies, and it has about 1,400 people, of whom about half are funded by the task force. Private groups and high net-worth individuals, which we now have a slightly different title for, has about 2,000 people, of whom off-hand I think about 500 are funded through the task force. That might be an understatement, and I'll take that on notice. In the budget the government announced a further extension of the task force. The task force was scheduled to come to an end on 30 June 2020. The government has moved quicker than that and has announced an extension of the task force for another three years after the previous end. That is not only an extension but also an expansion—again, a significant expansion—to focus on the largest private groups and high-net-wealth individuals.

CHAIR: I'm sorry; I could go on about this all day, but I am conscious of time. We did agree to break at a quarter past four, but I think there may be more questions for Revenue from Senator Ketter and Senator Keneally, so I'm afraid we're going to have you back after the break.

Proceedings suspended from 16:15 to 16:30

CHAIR: The committee will now resume with questions from Senator Ketter for the Department of the Treasury Revenue Group and the Australian Taxation office.

Senator KETTER: I have one further question to Mr Brine on the R&D tax incentive, and then I have some questions for Mr O'Halloran on another matter. You've mentioned that that table that we were referring to—table 14.1 is a Department of Finance table, but what's the expectation from Treasury about the number of firms that will access the R&D tax incentive scheme in the future? Are you expecting a reduction in the number of firms accessing the scheme?

Mr Brine : I don't have those figures to hand; sorry. I'll have to take on notice the projections for the number of firms.

Senator KETTER: Okay. I'll go to Mr O'Halloran. These are follow-up questions to an ATO response to question on notice AET45. I have the ATO response. These questions go to the issue of multiple accounts in superannuation. We know that the Productivity Commission has looked at this issue and has found that this is a structural flaw in our system. For an individual member holding just one unintended multiple account through their working life, the projected reduction in their balance at retirement is six per cent, or $51,000, so this is a serious issue. I appreciate you had limited time to answer questions from the last round of estimates, but can the ATO revisit the questions that I asked and supply answers to those questions? I note that many of the responses were that the preparation of a response to this question would cause an unreasonable diversion of the ATO's resources, which I frankly am a little bit surprised about given the level of technology that we've got and the amount of reporting that's going on. Perhaps you could explain, Mr O'Halloran, that response.

Mr O'Halloran : I have in front of me the question that you refer to, AET45. Thank you for the question. The short answer is that what we've put there is in fact correct from the point of view of the time and availability between the question and the nature of the information. I think the short answer I'd give is that, when you look at the increased focus since the Productivity Commission report, a lot of the information that you've asked previously has been less significant for the ATO in its role, and a lot of our systems of monitoring are predominantly built around reuniting of superannuation and the like. A lot of the quotes that you've highlighted are obviously in relation to the growth or otherwise of funds, which is not necessarily a matter of accounts, over the life of a superannuant. That's not necessarily an issue for the ATO up until recently and still would not be a matter for the commissioner. The 16 months and so forth that is referenced in terms of the recent Protecting Your Super package and certainly some of the data in relation to characterisation—

Senator KETTER: Could we go to the multiple accounts issue? If you're saying to me the ATO's not overly interested in that particular problem—

Mr O'Halloran : No, that's not quite right. I apologise if that's the impression you've got. Certainly we've been for nearly five years publishing the nature of APRA fund account members and the incidence of multiple accounts. There's been a reduction over that period predominantly through and partially because of the ATO's investment in seeking and encouraging people, particularly through tax time and myGov, to consolidate accounts. I won't go over that material unless you want me to, but certainly I think that's been mentioned here before.

In relation to some of the stratification as well as some of the breakdown there, I can reiterate that it's not a disinterest; it's just that a lot of our systems really are built around that very objective: facilitating through ATO services or, conversely, providing significant amounts of more-up-to-date information to funds to allow them to, in fact, reunite members with their superannuation. So certainly the whole objective was seeking to encourage consolidation as well as our own campaigns in terms of lost and unclaimed superannuation.

To answer your question, I will take that away and do our best endeavours in light of your question to the ATO today. If we are unable to supply it, I'll certainly, through process or otherwise, give you a time frame for when and if it can be done.

Senator KETTER: I appreciate that.

Mr Hirschhorn : If I might add quickly to Mr O'Halloran's comments to emphasise how seriously we take this: over the past five financial years, about 2.2 million accounts, worth $11.3 billion, have been consolidated or transferred using the ATO online service. That's a very significant reduction and bringing together of superannuation moneys.

Senator KETTER: Perhaps you might elaborate a bit more on that, because I'm interested in what detailed work the ATO has done on the issue of multiple super accounts. In particular, have you completed any internal reports on multiple accounts?

Mr O'Halloran : I'm not sure what you mean by internal reports about multiple accounts. Certainly the analysis has always been to do things like matching the incidence of myGov to reunite people with their superannuation, as I say, enhancing the services. Clearly, since the discussion and the government policy as well as other things over the last few years, without stepping in to give people financial advice, we see the importance of encouraging people to consolidate accounts. We have campaigns with the Indigenous community which I'm happy to unpack if you'd like, but we also have campaigns twice a year in terms of postcode distribution, and a range of information is available there. Of course, we also, particularly since the recent introduction of the APRA fund reporting whereby the visibility of information is now progressively and, in fact, at-will shared with superannuation funds through some improved digital services—if you want the name, it's called the POD process, as you'd appreciate—give funds at-will information that we have that might be a better source of information to allow them to relocate or reunite their members with their account balances or, conversely, to encourage them to consolidate.

Under Single-Touch Payroll there is in fact a process which is called the employee commencement service, which, again, is the beginning of a service to display to employees the active accounts that they have, whether they be default funds or otherwise, and the balances to allow them to make informed choices in terms of their preferences, particularly when they change roles.

Finally, there are the recent improvements to myGov for individuals to be able to see their superannuation account information through a recent 100 million transaction onboarding process which now makes it visible, including for tax agents since 1 April, to see their client's superannuation accounts as well as to see the contributions that have been made to their accounts, all of which are about making members or individuals better informed.

Senator KETTER: But, if we're serious about the issue of inactive multiple accounts, surely there is a public interest purpose in identifying some of the issues that have been set out in those questions—the number of inactive multiple accounts in various sectors that we talked about in question 1(c), the stratified figures that are set out in question 2. Are you saying that you don't think that they're useful datasets for looking at ways of mitigating this particular problem?

Mr O'Halloran : No; they're just not datasets that are readily available in the middle of the reforms that are currently live, including the importance of protecting your superannuation measures—including the somewhat pleasing challenge, if I may say, of reuniting individuals with some $6 million. In terms of that exercise, which will bring into the ATO visibility accounts that have less than $6,000 and have been inactive for up to 16 months: that onboarding exercise alone will in fact reunite some 300,000 people with accounts that they were perhaps paying too many or unnecessary fees on. That's a major reform. Given that the parliament has given to the ATO the dual obligation to reunite people with their accounts as best as it can within 28 days of receiving that foundation data, that was a key point in some of the prioritisation. I'm not sure I've said that we're not interested. The questions you asked, and the question on notice on where we have it available—we have answered them as best we can. It's not a disinterest; it's purely some of the issues I've made in terms of the diversion of resources.

Senator KETTER: If you're going to look at this issue seriously, surely you want to examine what is the state of play out there? I come back to my question about whether you've done any internal reports that look at the nature of this issue, which might inform future campaigns to address the issue.

Mr O'Halloran : Perhaps I am misunderstanding your question. Certainly, we are constantly looking at ways in which we can reunite people with their superannuation or inform people of multiple accounts. Ultimately, under most of the current legislative parameters, perhaps up until the 'protecting your super' bill, people are perhaps entitled to or view that they want multiple accounts for different reasons. I'm not sure we're not taking these things seriously. I think our track record on working with funds, working with individuals and working with campaigns to bring it to people's attention, as well as to encourage reuniting or merging of funds, has been a priority for some time.

Senator KETTER: Just to clarify what I mean by 'reports': I'm talking about any sorts of internal written reports that are systemic, that are internal analysis and that are assessment on the scale of the issue and the strategies to address it.

Mr O'Halloran : On multiple accounts?

Senator KETTER: On the issue of multiple accounts.

Mr O'Halloran : Since this was responded to, certainly on the completion as of the last week or so, the major onboarding that I mentioned in terms of information on accounts—both balances and member information, which previously we would get in a 12-month annual cycle; some 30 million reports—is now completed for all APRA funds. That is a wealth of information that we are now mining for some of these things. We haven't reached a point of doing that as yet, as we've only completed all of the funds in the last couple of weeks. If your question is also—and I'm happy to take it on notice—about what sort of analysis we have done on the characteristics of people who hold multiple accounts, whether it be gender or whether it be distribution: we publish a lot of that information anyway, from memory, on I'm happy to take that on notice. We constantly look for opportunities to identify people who hold multiple accounts, and, where we can, draw that to their attention.

If I could comment: even in the last two years, since we've all been on perhaps a bit of a superannuation journey across a range of forums, one of the key mechanisms, which I think was universally agreed, was the importance of getting visibility on two things. One was the system in operation; that is, whether you be a fund member or whether you be an employer, could you in fact see, and where would you go to see, your total superannuation portfolio? Up until these recent events, funds themselves had no visibility of other fund members' accounts that were held by another major fund. So we are now becoming a central point where we are making available to individuals their total multiple portfolios, for the 40 per cent of APRA fund members who have multiple accounts.

Senator KETTER: Mr O'Halloran, with respect, from your answers I'm getting the impression that you haven't done any analysis of the scale of the problem to the detail that I've set out in my questions.

Mr O'Halloran : I think I said I'd take on notice the question you asked me in reference to internal reports. Obviously, without trying to answer the question, without exactly doing what you've asked me to do, I'm certainly not trying to avoid that issue at all in terms of the types of analysis. Can I sit here and specify whether it exactly matches your questions? No.

Mr Hirschhorn : If I can add to Mr O'Halloran's comments: we have a sense of the scale of the problem, which is that at 30 June 2017, based on fund reporting, we identified over six million individuals with multiple accounts. The combined value of those accounts was $735 billion—so we know it's a big problem. Mr O'Halloran has, I think, sold short some of the work that has been done. This is a breaking story—the onboarding of 120 million records from APRA funds and making them available both to the funds and individuals. Any individual can now go on myGov, go to the tax site, and see their superannuation balances. On a different thing that I know you're very interested in, Senator Ketter, which is the superannuation guarantee: they can see that their employer is paying super on their behalf. This is a breaking story, and I'm sure we will go away—and we understand your interest. This new information gives us more information than we have ever had before. We will see what we can do, but I can assure you that this is a very, very positive and fast-moving area where Mr O'Halloran and his team, in conjunction with Mr Katf and his computer team, have done an extraordinary job on behalf of the superannuation holders of Australia. It's an extraordinary story.

Senator KETTER: I just have a couple more questions, if I can finish those?

CHAIR: I'm happy for you to do that. Then we will go to Senator Patrick, and then we can let these guys go home.

Senator KETTER: Can you tell me what quantum of multiple accounts are unavoidable? You might have a situation where workers have the old defined benefit schemes. There are public servants out there, people in transition to retirement—so these are unavoidable multiple accounts. Do you have a handle on—

Mr O'Halloran : Not that I would be comfortable commenting on, to be quite candid. It would be pure speculation. I don't think I'd be comfortable giving a response to that.

Senator KETTER: Is that something you could take on notice?

Mr O'Halloran : Yes.

CHAIR: May I clarify that. I don't know whether 'unavoidable' is the right expression, but there are some multiple accounts that are there by choice, aren't there?

Mr O'Halloran : Yes.

CHAIR: I have two; I have a retail fund and an industry fund so that I can compare the pair and keep them honest. How do you distinguish whether they are there by choice or whether they are there accidentally?

Mr O'Halloran : I can't control who holds accounts and on what basis they decide to hold them, whether it be people who have an SMSF—some people have multiple accounts there—or whether it be an APRA fund member. I wasn't going to comment on this, but you're quite right; we can draw people's attention to the fact that they have multiple accounts. Following Mr Hirschhorn's comments: we are not here to control the decisions that people might make for a particular reason. There is enough evidence in the superannuation industry to highlight that the interest in accounts and the number of accounts—particularly if you have your own children, hypothetically—vary as people get older. They are also subject to some decisions which aren't necessarily about an investment choice or logic.

Conscious of the importance of this question: some of the things are choice because of the nature of the different investment choices that people make. Some of them clearly are interest in superannuation. The nature of having a defined benefit fund has some different life choices, if I can put it that way. Also, advisers play a part in these things as to what might be some of the choices at different stages of life or, perhaps, the employment that people choose to take or leave particular accounts. There has been an eight per cent drop, from memory, of people who have multiple accounts. We're happy to bring some of that, as well as some statistical analysis. My caution is probably that we are not the custodian police of the choices that people make, but I do accept that anything we can do to bring light to your questions we will do. Ultimately, fund members and individuals make choices.

CHAIR: I should clarify: some of the unavoidable multiple accounts are because people are on EBAs, which means that they have to default to a particular account.

Mr O'Halloran : Yes, that's right. Some are the nature of—

CHAIR: Our industrial relations system, which is what the Productivity Commission has said we should consider.

Mr O'Halloran : Or the employment relationships et cetera and some other issues in terms of awards and the like.

Senator KETTER: We know that not all multiple accounts are inactive, because the chair has just confessed to having two funds.

Senator KENEALLY: Which she declared, to be fair.

Senator KETTER: Would there be members who might be making active contributions to more than one account? Do you have a handle on that?

Mr O'Halloran : The short answer is that I think that would be the case if I could answer some of these questions, perhaps I would have answered these. Intuitively, that would be right, but obviously I will go away, and I'm happy to explore that to see at least what the trend is or the incidence where we can determine that.

Senator SPENDER: Do you contribute to both of yours?

CHAIR: I do, but only so that they're not inactive, because I know that the plan is that protecting your super package will help you identify inactive accounts so that you can combine those inactive accounts. I make sure both of mine are active for that very reason.

Senator KETTER: Mr O'Halloran, do you have any estimate of the number of multiple accounts established for insurance purposes?

Mr O'Halloran : No.

Senator KETTER: There's no point in your taking that one on notice?

Mr O'Halloran : Obviously I'll take it if you ask me, but, sitting here, I can't reconcile how we would even determine that. Clearly, with the protecting your super measure there is a lot of analysis that is happening within the funds themselves in terms of the low-value amounts. We have met with them something like 12 times to work through some of these things now that the legislation has passed. Obviously there's a whole range of data that they are finding it challenging to identify in terms of the changes to the parameters in relation to the opt out for insurance and other things.

Senator KETTER: Thank you.

Senator PATRICK: Going back to the important line of questioning earlier to do with the way in which you deal with public interest disclosures. It is something this government has been very good with in the corporate sector. We've just passed some laws in that space. The government recognises how important this is, but I have a job to ensure that the government's policies and views are filtering down and being executed by agencies. That's the context in which I'm asking these questions. I'm not trying to ambush anyone here. I'm just trying to understand whether or not Mr Boyle—well, it's clear that he wrote to the ATO with a PID. I'm just trying to understand what happened thereafter. When he wrote to the ATO—this will be brief and high level—he said that the directives given to debt staff to issue standard garnishees on every case, including trading accounts, on all cases without proper care of consideration for taxpayers' personal circumstances of the viability of businesses were unethical, unprofessional and against the Public Service code of conduct in the Public Service Act.

Flowing from that we've had an IGT investigation into that. I think that's well covered. I might ask a couple of questions about that. I'm claiming privilege over my conversations with Mr Boyle; they were for the purposes of these proceedings. From my reading of what he has written one of the disclosable contacts is 'conduct that contravenes a law of the Commonwealth, a state or a territory'. He alleges that in the context of the Public Service Act. There is another form of disclosable conduct, which is in the table of disclosable conducts—that is, 'conduct that is unreasonable, unjust or oppressive'. There are some things in his disclosure that in my view are not disclosable conducts, but in my view what he wrote about garnishing fits well within the scope of disclosable conduct and, indeed, caused some investigations to flow from other activities he may have engaged in. I want to understand just the status. When he lodged his PID did you return it as, 'Rejected; not a PID,' 'This is a PID but we don't agree that there is disclosable conduct,' or, after investigation, 'We accept your PID and we have found there has been some conduct'? Which one of those three options is it?

Ms Curtis : Mr Todd is going to answer that question for you.

Mr Todd : It was looked at in accordance with the PID Act, and it was considered to be a disagreement with government policy and not further investigated as a PID.

Senator PATRICK: So you didn't think it constituted a PID. Does the tax office then say that he doesn't get a protection at all, or do we accept that in good faith he's made a disclosure, it hasn't met the bar, but protection still applies in the context that—

Mr Todd : What I would, first of all, say about this matter is, in terms of the overall way it was handled, we gave very careful consideration to the PID Act, the taxation secrecy laws and the Privacy Act and their interactions. I really can't go further than that without being concerned about issues in the trial.

Senator PATRICK: Okay, let's keep it general. I'm really talking about anyone. If someone makes a PID and a disclosure to the tax office and you reject that it is a PID—you process it and go, 'Nup, it's not a PID'—do you afford that person a protection from anything that is written in that PID in the context, in good faith, that he made a PID but it's clearly a mistake?

Mr Todd : It would be kept highly confidential. And, yes, we would—

Senator PATRICK: The PID's not about confidentiality, it is about protecting someone from adverse action.

Mr Todd : Yes. One of the ways you protect people is by keeping the PID as confidential as possible. And, yes, we would try to avoid any disclosure—

Senator PATRICK: But if someone, a supervisor, says, 'Well, I don't like the guy because he's a troublemaker,' and then fires the person, surely—he's made a PID; it wasn't accepted—he'd be entitled to at least a protection, in those circumstances?

Mr Todd : You've got to have a limit on that; otherwise, people will just make a PID just to avail themselves of a protection that has no basis. Where it's appropriate we would try to provide protections, but you can't just make it that you simply make a PID and then you're forever protected from anything, even if—

Senator PATRICK: No, of conduct related to that. For example, under the corporations laws that have just passed, if I make a PID and there is adverse conduct, under the law I only have to show the fact of adverse conduct, and all the burden then switches across to the employer to prove that it wasn't related. So the protections are getting stronger. That's not the case with the PID Act for the public sector.

Mr Todd : The PID Act is very complicated and I'd probably want to take the details of it on notice.

Senator PATRICK: Okay. That's the space I'm trying to explore, not just in relation to Richard Boyle but also in relation to anyone who makes a disclosure. You can understand people will then be reluctant to come forward, because they now have to establish a particular bar, perhaps go to a lawyer or something, to work out whether—

Mr Todd : And certainly, if they make a disclosure and in good faith, they will be protected in respect of that disclosure.

Senator PATRICK: Okay.

Ms Smith : If I may try and clarify, the PID you're particularly talking about—

Senator PATRICK: I'm being very generic, at this point.

Ms Smith : I understand but I can answer in a generic term. The management team responsible for that particular area would have zero insight into the fact that one of the staff has submitted a PID. It's kept totally confidential. Whoever may submit a PID, their managers, the team, the leadership team, would not be involved in understanding, No. 1, that the employee had actually submitted something, whether it was successful or not. It would be investigated entirely independently.

Senator PATRICK: Sure, that's good, but I'll put a proposition to you—because it happens around here; things seem to leak like a sieve around here—that if someone does get wind of it and then they were to cause an adverse action against that person, that's once again when a protection ought to apply.

Mr Todd : Yes.

Senator PATRICK: And under the corporations law—

Ms Smith : And as management we would take that very seriously, because they're the rights that individuals have got. If we felt that that wasn't the right behaviour from the leaders, we would take action around that.

Mr Todd : And if we're aware of reprisals being taken, we would investigate it and take action, but we're not aware of any case where that has happened.

Ms Curtis : The other thing is that, when you look at our stats on PIDs that have been put in to us over the last few years, not only have we had numbers around 24 or 25 each year but also, in the last year, we've actually had more PIDs, which I know doesn't sound like a great thing, but it does demonstrate that staff within the organisation do feel confident that they can lodge a PID with us and that that is treated properly under those requirements of the ombudsman's guidelines.

Senator PATRICK: Quite separately, going to the IGT report, I just want to make—

CHAIR: Senator Patrick, just before you move onto a different issue—

Senator PATRICK: No, it's the same issue. I just have two more questions.

CHAIR: All right.

Senator PATRICK: Mr Boyle was in Adelaide. The IGT said:

Problems did arise in localised pockets with the issuing of enduring garnishee notices for a limited period, particularly so at the ATO’s Adelaide local site, but these problems were anticipated and addressed by management once they became aware of them. Does the ATO accept that assertion?

Ms Curtis : Yes, we do accept that. There were problems identified in Adelaide in one debt team. My understanding is that they were identified by management looking at data which signalled that perhaps there were more garnishees being applied than perhaps we had anticipated, but my colleague—

Senator PATRICK: I just wanted to know whether or not you accepted that.

Ms Smith : One point I'd like to raise, if I may, is that that issue was raised by us with the IGT, so we highlighted that to the IGT. That had been picked up and rectified some six months prior to the IGT—

Senator PATRICK: Everyone's being really defensive here. I'm just simply asking: does the commissioner accept that? I think the answer is yes. This is my last question—the chair gave me two. When the IGT conducted his investigation, he went to various sites around the country. You may have to take this on notice, but I want to know whether, in any of those locations, when he was interviewing staff, those staff were accompanied by another ATO officer?

Ms Curtis : We might have to take that on notice, because it may have varied from site to site. But certainly we always say to staff that if they're answering questions or are in situations that might be difficult for them they can have another officer present with them.

Senator PATRICK: If people requested some assistance, that's fine. I'm just wondering whether the ATO had said, 'Well, IGT, if you're going to question our employee, we'd like to have another member of the ATO present'?

Mr Todd : We'll confirm this on notice, but I'm pretty sure they only had someone there if they wanted someone there for support.

Senator PATRICK: Sure. I'm going to ask the IGT that if we get to next week, which I'm hopeful we will.

Senator SPENDER: Just on the garnishee issue, is it ever the case that issuing a garnishee notice could contribute to an officer's achievement of a KPI?

Ms Smith : The IGT report actually clearly identified the fact that that was not the case—that there was no evidence to suggest that there was, in any way, a target set for debt collection by employees or in any way a cash grab.

Senator SPENDER: But I wasn't asking specifically about the matters raised in the IGT. In the entire ATO, can it ever be the case that issuing a garnishee notice, even indirectly, contributes to the achievement of a KPI?

Mr Todd : No.

Ms Smith : The answer is no.

Mr Todd : Also, in relation to that, there are a series of steps that are taken before a garnishee is issued, and so the area in which people like Mr Boyle work are at the end of that process. There's been a series of discretions and decisions made, and they're in a processing area issuing the garnishees.

Senator SPENDER: In previous estimates, my predecessor asked about this and was generally told, 'You don't have a general rule for applying garnishee notices—only in the essentially exceptional circumstances where you fear flight, really.' Basically you still hold the view that that is only an exceptional basis based on flight?

Mr Todd : We didn't say that last time. I don't think that's accurate.

Ms Curtis : I think it's best if Ms Smith takes you through the actual process for issuing garnishees, because it is a very long process with lots of steps that people are taken through before it ever gets to the garnishee. That is, really, a last-resort action—one of our firmer actions—and it is used very sparingly, particularly in debt cases.

Senator SPENDER: On that issue we got an answer to Senator Leyonhjelm's question No. 42 of 24 October and the relevant provision was saying: 'We will generally not enforce payment of a disputed debt while it is subject to a review. In some instances, based on a risk assessment primarily focused on our confidence that any outstanding tax can and will be paid when the dispute is finalised, we may undertake recovery action.' That is what we were previously told—that it is generally not the case; only if there is a question of confidence as to the ability to pay at the end of the day would you apply a garnishee notice.

Ms Smith : That is correct. There are two reasons that we would apply a garnishee notice. The average number of times we attempt to contact the taxpayer, through various methods—email, SMS—is 19. If we have been unable to make contact to get the taxpayer to engage with us, on some occasions an employee will look at the circumstances of the case and determine whether they believe the correct thing to do is to put in a garnishee notice. That is where the taxpayer has flatly refused to engage with us. Interestingly, 50 per cent of the time that that occurs, the taxpayer does engage with us. The second way that a garnishee would be applied is if we believe the taxpayer is particularly high risk. In fact, we have just been working with the Australian Small Business and Family Enterprise Ombudsman. I wonder if I can table our response. They were specifically asking us, 'Where the taxpayer has disputed a debt, do we take action?' Can I table this? I think it might be helpful for you to understand. The taxpayers that we have actually issued a garnishee on during the dispute are examples where they are incredibly high at risk. For example, there is one case that was linked to criminal activity. The case was referred to us by the Australian Customs and Border Protection Service. There was another case where there was evidence of fraud and a significant history of tax—

Senator SPENDER: I don't think we have any concern about that second reason—the issues of flight. That is fine. But the reason you mentioned first I don't think we picked up from our replies to our questions—and that is that a taxpayer not engaging would be a reason for you to impose a garnishee notice. There are plenty of taxpayers not wanting to engage with you. But whilst the review is going on, and there is a dispute, their not responding to you doesn't seem like a very strong reason to impose a garnishee notice.

Ms Smith : They are two separate things. In the second example where they were engaging with us, the reason we pursued the garnishee was because they were very high risk.

Senator SPENDER: That's fine, but not engaging with you is not an indication of a risk of flight.

Ms Smith : I think you might be confusing it with a departure prohibition order. The risk of flight—

Senator SPENDER: I don't mean flight from the country; I mean inability to pay at the end of the day. Non-engagement with the ATO does not indicate that at the end of the day, when the dispute is finalised, there is a greater risk that they won't be able to pay.

Mr Mills : I want to help clarify the question that Ms Smith is answering. The questions that were put to us previously by your predecessor had to do with the collection of debts where there was a dispute on foot. Ms Smith is answering the question more generally than that, about the garnishee processes. Your question was more general than that; it was across the board. The answers we previously gave to Senator Leyonhjelm about where a dispute is on foot are still valid.

Senator SPENDER: Is that because, when a dispute is on foot, that means the ATO is engaging with them?

Mr Mills : They're engaging with us.

Senator SPENDER: Okay. That makes sense. I understand.

Mr Mills : So this is quite a separate, different set of circumstances. The kind of circumstance that Ms Smith is referring to is where the debt is past due, we've written to them, we've called them, we've SMSed them—19 different actions on average—to the point where we're left with—

Senator SPENDER: But you're still garnisheeing before you finalise that—

Ms Smith : No.

Mr Mills : This is separate to any dispute. This isn't a case of where there's a dispute on foot.

Mr Todd : And the debt may be self-assessed.

Mr Mills : The only times that we would use a garnishee in dispute cases are those very exceptional kinds of circumstances.

Senator SPENDER: That's fine. The rest of my questions follow on from the Chair's previous questions on multinational tax avoidance. The previous officer was talking about the success of it, in terms of more companies who sell to Australians paying more Australian income tax. But the other side of the equation wasn't mentioned. What has been the impact of that multinational tax avoidance task force on the quantity of sales to Australians? You were talking about how a greater proportion of sales to Australians are leading to Australian income tax, but what's the impact on sales? What's your behavioural impact? How many businesses are no longer selling to Australians. How many businesses are not expanding their efforts to make sales to Australians because of the threat that you pose?

Mr Hirschhorn : This is a very hard question to answer forensically, but what I can say is that we monitor the sales of those companies who have engaged with us in relation to the Multinational Anti-Avoidance Law and changed their selling model. What we do see is that their revenue continues to grow very significantly year on year. We spoke about the $7 billion of sales. Our expectation this year is that the number will be significantly above $7 billion in sales from those companies. In terms of other companies, I would be surprised if there was any impact on their willingness to sell to Australia, because Australia only taxes profits. So, by definition, if you're not planning to make a profit in Australia, this doesn't affect you; if you're planning to make a profit, you're paying tax, but you're paying tax on the percentage of your profit which fairly relates to your selling activities in Australia. We don't tax the entire profit; we tax the profit attributable to selling activities. In terms of direct evidence on the companies that we can see, we see their sales continuing to grow, and they're continuing to be very healthy businesses.

Senator SPENDER: But do you recognise any behavioural change? Do you think this is a perfect tax? Is there no impact on the margins, no reduction in activity at all?

Mr Hirschhorn : All I can say is: I see the sales of these companies, and they're growing year on year, and I don't see them retreating from the Australian market.

CHAIR: Senator Spender is essentially asking: have there been companies that have said, 'Well, I was only selling in Australia because I was avoiding tax, and now I can't avoid tax, so, therefore, I'll stop selling in Australia'?

Mr Hirschhorn : We've seen no companies of that nature.

Senator SPENDER: It's not as discreet as that—but, anyway. The question might broaden a bit more into the world of Revenue Group. I'm just looking at the measure where tax integrity extension and expansion of the task force, in the last three years of the forecast period, get one-point-something billion dollars worth of additional revenue. You're not changing tax rates with that measure but, nonetheless, you are generating substantial revenue. What is the cost of that measure, estimated in terms of behavioural change and in terms of compliance costs? Is that more for Revenue Group or for you guys? I'm not too sure whether you have estimates by measure of behavioural change costs and compliance costs.

Mr Hirschhorn : I might have a first stab at what's in those numbers and then pass over to my Treasury colleagues. This measure is not a tax rate change. It is a compliance effect, where we consider companies are not currently complying with existing Australian law. This is a measure to encourage increased compliance with existing Australian tax law. The measure, of course, includes the additional investment in the taskforce, both the extension and the expansion of the taskforce—so, that is in a sense the cost to the tax office of increasing that. In terms of modelling additional compliance costs and modelling behavioural effects, I would be surprised if those numbers included that, because, generally, behavioural responses are not costed. But that said, I would say that in my experience most companies are paying the correct amount of tax on their Australian profits, according to law. If they choose not to participate in the Australian economy because they choose not to pay Australian tax on the fair share of profits they earn in Australia—

Senator SPENDER: It is still an economic cost. Australians still miss out. You might not think it's right, but—

Mr Hirschhorn : I would say, Senator, that the government makes the laws—we say it's not right—and I simply enforce those laws.

CHAIR: I think we are getting into a philosophical argument here. I am conscious of the fact we have to move onto Markets Group. If you have any questions for Revenue Group, can you put them on notice?

Mr Mills : If I could add to the comments my colleague has just made. In terms of behavioural impact one thing we're very conscious of is the impact of other markets, not just the large market. Where there's clear evidence that the large market is now paying its appropriate amount of tax in Australia, there is a flow-on effect to other markets—small business, individuals—as to their behaviour, in terms of paying the correct amount of tax, as well.

Senator SPENDER: Are there any Treasury comments on any behavioural or compliance cost aspects for that measure?

Ms Mrakovcic : Just to note that, as the ATO pointed out, it is a compliance measure. Essentially, it is looking at compliance with current tax laws. We are guided by the ATO's estimates themselves of the amount of activity needed and the types of resulting increases in tax revenues. As Mr Hirschhorn has pointed out, it is tax that, according to Australian tax laws, should be appropriately paid in Australia. The broader question around the competitiveness of the corporate tax rate and value creation and where it's attributed goes well beyond the compliance measure that the ATO is undertaking at this point.

Senator SPENDER: Is there a RIS for this measure?

Mr Brine : I wouldn't have thought so, because we are not imposing any new obligations on taxpayers.

Senator SPENDER: But there will be taxpayers, or people who should be taxpayers, who will incur some compliance cost to try to minimise their additional tax under your efforts. So, there will be compliance costs, but you may or may not produce a RIS on it.

Ms Mrakovcic : We're happy to take that on notice.

Senator SPENDER: Turning to the admin cost side of things, looking at the measure, in the last three years $1.2, $1.5 and $1.6 billion of revenue was generated but in those three years the related expense to the ATO is $300 million-something in each of those years. So, for this revenue collection, you're losing a quarter of the revenue in admin costs. Isn't that a worse admin cost ratio than the rest of the tax system, where, basically, you get $4 and you lose it in $1 of admin costs. Isn't that worse than everything else in the tax system?

Mr Hirschhorn : The tax office collects each year about $500 billion in tax and, net of expenditure, obviously a bit less than that. Our appropriation is about $3 billion. There's an element of: we administer a system, and most Australians are honest and the tax comes in. That's the beauty of the self-assessment system in a country like Australia. And there are things like our pay-as-you-go system and various structures. So most tax comes in. In terms of our compliance programs, there is no official rule of thumb, but for an integrity measure—integrity compliance work—a ratio of four to one would be somewhat typical.

Senator SPENDER: Okay. It's not necessarily a number I'm happy with, but it's information Thank you.

Mr Hirschhorn : Chair, perhaps before we move on I can provide further clarification on two questions you asked me.

CHAIR: Certainly.

Mr Hirschhorn : In terms of the multinational anti-avoidance law, our estimate of just the four-year effect—this is, of course, an ongoing effect beyond the four years—is $580 million extra revenue collected, in addition to the billion dollars of legacy tax that we collected from large ecommerce companies; and, in terms of the number of people within the tax office funded through the taskforce, in 2018-19 we have, combined, about 1,300 people funded directly through the taskforce, about half focused on multinationals and large public groups and the other half on private groups and high-net-wealth individuals.

CHAIR: Thank you very, Mr Hirschhorn. We might let the ATO and the Revenue Group go. Thank you very much for staying over time.

We'll move on to Markets Group. Thank you for your patience and for joining us this afternoon. Does anybody have an opening statement for the committee, or shall we move straight to questions?

Ms D Brown : We can progress straight to questions.

CHAIR: All right. Thank you. I will turn questions over to Senator Ketter.

Senator KETTER: Thank you very much. I'll take you firstly to Budget Paper No. 2, the start of page 167. These questions go to resourcing for responses to the royal commission, and the historical redress scheme. If you go to Budget Paper No. 2 you'll see the table on that page. Can you tell me why there is a $7.8 million cut to Treasury department resourcing in 2019-20 attributable to royal commission implementation?

Ms D Brown : Certainly. Mr Kelly will answer that question.

Mr Kelly : There's no cut in funding for Treasury in that year. The issue arises from a provision of $50 million that had been made in the contingency reverse in a previous period. The way the Department of Finance constructs the table is, where a contingency reserve provision held is against those amounts, it's subtracted or netted out at some point, so underlying that number is a positive number of $42.2 million for the Treasury, but it shows up as minus $7.8 million because of the $50 million in the contingency reserve.

Senator KETTER: The second dot point on page 167 refers to:

providing the Australian Financial Complaints Authority with additional funding to help establish a historical redress scheme to consider eligible financial complaints dating back to 1 January 2008 ($2.8 million in 2018-19);

How did Treasury arrive at that amount of government funding for AFCA to establish and operate this scheme?

Mr Kelly : I would have to provide a detailed answer on notice, but we had discussions with AFCA, received information from and worked with them. The judgement was reached that $2.8 million was an appropriate amount to help establish the scheme. The scheme will have other costs, which their members will bear, going forward.

Senator KETTER: Can you tell me what the overall cost of the scheme will be.

Mr Kelly : There is no overall cost of the scheme to the government, because it will be a member funded scheme, other than the $2.8 million to help establish it.

Senator KETTER: You're saying that the $2.8 million is the taxpayer contribution to this redress scheme.

Mr Kelly : Yes.

Senator KENEALLY: Is the $2.8 million a contribution to the redress scheme or for administrative funding?

Mr Kelly : It's more for their systems and set-up. To run the scheme, they have to change their systems and processes and have to start hiring new staff. They are establishing the scheme following, effectively, a direction from the government. They've been asked to do it quickly and not slowly.

Senator KENEALLY: $2.8 million is for establishing and operating, not a contribution to the redress fund?

Mr Kelly : No.

Senator KENEALLY: Other than that, it's an entirely industry funded scheme. You've undertaken no other modelling about the likely cost of this scheme to AFCA?

Mr Kelly : We haven't undertaken formal modelling as such. We certainly thought about the level of additional applications that might flow to AFCA arising from the direction for them to go back to 1 January 2008 and hear disputes under their current thresholds. When AFCA was established, the rules already allowed certain cases going back up to six years and in some cases two years to be considered under the new thresholds. This scheme asked them to now go back to 1 January 2008.

Senator KETTER: $2.8 million is to assist with systems to enable them to go back in time to address this.

Mr Kelly : That's my understanding.

Senator KETTER: On what basis was it decided that the taxpayer should contribute to the establishment of the scheme rather than it being entirely industry funded?

Mr Kelly : In some ways that's a question for government. Ultimately it's a decision of the government to pay that amount. Payment had been made previously to assist with the establishment of AFCA, so it's not unprecedented. The other relevant consideration is AFCA is doing this following a direction from government.

Senator KENEALLY: I think you said earlier it was because there was a direction that this get up and running quickly, that they would need funding to do that and that, as the scheme is not up, obviously that funding needs to come from government. Two questions flow from that. Is there any anticipation that the $2.8 million will be somehow recovered once industry starts to contribute to the redress scheme?

Mr Kelly : There's no decision to that effect.

Senator KENEALLY: Is there any projection of the ongoing administration costs for this scheme and whether those will be covered by the taxpayer or by industry?

Mr Kelly : The expectation is that they will be covered by industry as members of AFCA. Those who are members of AFCA will pay that cost.

Senator KETTER: Okay, moving to the—

Senator KENEALLY: Before we move on, Senator Ketter, can we also go back to that $7.8 million figure you asked about in your first question, what appeared to be a cut. I think it was explained by Mr Kelly as an underspend, if that would be a fair way to assess your answer, Mr Kelly?

Mr Kelly : I would not describe it as an underspend. The money was in the contingency reserve for $50 million. If you look at the total amount in this measure, it's $606 million. Finance had to decide on one agency to put that money against. They could have made a decision to apportion it amongst all the measures you see in that table, but they just thought it was simpler to park it against Treasury.

Senator KENEALLY: So it's not an underspend, compared to what the government anticipated the royal commission implementation would cost?

Mr Kelly : No.

Senator KENEALLY: Just so we're clear.

Mr Kelly : I wouldn't describe it as such, no.

Senator KETTER: Moving to the royal commission implementation taskforce, which is made up of Treasury officials, can you tell us what the time line is for seeing the banking royal commission recommendations implemented?

Mr Kelly : We are currently considering the recommendations of the royal commission that concern government. Depending on how you want to count these things, I think there are probably around 50 to 60 separate measures. A number of them have already been implemented, but most of them are still to be done. It's not something that we're expecting to happen in the first year. The funding we've received as a department is to get that work starting. It will certainly allow us to progress a very large number of those measures. Once we've done the detailed planning about how that program will evolve over time, we might need to think about whether we come back in a future budget to government.

Senator KETTER: So you're still considering your implementation plan? We've had the royal commission report since the beginning of February. How much longer before you finalise your implementation plan?

Mr Kelly : An implementation plan will always be an evolving document. As we start consideration of certain measures, such as whether to use consultations or exposure drafts, we will learn more about the measures. It will sometimes affect the timetable in which they'll be achieved. Sometimes they may be faster than we expect; sometimes they'll be slower. So the plan, to some extent, will be an evolving plan. I understand the taskforce has a plan that I can look at and that can guide me. But it's a decision for government as to whether they wish to publish the plan. It's not something the Treasury would do.

Senator KETTER: What's your estimate as to how long it will take to implement the recommendations, acknowledging that the government hasn't accepted all of them?

Mr Kelly : It's a difficult question to answer in the sense that, if you actually look at some of the recommendations, they require things to happen in three years time. The commissioner himself was explicit that certain things should happen after other things. For example, in the case of mortgage brokers, he made certain recommendations around remuneration and, where there's misconduct by brokers, that they're reported to customers, to the regulators and so on. He then had a more general recommendation—that is: 'Once you've done all those things, you should take the further steps you need to to made sure that mortgage brokers are treated like financial advisers in general.'

Senator KETTER: Taking all those factors into account, you've considered them all with your implementation plan—

Mr Kelly : If you're starting from a base on which reviews are happening in three years time, then it's going to take at least three years, and a review will probably take a year, so now we're up to four years.

Senator KETTER: Okay. Do you have a work plan for the next 12 months in relation to the task force?

Mr Kelly : The division which has that task force certainly has a work plan. Within Treasury, the majority of the policy work on the measures will be undertaken by my division. Ms Brown's division will lead on those relating to insurance, and it will be the Retirement Income Policy Division and the Fiscal Group working on the superannuation ones. And the Law Design Office also has heavy involvement. We're up to the stage where we have a plan and we're working to it, but we're also facing a break in work.

Senator KETTER: Can the committee be provided with a copy of the work plan?

Mr Kelly : I think the issue whether there's a plan for implementation of the royal commission recommendations and whether it can be published is a matter for government and the ministers to decide.

Senator KETTER: Perhaps we could ask—

Senator Seselja: I'm happy to take that question on notice and take it to the Treasurer.

Senator KETTER: What are the task force priorities for the next 12 months? Are all the recommendations being worked on at the same time?

Mr Kelly : Scoping work of nearly all the recommendations has been done. That is one of the first things as a department we did. We actually stepped back and worked through, at a very preliminary level, what we expected to be involved in the measures. For example, would they involve primary legislation? Would they involve secondary? Could they be done by other means? That's largely been completed. As you would be aware, the government has released a number of consultation papers in relation to direct recommendations of the royal commission or other elements of the government's response. It's also released exposure draft legislation and regulation in some areas, in particular grandfathering of conflicted remuneration financial advice. To some extent, they're obvious candidates for areas that we will continue to work on. I think the government has also flagged consultation papers in other areas.

Senator KETTER: So those are your priorities?

Mr Kelly : They're some of our priorities.

Senator KETTER: But my question goes to the recommendations. I think there are 76 recommendations. The government hasn't accepted all of them, but are you looking at all the recommendations simultaneously or do you have a phased approach?

Mr Kelly : As I said, we've had a look at all the recommendations at one level. Inevitably, when you have 50 to 60 measures to progress, we need to progress some ahead of others. Some have been implemented. There are two superannuation recommendations that have been implemented this week, following passage in the House. There's a recommendation on cooperation with the AFCA that's been implemented following a regulation that was made by the Governor-General yesterday. And there are other examples. To that extent, we have prioritised a first batch. We have, through the consultation process and the exposure draft, prioritised others. We are certainly expecting that it will be phased in the sense that there will be some that we're not immediately working on or taking much further at this stage.

CHAIR: To clarify, Mr Kelly, do you include the design and distribution obligations and the product intervention powers in those recommendations? Obviously they were already a recommendation but they were endorsed by Hayne?

Mr Kelly : They were endorsed by Commissioner Hayne and are part of the government's response as their commitment to pick up Commissioner Hayne's comments. In terms of the government's response and the implementation of that, that's one of those early—

CHAIR: They were progressed in the House this week too, weren't they?

Mr Kelly : Yes.

CHAIR: But they weren't the two superannuation—

Mr Kelly : There were two superannuation measures, relating to treating and penalties.

Senator KETTER: I have other questions but I'm conscious of—

CHAIR: I might just continue for a couple of minutes, because you covered a lot of my questions there, Senator Ketter. The other recommendation obviously came about around the BEAR regime and extending the BEAR regime. Can you tell me what the timing is for that? Obviously the BEAR was initiated and implemented before the banking royal commission. What's the timing around extending that regime?

Mr Kelly : I'll probably have to take that on notice. It's not something that I believe the government has published or made a statement on.

CHAIR: That's fine. In a similar vein, is the enforcement regime for corporate and financial misconduct that came out of the ASIC review task force in 2016 considered a Hayne recommendation as well? Is that considered a banking royal commission recommendation? That's already been implemented too, hasn't it?

Mr Kelly : Recommendations relating to increased penalties for ASIC have now been implemented—in some ways more than implemented—following passage through the parliament. Given its status, it was not something that Commissioner Hayne directly made comment on or made a recommendation on to a large extent. I think he just took it as a given. He did make a recommendation relating to the investment review task force recommendations on, I think, breach reporting. That was an explicit recommendation. The government has agreed to do that, and a certain amount of work has happened on that. The government, in its response—it had previously agreed to other recommendations of the enforcement review task force, but it also made clear that issues relating to the ability of ASIC to give directions would also now be progressed.

CHAIR: You mentioned the two pieces of superannuation legislation and the regulation that was signed off by the Governor-General yesterday. There were a number of recommendations that had consultation papers issued. What's been the progress there?

Mr Kelly : My latest count is that four consultation papers have been released. There's been a consultation paper relating to the enforceability of financial services industry codes, which is recommendation 1.15 of the final report, and relating to regulating insurance claims-handling by ASIC, and that is recommendation 4.8. There's been another paper on the practicability of universal terms for a default insurance cover with MySuper products, which is recommendation 4.13. That wasn't a recommendation necessarily to have universal terms but to consult on whether that would be appropriate. Finally there's been a consultation paper on what was an additional measure that the government announced based on comments from Commissioner Hayne on superannuation binding death benefit nominations and kinship structures for Indigenous people.

CHAIR: So it's safe to say that, even if you exclude those measures that were initiated and implemented before the Hayne recommendations, like the BEAR, like the enforcement regime, there has been considerable progress made on the 76 Hayne recommendations?

Mr Kelly : There's certainly been progress made around 15 of the recommendations and measures announced by the government, a number of which represent, in terms of what the government then has to do, full implementation.

CHAIR: Thank you. Senator Patrick, you had some questions. I'm just conscious of the fact that we have 16 minutes and we are hitting a hard marker at six o'clock, after which we're going to let these guys go home, and Senator Ketter has a number more questions. So just keep it to five minutes. Thank you.

Senator PATRICK: Mr Brake, ASIC records indicate the Chinese company Ruyi, via a Singapore company, still owns 80 per cent of the stake in Cubbie Station. I presume you are aware of this issue.

Mr Brake : I'm aware of the Cubbie Station issue, yes.

Senator PATRICK: My understanding is there was a condition applied, when Wayne Swan approved the sale, that they must sell down their interest in the station to 51 per cent within three years. Is that correct?

Mr Brake : Treasurer Wayne Swan approved the transaction subject to a number of undertakings, including a requirement that Shandong Ruyi sell down its interests from 80 per cent to 51 per cent within three years, yes.

Senator PATRICK: Then that got extended in 2016 by Treasurer Scott Morrison?

Mr Brake : It was reported in June 2016 that the Treasurer had extended that.

Senator PATRICK: By three years?

Mr Brake : Yes.

Senator PATRICK: So, on your evidence, it's reasonable to presume that that extension runs out by June this year?

Mr Brake : As you know, we had some conversations late last year on these matters. I do know that Treasurer Frydenberg was asked some questions along those lines—

Senator PATRICK: From a senator or the media?

Mr Brake : From the media.

Senator PATRICK: A different standard is applied there.

Mr Brake : Yes. I'll just read out what the Treasurer said in response to those queries. He said that 'it is longstanding practice that the Foreign Investment Review Board and the Treasurer do not comment on the details of foreign investment screening and subsequent processes as they apply or could apply to particular cases'.

Senator PATRICK: Sure. I understand that in the context of the media asking a question. It's a different case when the Senate does. I'm asking you the question: when does it expire?

Mr Brake : I think, as we did last time, I'd like to take—or the minister might like to—that on notice and check whether the Treasurer wishes to make a public interest immunity claim.

Senator PATRICK: There is a lot of public interest in this. I can't imagine why we would keep those sorts of details secret, in terms of any harm that it would cause any particular entity.

Mr Brake : The general proposition—

Senator PATRICK: The problem is that he made that decision on behalf of the Australian people, as are all decisions made by Treasurers. I'm presuming it wasn't a cabinet decision, because the Treasurer has the power under the act. There's no cabinet in confidence involved here.

Senator Seselja: Obviously I'm not aware of the details personally, so what I will do is take it on notice. That will allow the Treasurer to give a fuller answer.

Senator PATRICK: Sure.

Senator Seselja: As has been suggested, if there's a need for a public interest immunity claim, it will be considered. It may not be, but the question can be considered by the Treasurer.

Senator PATRICK: When the decision was made to extend the time frame—clearly, you do a review, you place some conditions on an arrangement. It's a binding condition. There would be reasons for making a variation to that. There must be good reasons. You've come to some decision. Now you've decided to change that. What were the reasons for the extension of that condition? Was it at the request of the company, or was it that the Treasurer decided unilaterally to grant it? I presume the company made a request, or is it that the FIRB didn't follow-up and then it got a response with a request?

Mr Brake : For this particular case, I'd have to take it on notice.

Senator PATRICK: Because you don't know?

Mr Brake : It was two or three years ago. As a general proposition, companies or applicants can come to us and seek changes to various conditions that have been put in place. But I'd have to take the particular details of that one on notice.

Senator PATRICK: The process you go through to that point of making those decisions: the FIRB then conducts another analysis and provides advice to the Treasurer?

Mr Brake : As a general proposition, regarding our advice to the Treasurer on cases, we would discuss those with the Foreign Investment Review Board as a matter of course.

Senator PATRICK: So, you'd form that up and run through—and in terms of weightings, obviously the requirement was placed on that for some good reason. You would have come to some conclusion that that was a good condition to have, for national interest reasons. Would a commercial reason override that? I presume that if the decision was made properly then it should be three years, but the company says, 'Well, look, if I sell it now I'm not going to make anything near what I paid for it'—and I'm just making that up, but is that something the FIRB would weight heavily in its decision-making? Or is it just not a factor?

Mr Brake : I don't want to go into this case, but as a general principle the act talks about the national interest, which is a very broad concept. The Foreign Investment Review Board and the Treasurer can take into account a wide range of factors in thinking what would be in the national interest in that particular circumstance.

CHAIR: Senator Patrick, we're a little over time.

Senator PATRICK: I'm happy to leave it there for the moment, but I do have other questions. So, if we spill over into next week, maybe we can bring them back—if the writs are not issued.

Senator KETTER: I refer to the ASIC expense measures that are in budget paper No. 2, on the bottom of page 167. This says that the cost of the measure will be partially offset by revenue received through ASIC's industry funding model. Will this involve an increase to ASIC's cost recovery levies?

Ms D Brown : To the extent that it can be cost recovered—these are increases that will be paid by industry, recovered through ASIC cost-recovery levies.

Senator KETTER: Well, it says it will be 'partially offset' by revenue received through ASIC's industry funding model.

Ms D Brown : I might ask Ms Vincent whether she could go into the particulars.

Ms Vincent : In relation to the industry funding model, the reason there was a reference to the partial recovery is that the figures given were across the forwards and because the way the recovery happens—I guess you could say that the levies are collected on an ex-post basis—a portion of it does not sit within that forward period. But in reality they will be recovered.

Senator KETTER: So, is all of the $291.2 million in new related revenue that's noted on the table on page 167 referrable to increases in ASIC's cost-recovery levies?

Ms Vincent : Sorry, Senator—I'm just finding where you're talking about.

Senator KETTER: If you add up those figures—40.5, 122.2, 128.5—

Ms Vincent : I guess what I would say is that the amount that was recoverable—and I don't have the specifics here in front of me—the proposal was that it would be cost recovered. I don't have the specific details but that it would go out across the forwards and then in the additional year.

Senator KETTER: I guess I'm looking for what the rationale is behind those figures in that table.

Ms Vincent : I'd have to take that on notice.

Senator KETTER: Okay.

Ms Vincent : Sorry; I've got it now. In relation to the $40.5 million and then the $122.2 million et cetera, the total amount recoverable will rise each year. At the moment, there's an estimated $259.5 million that is recovered under existing IFM measures. As a result of the additional funding package, that would rise each year by the amount listed. So, for instance, $259 million in 2018-19 would then rise by $40.5 million to then be $299.5 million and then the baseline of the $259 million would then rise by the $122.2 million and so on.

Senator KETTER: Where are the figures that you are referring to?

Mr Kelly : I might be able to add to that answer. If you look at the $40.5 million in 2020-21, as Lucy said, it lags a year. It's equal to the $38.5 million for ASIC in 2019-20 as an expense plus the capital amount for ASIC in that year, which gives you $40.5 million. So you can see how the previous year's numbers for ASIC, in terms of resourcing, flow into the subsequent year's revenue raising.

Senator KETTER: Let me turn to the first measure on page 168, which is the increase to the resourcing of APRA. This increase in revenue is described as being $145 million over four years from 2019-20. I might be comparing apples with oranges, but, if you go back to the table at the top of page 167 and you look at the figures attributable to APRA, including the $3 million in capital for 2019-20, it appears to be $79.7 million. Can you tell me where the remaining $65.3 million in increased expenditure on APRA is shown in the budget papers?

Mr Kelly : This is a very similar issue to the first question you raised around the minus $7.8 million for Treasury. There had been a previous provision made in the contingency reserve. What you see there are the net figures, net of that previous provision. But the gross amount, in terms of underlying catch balance impact, which is what this focuses on, is the $145 million.

Senator KETTER: Sorry; which figure are you talking about?

Ms D Brown : In relation to earlier questions this evening about the minus $7.8 million, that was affected by an amount in the contingency reserve.

Senator KETTER: So the $145 million is affected by—

Ms D Brown : An amount that was in the contingency reserve, yes.

Mr Kelly : An additional amount in relation to just APRA. For the purposes of this table, again, it was netted off against the amounts for APRA that it received.

Ms D Brown : If you want to see the APRA figures more clearly, you might want to go to the budget portfolio statement for Treasury, table 1.2 under on page 127. It breaks down the figures.

Senator KETTER: Thank you; that's helpful. Finally, on page 168, it says that the cost of this measure will be partially off-set by increases in the APRA financial institutions supervisory levies. The table on page 167 shows $84.5 million in new revenue for APRA. Will that figure be raised entirely through increases to the APRA financial institutions supervisory levies?

Ms D Brown : Yes, it will. I think the partial reference in that sentence is in relation to the ASIC industry model. Again, if you look at the budget portfolio statement it is clearer that the amount being raised in revenue exceeds the amount being spent in expense.

Senator KETTER: Okay.

Ms D Brown : It offsets the additional funding plus an amount for capital and a contingency enforcement amount as well. Is that more clearly set out in the portfolio budget statement?

Ms D Brown : It is more clearly set out in the budget portfolio statement—pages 127 and 128.

Senator KETTER: Thank you very much.

CHAIR: Thank you very much, Markets Group. We will get you go. The committee will now break for dinner and return with the Industry portfolio.

Proceedings suspended from 17:59 to 19:01