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Wednesday, 17 November 1993
Page: 3041


Senator BISHOP (4.24 p.m.) —I rise to speak to the report of the Joint Committee of Public Accounts entitled An assessment of tax and to my minority report attached to it, which I have entitled Tax is inevitable, injustice is not. These reports were tabled in the House of Representatives earlier in the day.

  My concern about the unequal struggle between the bureaucracy and individual Australians became of vital importance to me during the long inquiry into the MidfordParamount affair, in respect of which we have seen in this last week that the taxpayers have to find $25 million to be paid by way of compensation to the people whose lives, businesses and reputations were ruined by the bureaucracy. It has been a long haul because the government originally opposed my wanting to make that reference to find justice for those people. My motion in this place to have that matter referred to the public accounts committee was vociferously opposed by Senator Button. But at the end of the day this matter was referred to the committee and, with Mr Punch, we worked to find justice for the people who had been destroyed by the actions of the bureaucracy.

  When we came to examine the Australian Taxation Office, I was again ever mindful of the fact that there is an unequal struggle between the might of the Taxation Office with its open-ended purse and individual Australians who find that they have no resources to fight back. I have a very high file in my office. I have an agreement from the new Commissioner of Taxation, Mr Carmody, that we will sit down together, now that this report has come down, and go through those complaints by ordinary Australians who find that they have been harshly treated.

  I have called my report a minority report as distinct from a dissenting report because its aim is to add things which I thought needed to be dealt with but which were not dealt with in the body of the report, and to flesh out and deal with more fully some items in the main report. Consequently, there is much in the majority report with which I agree and concur but there are other things which I felt needed to be said in the minority report.

  There are two important areas where I do, in fact, disagree with the majority report. The first area is the creation of a commission. I have stood in this place too often and heard ministers say, when they are asked questions about bodies which are corporations or indeed commissions, that they cannot and will not answer because they are at arm's length. To me, the Australian Taxation Office must be directly accountable to this parliament. Its officers must appear before estimates committees. There must be a thorough and ongoing accountability to the parliament for the way in which the commissioner exercises the vast amount of discretionary powers that he has under various pieces of legislation.

  I have recommended that there be a tax board. A tax board was part of the coalition's policy that we took to the 13 March election. It was a good idea that was properly researched; it is one that I would still continue to support. Therefore, I have said that a taxation board should be appointed.


Senator Schacht —What is the difference?


Senator BISHOP —In reply to the minister's interjection, the difference is a question of accountability.


Senator Schacht —What is the difference between a commission and a board?


Senator BISHOP —I am just explaining it to the minister. As I said, a commission is further distanced from accountability to the parliament. So I have recommended that it be a board. Further, I have spelt out the ways in which the board and the commissioner should interact and the accountability that should be directed to the parliament.

  In the area of rulings there was a further disagreement. I believe that this matter is of paramount importance. Those who read my minority report—and I strongly suggest that people do—will find that one of my major concerns about the manner in which public rulings are made is that they do in fact have the force of law. The commissioner declares that he is actually not making law but, to all intents and purposes, he is. I deal at some length with the constitutional questions that are raised in this respect.

  For that reason, I have said and insisted—not only at the end of the inquiry but also during the inquiry—that tabling and disallowance should be applicable to rulings; that, indeed, they should be made in accordance with the ordinary regulation making powers contained within the ordinary taxation legislation. Senator Parer in his tabling address said that the committee was concerned that those rulings should be tabled, but that is merely a method of publishing them. My concern is that the law is made by the parliament. Under our constitution it is the parliament that is required to impose laws.

   As honourable senators all remember, we had quite a disagreement with the government over the method of imposing taxation when the question of the budget was being dealt with in this place. Mr Dawkins had wished to place a number of tax impositions and tax cuts in a single omnibus bill, but a committee of this place indicated that it would be likely to be found to be unconstitutional.

  Accordingly, I recommend as follows: that the relevant Commonwealth tax acts be amended to provide that general public rulings be issued as regulations under the taxation laws and subject to tabling and disallowance in the parliament to enable persons dissatisfied with a general, that is public, ruling to object to it in the same manner that the legislation now provides for persons to object to a private ruling, and to provide that, where a private ruling applies for more than one year, the acceptance of the private ruling by the person to whom it was issued trigger off the appeal procedure.

  There was also a grave concern that with regard to private rulings some may get them and others may not. There is no provision in the present legislation to force a private ruling to be made one way or the other. And of course there is the extraordinary power conferred on the commissioner that he can revoke a private ruling on the basis that he has identified some other group of people that may be affected by the private ruling in a way which he considers to be adverse—a very curious conferring of power.

  We go to the question of taxpayers' rights. There was agreement in the committee that taxpayers' rights had to be recognised. Again, that goes to the very heart of the question of justice and equity. At the moment it is a very unfair contest. If we were to use the level playing field terminology we could say that the field is very much tilted in favour of the Taxation Office.

  I commend the comments of the majority report on the requirement of a charter of taxpayers' rights, but where I add to the majority report is to say that it should not be a mere statement of platitudes or intentions; it should serve to focus on the discretionary powers vested in the taxation administration and the remedies and safeguards that have been inbuilt to tax legislation to prevent the unauthorised use of such powers. It should also set out the procedures for seeking such remedies.

  I therefore make a recommendation that a charter should include, but not be limited to, the rights of taxpayers and the obligations of the Australian Taxation Office during the conduct of an audit—a very important question. Many firms feel that they are put upon by the intrusion of the Taxation Office and very often they will settle those claims on the basis of simply getting them out of their hair. Secondly, there are the procedures by which a taxpayer may appeal an adverse finding by the Australian Taxation Office and, thirdly, there are the procedures that the Australian Taxation Office may use to enforce taxation laws.

  The majority report listed the basic entitlements which could be expressed in such a charter. I concur with these points but stress that they do not constitute a comprehensive list of the necessary rights to be recognised. So in the meantime I think it is urgent that we look upon certain sections of the tax act which I think need to be dealt with as a matter of some urgency.

  Section 263 of the Income Tax Assessment Act and similar provisions in other taxation laws should be amended to provide that the powers of entry and search only be permitted with a warrant issued by a judicial officer and that the written authorisation carried by the officers of the Commissioner of Taxation attempting to gain entry under section 263 show on its face the premises to be searched and the books, documents and other papers or classes thereof which are the subject of the search, and that the guidelines issued by the Commissioner of Taxation in July 1991 which were concerned with the exercise of powers under section 263 to access documents held on lawyers' premises in circumstances where a claim for legal professional privilege is made be included in the taxation acts of the Commonwealth or in regulations.

  I then go on to deal with the highly important question of tax reform and tax law simplification. Two things have occurred. Firstly, the law has become more and more complex because of the way in which legislation is drafted. The technique used is to try to imagine any particular loophole or exception or occurrence that may occur in the future. The result is that we have hugely complicated legislation, the meaning of which is not readily available to or understandable by ordinary Australians—and if the law is not comprehensible, then it is not good law.

  So when we talk about the purpose of that legislation, which has been to do away with evasion and avoidance, we also look at the question of simplification. But let me deal first with the question of evasion and avoidance. In the 10 years that Mr Keating has been either Treasurer or Prime Minister, all tax changes or so-called reforms have been brought in to, so-called, get rid of evasion and avoidance. Yet the Auditor-General now qualifies the financial statements of the Australian Taxation Office on the basis that the commissioner has not worked out a means of estimating how much revenue is still being evaded or avoided. The last time he was able to do that was for the 1985 tax summit. After that we have had to rely upon academics and others who are doing their own research and publishing, so that the most recent figure we have is one from an academic, which shows that perhaps the forgone revenue by way of evasion and avoidance is some $6 billion.

  To counter this, as I said, the tax gap which has been identified by the Auditor-General and which has resulted in the financial statements of the Australian Taxation Office being qualified for the last several years means that we have no measure, no ready reckoner, of whether or not the laws that are being introduced and administered by the tax act have been effective. So I have made a very strong recommendation that there be an outside review of how we can find a proper way of measuring that tax gap so that we can know whether there is efficiency in the administration of that office.

  One will also find in my minority report a detailed analysis of the manner in which Mr Boucher handled the modernisation agreements, both with the finance department and with the Public Sector Union. Those two agreements are in competition with each other. The promises made to the Department of Finance could not be met because of the effect of the Public Sector Union. One will find from the evidence that the Taxation Office was going to be $114 million short over a period of some two to three years; that if it did not get an injection of additional money, that is, $114 million, it was going to be unable to pay the salary bills.

  The agreement with the Public Sector Union meant that the Taxation Office could not shed the staff that it was required to do under its agreement with the Department of Finance, in return for which the Department of Finance authorised the Taxation Office to spend $1.2 billion of taxpayers' money to so-called modernise the Taxation Office. That modernisation program can be measured only if we see the sorts of mechanisms put in place that I talk about in the minority report.

  As a result of our failure to have that standard by which to measure the Taxation Office, we then looked at, both in evidence to the public accounts committee and in estimates, how effective the various shall we say, profit centres, of the tax office are—that is, the various particular varieties of tax. I think honourable senators will find it interesting to note that the fringe benefits tax, which both the majority report and I recommend should be looked at in terms of being simplified and made more certain, has been one of the few growth areas of taxation revenue. But whether or not that is because more revenue is being collected under existing legislation or whether it is because new fringe benefits were added to the fringe benefits tax is not disclosed in any of the material provided by the Australian Taxation Office.

  Also dealt with in my minority report is the infamous black hole in the last budget of Mr Dawkins. After the budget was brought down it was discovered by the opposition that, indeed, there was a hole in the figures provided and that, when supporting documentation was read, one saw that new taxes, withholding taxes, were being foreshadowed for subsequent taxation years. There was also a minute tabled by Mr Boucher showing that he thoroughly supported withholding tax as the strategy to be pursued for the collection of tax to meet revenue targets, and yet he finally backed away from his own recommendations. When questions were asked about that black hole, the provision of the additional $114 million, the fact that that $114 million was needed for salaries to be paid and that, in the space of less than three weeks, $1.7 million was able to be found by way of additional compliance, we found that there were no answers forthcoming, and the reason for that change of mind remains a mystery.

  Honourable senators will find that I deal with a number of items relating to the politicisation of the Taxation Office—everything from the special treatment given by the deputy commissioner to Mr Keating over the failure to lodge tax returns, when ordinary Australians were prosecuted for that, to the way the commissioner dealt differently with information sought by the Fitzgerald inquiry and information sought by the WA Inc Royal Commission. Those questions remain unresolved, but the evidence remains on the record.

  My main concern in bringing down this report is that we see fairness and equity in the tax system. For that reason, I have also dealt with the question of capital gains tax. It is a discriminatory tax which is now being expanded by the way in which, by public rulings, law is effectively being made. I deal in the minority report with Hepple's case; the comments of the High Court, which said this was a matter for the parliament to fix, not the court; and with the subsequent amendment to the act and the way in which that has failed to fix the problem.

  The capital gains tax in terms of revenue that it was originally stated it would meet has not met those targets. But it has been a distorting tax in that, because the family home is exempted, savings have certainly been distorted. One did not have to be very smart to work out that that was going to occur. For that reason, and because it is a de facto wealth tax and a de facto death duties tax in many circumstances, I believe that justice and equity in the tax system would be better served not by taxing the family home—which is anathema to me—but by replacing the capital gains tax with a speculative gains tax.

  Questions of revenue that would have to be found certainly can be dealt with by identifying compliance and the tax gap that I have referred to by having a systematic and comprehensive system of indicators so that we can know how well or how badly the Taxation Office is being administered. Mr Carmody is new in the job. He held a press conference this afternoon and he said that he would be reading all of the report. He has said that he will certainly read my minority report.

  My overwhelming interest is to see that ordinary Australians get a fair go and are no longer en masse described by the commissioner or his office as being tax cheats. Most ordinary Australians are hard working people who try very hard to comply with all laws. The law is complex as it is, and I am reminded of the fact that when the tax pack was first published, it was intended to mean that more Australians would be able to furnish their own returns but, in fact, what occurred was that the number of Australians who used accountants to furnish their returns went up; one look at that tax pack and it frightened them to death, me included.

  As I said, my concern for ordinary individual Australians to have a fair go under the bureaucracy began with the vast injustices that were perpetrated in the Paramount Midford case when reputations, health and businesses were destroyed by the act of the bureaucracy. It was only through individual members of parliament—and I was very pleased to play a part—that it was brought to the attention of the public, the parliament and the government with a recommendation that compensation be paid that we finally saw some justice.

  By bringing in a minority report today, I believe that I can help ensure that we see less injustice for ordinary Australians so that we do not see in the area of the Australian Tax Office the sort of injustice that was brought down by the Australian Customs Service.

  I say again that there is much in the majority report with which I concur and, indeed, was involved with in gathering evidence during the course of the inquiry, but I also felt that there were extra things that needed to be said. I commend both reports to the general readership but I believe that the two areas where I am in disagreement do need thorough consideration, because tabling and disallowance, and a board and not a commission, is the correct way to proceed.