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Legal and Constitutional Affairs Legislation Committee

PHILLIPS, Mr Ken, Executive Director, Self-Employed Australia

Committee met at 10:06

CHAIR ( Senator Ian Macdonald ): I call to order this hearing of the Senate Legal and Constitutional Affairs Legislation Committee dealing with an inquiry into a bill that's been submitted to the Senate called the Judiciary Amendment (Commonwealth Model Litigant Obligations) Bill 2017. These are public proceedings being broadcast live via the web. All witnesses should be aware that, in giving evidence to the committee, they are protected by parliamentary privilege, and it's unlawful for anyone to threaten or disadvantage a witness on account of the evidence given to a committee. Any such action may be treated by the Senate as a contempt.

The purpose of this hearing is to, as I mentioned, support the committee's inquiry's into the model-litigant-obligations bill. I do note from the written submissions we have received and from the bill itself that the bill relates to the conduct of Commonwealth litigants. I appreciate that witnesses may give evidence in relation to particular litigants. If any witness names or reflects adversely on a particular individual or organisation, the resolutions of the Senate and, quite frankly, natural justice require that the committee bring this evidence to the attention of the named individual or organisation and allow them an opportunity to respond.

The committee prefers to take evidence in public; however, under the Senate resolutions, witnesses have the right to request to be heard in camera. If anyone is in that situation, they should let the committee know as soon as possible, and the committee can then determine whether or not to take the evidence in camera. If a witness objects to answering a question, the witness should state the ground upon which the objection is taken.

The committee has agreed that answers to questions on notice at today's hearing be returned by 12 pm on 18 June. If witnesses do take questions on notice, it's likely that the witnesses will not have access to the Hansard transcript until after that deadline has passed. We have set 18 June as the time when questions taken on notice should be returned, but sometimes that's a bit hard if the Hansard is not out by then. In all likelihood, it would be out about then or a little bit later, but, if it's not possible to do that by 18 June, the answers should be provided as soon as possible after 18 June so the committee can see them.

We also, as Senate committees, acknowledge that there could be media interest, and we allow the media to be here subject to the witnesses to the witnesses not having any objection and subject, of course, to certain protocols of which I think the media are aware, relating to not recording any of the written material of either the senators or the witnesses. Apart from that, the media are welcome here.

With that, Mr Phillips, I welcome you as a representative of Self Employed Australia. I understand we have provided you with some information on parliamentary privilege and protection of witnesses. We ask you to make an opening statement. We do have your submission. At the end of your opening statement I'll ask members of the committee to put some questions to you. Over to you.

Mr Phillips : Thank you very much. I congratulate the committee on the initiative of this bill. We see it as an exceedingly important bill. We are very strongly in favour of it and we are delighted by and thank you for the opportunity to put our views to you in terms of support for the bill. I'd also like to thank the secretariat for their communication with me over the last few weeks in guiding me in terms of the process and certain frameworks around that. I hope that I stick to those frameworks and remember them.

A point of clarification to start off with: I'm not a lawyer. I'm not an accountant. I am a small-business person, and so the comments I make are within the ambit of the pub test, for want of a better phrase—how the small-business person would see things—and so, if I have put positions or made statements that are not strictly in accordance with the law, I'm more than happy to have eminent lawyers correct me on those things.

CHAIR: I'm not sure there are any of them here, actually!

Senator LEYONHJELM: There are lawyers; it's the eminence!

CHAIR: Indeed!

Mr Phillips : I also note that our submission was published only yesterday and that the ATO was given an opportunity to read our submission before it was published and to write a response. To make you aware: I have not read that response, so I don't know about it or its content. I'm not in a position to make comment on that and won't.

CHAIR: Have we made that available to you?

Mr Phillips : It was published, but it was only last night, and I haven't had time to read it.

The other thing to note in terms of clarification is that I'm aware that the model-litigant bill and its principles apply only to litigation. Effectively, that means that, in terms of the narrowness of the bill, we are really only talking of something that would arguably apply in, say, a Federal Court case. An action under the Administrative Appeals Tribunal would not be covered by this. We have made a recommendation in our submission to have the bill amended so it does include the AAT. The reason for that is that, of course, we look at all of this from the perspective of small-business owners. I will also clarify that my comments are only in terms of the Australian Taxation Office and small business, not the big-end-of-town stuff. We make no comment about any other Commonwealth entity in this respect. But, for all small businesses and self-employed who are in dispute with the Taxation Office, the first port of notional judicial representation is the AAT, and so we would be pleased to see the AAT embraced by this bill.

The other point in our submission is that we've spent a lot of time talking about the behaviour of the ATO towards small business in all of the lead-up to litigation, so a lot of our submissions on the face of it are not relevant specifically to the bill. The reason that we have put all of that information together is that the behaviour of the ATO in the lead-up to litigation really is determinative of the way they behave in litigation. It's particularly relevant to give you the background and understanding of what happens in the litigation process to understand what has led to that. That's why we've put a lot of emphasis on that.

There are, however, a number of cases that have gone through to litigation where comments by the judiciary on the behaviour of the ATO with their model litigant approaches are highly relevant. There is the Shord case, which we have detailed in our submission, in particular the comments by Justice Logan in relation to the ATO. He would have said non-behaviour towards model-litigant requirements is highly relevant to this inquiry, I think. We've also noted on the front page of our submission that the comments by the retired Federal Court judge Richard Edmonds are extremely relevant. He in his letter to the Financial Review and a subsequent follow-up made the comment that the ATO effectively ignores at its whim the decisions of single judges. I think those comments by both Justice Logan and retired court judge Richard Edmonds are extremely relevant to this inquiry. If in questions you wanted some explanations on the Logan case, I can give you some more detail on that.

To give you a background history of me and our relationship with the ATO: we were formed about 18 years ago, in 2000. We had at that time extensive discussions with Treasury. We were a key unpaid consultant with Treasury over the design of PAYG, BAS—all of that reform program, which we considered to be the largest reform to the administration of tax collection in Australia. We know and understand the principles that Treasury were applying at that time to the PAYG personal service income tax laws and so forth. You would understand those.

We have had extensive dealings with the Taxation Office over 15 years plus. I have been on ATO small-business consultative committees for most of that time. I've got to say sitting through a five-hour ATO meeting is not the most enlivening of experiences, but, even though they might not be exciting, they give us insight. We have worked very closely with the Taxation Office. The Taxation Office is terribly interested in being involved with people in the small-business area in terms of the processes, but there has been a breakdown in that relationship. I think the comments by the tax commissioner about us demonstrate the breakdown in relationship. To their credit, they have bent over backwards with us, and there are a lot of people in the Taxation Office who I have dealt with who I have enormous respect for. Their behaviour has always been professional and polite, but the outcome of the behaviours of the ATO speak to a different story. We are absolutely on the public record that that story is one of an outcome of systemic abuse of small-business people.

Our observation is that if you are upright, honest and completely forthright with the ATO you run quite a high risk of getting abused through the system. Conversely, if you play shenanigans and have an intent not to pay tax, you have a fairly high chance of getting away with it. Our interest is in a taxation system that has integrity. The importance of your bill is that it provides a trigger. If the Taxation Office finds itself in the Federal Court, knowing that it has to comply with model litigant obligations, that trigger will in our view flow down through the system, because they will not want circumstances that could lead to a stay in the Federal Court. It will have limited application for small-business people, because most small-business people can't afford to get to the Federal Court.

So, we see the bill as a very important trigger. On its own it's not sufficient, but extremely important, and we're well and truly behind it. We've been very public that we believe the Taxation Office requires a royal commission. We published our views on the reform that's required—essentially the breaking up of the ATO into two separate organisations—and we stand by that. We see the model litigant bill within the context of the broader reform that we believe is absolutely essential to bring greater integrity to the tax collection system. And I think that's probably all I need to say.

CHAIR: Thanks very much, and thank you for your submission, which contains a lot of information. Could you just give a random selection for the committee on cases where the ATO has acted in a way that you believe is not appropriate as a model litigant?

Mr Phillips : We supplied you—and you have chosen at this stage to keep it not public—the submission we made to the Inspector-General of Taxation, back in August last year, on their behaviour. To understand the behaviour of the Taxation Office it's necessary to understand, unfortunately, the intimate, almost day-by-day interface. We're well aware that parliamentarians and Senate committees and so forth don't have the time to go through that exercise. It's quite exhausting. But one can only understand if they have lived through the detail, and we have lived through the detail with quite a number of people, so we've got the body of experience. The very, very detailed—13½ thousand words—submission that you've got there gives you that detail.

Senator LEYONHJELM: What the chair was referring to is that we don't necessarily know all those details just because they're in your submission, although we all have that submission.

Mr Phillips : I'll give you the summary.

Senator LEYONHJELM: Give us a quick summary and perhaps at the end of it—

Mr Phillips : The Rod Douglass case—

Senator LEYONHJELM: Yes, that'll do.

CHAIR: And, by the way, the committee did decide earlier that we would accept that as a submission, so it will be published and go to the tax office, for the reasons I mentioned before.

Mr Phillips : The Taxation Office have had that submission since August. The Rod Douglass case, in essence—Rod Douglass was operating a partnership in 2006. Commissioner Carmody put out a statement that said that if you were a partnership you could divide the income between partners based on court rulings. Rod was doing exactly what that said. It came to about 2012 or 2015 and the Taxation Office had changed their view on the situation, and they turned around and retrospectively said that Rod Douglass had committed fraud and evasion so therefore they could eliminate the two-year limitation; they could go back to 2006. They issued him a bill for $440,000. The basis for fraud and evasion—one of the bases—was that he hadn't had an accountant's professional advice in filling out his tax return; he'd done his own tax return. I don't call that fraud. He had on all occasions declared all income at all times and been completely upfront. We supported Rod and battled that through to the Federal Court. After an 18-month or two-year period of being put through hell, the Taxation Office said in court, 'Look, we made a mistake and we withdraw.' Alleging that someone has committed fraud is a pretty heavy scene.

CHAIR: We don't really want to get into too many individual cases, but in that case, were all your costs paid and was Mr Douglass satisfied?

Mr Phillips : We are very fortunate to have some lawyers who are very generous and committed to justice. The court costs at the Federal Court level were awarded to Rod.

Senator HINCH: Can I ask you about Ms Petaia. You say in your submission that she got a rare apology from the ATO but is still being put through hell. What's the background of that?

Mr Phillips : So much of this and the behaviour of the ATO I liken to what happens with the churches over the sexual abuse cases and with the banks over their behaviour. At all times, it's 'deny, deny, deny'. To the credit of, I think, the deputy commissioner, they recognised that they had made a mistake and they apologised to her. They then said, 'Let's go through a compensation process.' My observation of that compensation process is a revictimisation of the victim, just as we saw with the churches and just as we saw with the banks. Large organisations behave in a particular way. It doesn't matter if that large organisation is a private sector or public sector organisation. There are certain dynamics within an organisation that cause it to behave in a certain way. Our view is that Helen Petaia had been revictimised.

Senator PRATT: Mr Phillips, is this issue in terms of a systemic culture within the ATO? I would imagine that it's not just at the point where people go to court that these issues arise, and that many people have to resolve their issues with the ATO before they ever get to court. Do you think this bill will influence things on behalf of the broader small business community dealing with the ATO? Do we need to look to driving other forms of cultural change within the agency and not just in the courts?

Mr Phillips : This bill, on its own, will have limited impact for business. It probably will have more impact for high-wealth individuals and so forth who wind up in that case. The answer is yes. We've been very clear in our submission about what needs to be done. It's not just cultural reform. An organisation will behave according to the remit that it has. The tax commissioner is the tax office, under statute. The tax commissioner has the power of a dictator. If you have dictatorial powers, those powers will be abused. So the culture is a product of the dictatorial powers the tax commissioner has. Our view is that there is effectively no oversight of those dictatorial powers, and that oversight needs to occur and it needs to be institutionalised. If you can institutionalise that oversight, you then will get the cultural reform.

Senator PRATT: Separate to being a model litigant?

Mr Phillips : Yes, in terms of behaviour from the very beginning, right through to being in court.

CHAIR: Mr Phillips, you thanked the committee for bringing this bill forward. I should say that it's not really the committee as such; this was put up by a private senator, who happens to be Senator Leyonhjelm. We thought he might start the questioning. It is his bill that the Senate is inquiring into.

Senator LEYONHJELM: Thank you. I note your concerns that this is not the full answer. I also note your concerns that most small-business people would not take it through to the Federal Court, where the model litigant legislation, should it become an act, would apply. But I ask whether you think that, nonetheless, the ATO would never know in any particular instance whether a taxpayer was likely to take it all the way through to the Federal Court, knowing that failure to adhere to model litigant rules, even though they are not obligatory until it gets to the pre-trial stage, would nonetheless influence ATO behaviour. I am optimistic that it might, but I'm wondering what your view is.

Mr Phillips : I think there is no question of it, which is why we so strongly support the bill. I think the Shord case, with the comments by Justice Logan, was a severe embarrassment to the taxation office because it exposed their behaviour over a long period of time. The taxation office does not want to be embarrassed and their lawyers do not want to be embarrassed. If the potential for a stay were to occur, or even an application for a stay were to occur, I think that would modify the behaviours.

Senator LEYONHJELM: Of the cases you have mentioned in your submission, you might like to choose which this might have had the greatest influence on, had this been law at the time these cases were occurring. You have mentioned in your submission Rod Douglass, Helen Petaia, Mark Freeman and Mr Shord. In those instances, which ones do you think would have most benefitted by having this is an act?

Mr Phillips : I think all of them.

Senator LEYONHJELM: At what point do you think that would have had an influence? Take us through a bit of detail there.

Mr Phillips : For example, on the issue of fraud, the taxation office in our view concocts allegations of fraud and that allegation becomes at law a fact and not an allegation, which you then have to unprove. There is a whole string of processes that need to occur around that. If that thing gets into court, as with the Rod Douglass case, where the taxation office had to back down and say they had made a mistake, that opens up a whole series of sequences of processes and behaviours and games that they have played to get to that point. So it is the exposure of their internal processes: have they operated at least within the principles of a model litigant and does that then get to the point, in court, of the application of the act itself of the model litigant obligations. For example, in Helen Petaia's case I would have thought that there would have been a constraint on alleging that she had committed fraud.

Senator LEYONHJELM: Helen Petaia's case is the one that came to mind. In her case, she had received R&D grants that turned out to be perfectly legitimate R&D grants. She treated them accordingly for tax purposes. The ATO said they were income and they weren't R&D grants and were taxable income. You'll have to refresh my memory on the facts here. They denied her access to documents or something along those lines?

Mr Phillips : It is incredible stuff. The stories are quite fantastical.—

Senator LEYONHJELM: At what point would the influence of the model litigant obligations, assuming they were binding obligations if the bill were passed—at what point do you think the ATO would have said 'Yes, we are not doing the right way here.'

Mr Phillips : That is very hard to tell, because these things stretch out for such a long period of time, where people do get literally cooked over a very long period of time. One would hope that there is a point within the discipline of the ATO, and their checking systems, where someone goes, 'We've got a problem here.' They claim that they have those checking systems, but those checking systems quite clearly fail.

Senator LEYONHJELM: Which was the case where a woman's documents were all seized and because they had been seen seized she was unable to prove her bank loan—

Mr Phillips : That was the Mrs Baia case. That was a court case that I found quite amazing. She had money deposited into an account. Her records had been seized. She said that the records showed that the money was a loan, and applied to the court to have those records brought out to prove her case. The Taxation Office said that it would be too onerous to produce those documents, and I was staggered that the court agreed with them and didn't require the documents to be produced.

Senator LEYONHJELM: So, because of the onus to disprove the ATO's allegations, the ATO had the documents she needed to disprove that and they wouldn't release them?

Mr Phillips : There is no onus on them to behave according to the normal principles of justice.

Senator LEYONHJELM: In that case, what would the model litigant obligations have done, had they been binding?

Mr Phillips : Such things as, if we go to the specifics of the model litigant obligations—which I've gone through in our submission:

… endeavouring to avoid, prevent and limit the scope of legal proceedings wherever possible.

Have they done that? I would say that the non-production of a document that would demonstrate the facts of a case would be something where you would think ordinary people would say, 'Look, you produce that, because that would avoid, prevent and limit the scope of legal proceedings.'

Senator LEYONHJELM: And it was legal proceedings in that instance?

Mr Phillips : Yes.

Senator LEYONHJELM: All she would have needed to do to invoke the effect of the model litigant bill would have been to make a complaint to the Ombudsman and, from then on, the court could have considered it?

Mr Phillips : My understanding of what the bill would have done is it would have enabled her lawyers at the time to make an application to the court for a stay of the proceedings to consider the model litigant behaviour.

Senator LEYONHJELM: I think the first step would have been a complaint to the Ombudsman—that doesn't need to have been responded to; they just need to make a complaint to the Ombudsman first—and, from then on, she could've asked the court for a stay of proceedings; I think that's correct. In that case, you think that may have—

Mr Phillips : There's no question. Take the Shord case: the Shord case was an extraordinary sequence of events. Mr Shord was a deep sea diver who worked overseas. Whether or not he had to pay tax here depended upon whether he was defined as an employee or not. The Taxation Office was saying he was not an employee; he was saying he was, when he went and worked overseas. It went to the AAT. There was a submission by the Taxation Office to the AAT that he was not an employee. But then, in the AAT hearing, the Taxation Office said, 'Look, we now agree he was an employee,' so it should've settled the matter. The decision that came out of the AAT was essentially a cut-and-paste of the ATO's earlier submission, as if what had happened in the AAT hearing hadn't occurred. The AAT ruled that he was not an employee. This was flipping backwards and forwards. Surprise, surprise: the Taxation Office didn't turn around and correct the AAT and say, 'No, no, this is wrong.' They then took it to the Federal Court and maintained their position in the Federal Court. This just seemed, again, to defy the idea of model litigant behaviour. You would have expected the ATO to stand up and say: 'Excuse me, there's an error here. We have submitted that the person was an employee, and the case should be withdrawn.' Instead, they took the technical advantage. To me, that would've been a clear breach of model litigant obligations.

Senator LEYONHJELM: I think the bill is intended to address more than malicious intent, which is taking technical advantage of the ATO's resources and knowledge, and, as you said, the advantage given to it by the law, which is that it's allowed to assert things that then have to be disproved by the taxpayer. In that context, fairness by the tax office—not taking advantage of its size, its resources, its superior knowledge and all those sorts of things in an unfair way—should not be permitted.

Mr Phillips : The Taxation Office operates under laws that are quite unlike any other principles of justice that apply in the community because what they say becomes a fact at law, not an allegation, and you have to unprove that. Because of those awesome powers, what we would call dictatorial powers, we are reliant on the Taxation Office to behave in a fair, reasonable and just manner. And when they don't, which we say is quite often, the potential for abuse and the actual abuse that occurs is quite palpable. They need the institutional constraint, and the bill would go a long way in that direction.

Senator LEYONHJELM: Your reservation about it was that it should also include the AAT, but the ATO knows that any decision in the AAT can be appealed to the Federal Court. The assumption made when the bill was being prepared was that that would be pretty influential. But you're not convinced of that?

Mr Phillips : It's going to be extremely influential for people in high-income areas who can afford to pay for the lawyers. It will be considerably more limited for ordinary people who cannot afford the legal expense. To go to the AAT, if you can't come up with about 40 grand to fight this through, you're not in the ballpark. So you're dead before you start on this. And the ATO win most of their cases against small business people because the people cannot afford to follow it through. If you want to go to the Federal Court after the AAT, add another 40 grand, minimum, to it. Most claims in the small business area are $50,000 or $60,000—or whatever it might be—and the ATO know that they've got this advantage, and they just require people to cut deals.

CHAIR: Sorry, it's $40,000 to go to the AAT?

Mr Phillips : If you're going to line up your accountants and your lawyers and all the rest, you'll go through 40 grand pretty quickly. This is not a cheap system; this is a highly expensive system.

CHAIR: The AAT, of course, are supposed to be an easy way of dealing with administrative decisions.

Mr Phillips : This is why we've called for a small business tax tribunal. The AAT is not working.

Senator LEYONHJELM: I think they are cheaper than the court. But 'relatively' is all we're talking about.

Mr Phillips : In the AAT, of course, there's no cost jurisdiction, so what happens is you have to bear your own costs. Even if you're completely in the right, you're going to lose anyway because you're going to do tens of thousands of dollars before you even start.

CHAIR: How would you suggest that the small business tax tribunal—

Mr Phillips : We've looked at the immigration tribunal and the modelling around that, and we're very interested in that because our understanding is—again, I'm not a lawyer—that an application fee is $1,600, and the tribunal in the immigration area makes a decision which it imposes upon the immigration department. If the applicant has lost, they can still go to the courts. And, we understand, if they win they get back $800, and the immigration department can't appeal that. So, once again, I'm not a specialist in the area, but that sort of modelling is of a great deal of interest to us.

CHAIR: Have you ever made a submission to anyone about that?

Mr Phillips : We haven't had an opportunity to. We'd be very keen to.

CHAIR: You've never written to the Treasurer, for example, to say, 'You should do this'?

Mr Phillips : No, we put things out in the public domain. The process that we're undergoing at the moment is to get the issue on the table. The big issue that's been out there up to date is: 'There's no problem. There's nothing to see here, folks.' We're in the process of saying: 'There is something to see here. This is quite serious stuff.' And we really appreciate today's hearing because it does give us the opportunity to put in a public way the sorts of solutions that we're looking at.

Senator LEYONHJELM: Just on that, you did a good job of putting your view into the public domain on the Four Corners program, and then that was raised in estimates. So the tax office had a response to some of the suggestions that were raised there. You've made a supplementary submission, responding to the ATO's response, so you're putting it into the public domain. You might like to talk about that. But the chair's suggestion that a recommendation for a solution rather than the identification of a problem, or the repeating of the existence of a problem, can sometimes be more constructive—perhaps you'd also like to talk about that.

Mr Phillips : We, for example, spent eight years advocating to get the unfair laws through, which are now in. We're delighted with those. When we first started with that, we had people in Treasury tell us, 'There's no problem because we never get any complaints.' And now the ACCC say there is something in the order of two million contracts to be corrected. So, we've always taken the position—and we take the position here—of: describe the problem but offer a solution. We certainly have done that and would be prepared to go through that in more detail. One of the things that we accept, in offering a solution, is that what we might say isn't necessarily the outcome that may be achieved, because other people take it over and see the whole thing. It's the principles of the solution, and often you wind up with solutions that achieve the outcome in a way that we haven't particularly—

Senator HINCH: Following up on that, you said in your opening comments that you thought the ATO should be broken up into two organisations. Can you expand on that a bit.

Mr Phillips : At the moment what we have is: the ATO is the policeman, the DPP—the prosecutor—the judge, the jury and the financial hangman, all in one organisation. That breaches normal principles of good quality policing, and the Taxation Office is just a police force, no more. It's a collection agency and a police force. Under good policing, you have a police department that has to apply to the DPP and put its case about a prosecution. The DPP turns around and says: 'Look, you haven't done your homework. Go away and do it, do it properly and bring it back to us.' The ATO says that internally it has that sort of check, but it doesn't work. The dynamic inside the ATO is that everyone is protecting each other's situations.

So, what we're saying is to break the ATO up into two organisations—effectively the policeman and the DPP—and apply that good-quality principle of Public Service arrangements to the ATO. Further, having the tax commissioner as a tax dictator is really not acceptable in this day. That might've been okay in 1936, when the position was created. We're much more in favour of the tax commissioner being more like the ACCC—that is, chairman of the board, reportable to a board—and having that in both organisations. What we're saying is: have a look at what already happens in terms of institutional arrangements in the Public Service and apply those to the ATO. One of the primary protections that the people have against abuse of the system is that the state has institutions competing and checking each other. That does not occur with the Taxation Office.

CHAIR: Mr Phillips, we're rapidly running out of time. Senator Hinch has some more questions. I know Senator Pratt does, and I do too.

Mr Phillips : I'm aware I've gone well over my time.

CHAIR: No, that's our doing, not yours. Your proposal to split the tax office—has that ever been made seriously to the Treasurer of the time?

Mr Phillips : Not officially. We've certainly published it. We've put it out there in the public domain. We've got papers on it. The Taxation Office is well aware of it, I can tell you now.

CHAIR: Have you had any response?

Mr Phillips : Zero.

CHAIR: As a question on notice from me, could you summarise your summary of that into one page and send it to the committee, just very briefly. Similarly on your proposal for a migration division, a tax division of the AAT—could you do that as a question on notice on one page.

Mr Phillips : A page on each page or a page for the whole lot?

CHAIR: A page on each. I won't speak for the rest of the committee, but the chairman is a simple mind—

Mr Phillips : You require summaries.

CHAIR: We don't need to draw the fine details, but it's important that the committee can perhaps recommend to the government that this be looked at.

Mr Phillips : I have a range of very knowledgeable tax lawyers who have put a whole lot of stuff to us, and I've said the same thing.

CHAIR: Well, you know what I mean. It's for others then to go through and do the parliamentary drafting, and this bill is a very good attempt at that. If you can give us the ideas of that. I think you've mentioned it in your submission, but, as a question on notice—

Mr Phillips : A lot of this would be revisiting the proposals by Joe Hockey, when he was Treasurer, to split the ATO.

CHAIR: Joe proposed that?

Mr Phillips : Yes. It went nowhere.

CHAIR: But he was the Treasurer.

Mr Phillips : Yes.

CHAIR: Perhaps that justifies the comments you're making. The Law Council say:

… the Bill does not, as a matter of substance, provide any additional power to a Court that does not already exist by reason of the common law and the Rules of the Court.

And there's some comment about the rules of the court. In fact, I see that in your submission in your opening pages you indicate that the court has said in a couple of very notable cases that the tax office has not been the model litigant. How would you answer the Law Council's suggestion that that power already exists and this bill doesn't take it any further?

Mr Phillips : I'm not a lawyer and I wouldn't dare seek to respond to lawyers' views on this, because I don't know. What I look at is the general policy principles that would apply within a normal understanding of justice. What I do know is that when you read the model litigant requirements there are innumerable twists and turns in there, and potential outs. The legal arguments that would go around whether or not you had complied with model litigant obligations or not would be quite extensive.

CHAIR: You're talking about tax, of course, but this applies across a whole range of issues in which the Commonwealth government is involved in litigation. I agree with the proposal of this motion and you, that the Commonwealth should just play it straight down the line. If they win, they win; if they lose, they lose. It's up to the courts to make those decisions. They put the facts and they put them fairly and they engage in a lot of the tricks of the trade that my former profession engages in as a matter of course, because that's how you win and lose things.

Mr Phillips : I've been sitting at the back of courts with cases and so forth and read a lot of judgements and so forth—why, I don't know, but I do. The Taxation Office—and, once again, I can't comment on the rest of the Commonwealth—certainly play every legal game that they can. Every technical trick that might be available is played. Every delay, every appeal—everything that you can possibly do. The honourable profession plays every game that it can no matter where you're sitting, and that's what we've certainly observed.

Senator LEYONHJELM: The argument would be that the current model litigant rules exist, but at least some Commonwealth agencies don't apply them. The Law Society argument is that because they exist that's all that's required. What you would be arguing, I think, is that their mere existence doesn't compel the Commonwealth to comply with them, and that this bill would introduce that compulsion aspect?

Mr Phillips : The model litigant obligations have no teeth as they currently stand—absolutely no teeth. It's up to the Commonwealth—

CHAIR: Because they're a legal service direction rather than a legislated—

Mr Phillips : From a practical point of view, who are you going to appeal to? You're appealing to the institutions that are the ones that are supposed to have the obligation. This is why you need something that you can go to the judiciary with. This is the traditional constitutional division of power. The judiciary are the people who are supposed to be overseeing the behaviour of the Commonwealth. If we don't give those teeth to the judiciary, the model litigant obligations are simply words on paper.

CHAIR: The one-page I asked you about, the splitting of the tax department, perhaps an easier way might be if there is a published account of what Mr Hockey was proposing as Treasurer. If you could refer that to us, that might be—

Mr Phillips : We have identified some people who were advisers to Joe Hockey at the time. We haven't spoken to them, so we haven't been able to—

CHAIR: Well, back to plan 1.

Mr Phillips : There are some people around that should be talked to.

Senator PRATT: The Commonwealth Ombudsman have made a submission to this inquiry. I wondered if you might comment on their current oversight in relation to the ATO and the effectiveness of that, noting that they currently already have the power to oversee model litigant complaints, and whether that's happening effectively or not.

Mr Phillips : Again, I'm not a lawyer, so I have to make comment within the terms of an average person's understanding of it without the specifics of it. If I make errors in my comment, I apologise up-front. Certainly with the IGT, who has oversight—the IGT can give reports and they have no legal consequence. The Ombudsman can make reports. Whether those reports have legal force, I don't know. My understanding is probably not, but I stand to be corrected on that. I don't believe that the Ombudsman can force the ATO into a situation. They make a report and the ATO voluntarily chooses to. I stand be corrected.

Senator PRATT: You think that the ATO is effectively ignoring the Ombudsman's finding? It might be a little bit more complicated than that—

Mr Phillips : According to retired court judge Richard Edmonds, the ATO is prepared to and regularly does ignore the decisions of a court. Who else are they going to ignore?

Senator PRATT: We'll have to ask the Ombudsman whether the ATO—what they do in response to their reports and findings about individual complaints. Thank you.

CHAIR: Thanks very much, Mr Phillips. We do appreciate your submissions and your evidence today. If you could let us have those—

Mr Phillips : My thanks for your interest and the guidance of the secretariat.