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Economics Legislation Committee

FORD, Mr John, Assistant Commissioner, Risk and Strategy, Superannuation and Employer Obligations, Australian Taxation Office

JEREMENKO, Mr Robert, Division Head, Retirement Income Policy Division, Department of the Treasury

MITCHELL, Ms Nicole, Acting Principal Adviser, Retirement Income Policy Division, Department of the Treasury

O'HALLORAN, Mr James, Deputy Commissioner, Superannuation and Employer Obligations, Australian Taxation Office

THOMSON, Mr James, Manager, Retirement Income Policy Division, Department of the Treasury


ACTING CHAIR: I now welcome officials from the Department of the Treasury and the Australian Taxation Office. Good afternoon. I remind officials that the Senate has resolved that an officer of a department of the Commonwealth or of a state or territory shall not be asked to give opinions on matters of policy and shall be given reasonable opportunity to refer questions asked of the officer to superior officers or to a minister. This resolution prohibits only questions asking for opinions on matters of policy and does not preclude questions asking for explanations of policies or factual questions about when or how policies were adopted. Thank you for appearing before the committee today. Do you have an opening statement? If not, I will go to the deputy chair.

Senator GALLACHER: Has the Taxation Office ever had amnesties like this before? If so, what were they and how successful were they?

Mr O'Halloran : The short answer is that there have been a lot of times where there has been encouragement under the administrative powers of the commissioner for people to come forward. Some you may be familiar with. One was called Operation Do It for the repatriation of money overseas. In a sense, you could argue that some of the others are administrative discretions the commissioner exercises, but one which is based on a change to the law? To my knowledge, no.

Senator GALLACHER: So this is the first legislated amnesty.

Mr O'Halloran : It is to my knowledge, and I've reasonably checked. The only nuance in that is, of course, that probably—it's certainly not for me to speak to the policy design—the superannuation guarantee has some nuances where the commissioner has no discretion, particularly around the remission of what's termed the 'administrative penalty'. It's quite hard coded, and so therefore it couldn't be done administratively.

Senator GALLACHER: That was brought forward in evidence before a previous estimates session as the waiving of the $20 penalty per quarter. You didn't have the power to waive that, although you had waived it. Is that essentially the situation?

Mr O'Halloran : Yes. As I gave in evidence at the time, for a period of six to 12 months we certainly did do that, but , when I checked some legal advice, I found that it wasn't appropriate and certainly stopped it as soon as I could. That's the same evidence I've given previously.

Senator GALLACHER: Fair enough. I'm not sure the $20 penalty was all that much of an incentive for people to comply anyway, was it?

Mr O'Halloran : There's a range of users, in a practical sense. I draw to the committee's attention, of course, that the $20 is per employee per quarter, so it can have a large multiplier effect. Like most things in life, it might sound okay until it's the money you have to pay, but it can have quite a significant effect even relative to the shortfall.

Senator GALLACHER: Correct me if I'm wrong, but my understanding of this legislation is that that penalty will be waived in its entirety.

Mr O'Halloran : That's correct. It will be waived or not applied. The commissioner will not be forced by legislation to apply.

Senator GALLACHER: Was the ATO involved in any policy consultation prior to this legislation? Were you asked to provide input into whatever was broken and how to fix it?

Mr O'Halloran : The short answer is that, in the normal course of providing advice to Treasury et cetera in the development, yes, we did. Of course, without going over history, this is part of a total package over the last few years which really started perhaps in 2017. Perhaps you're familiar with a range of discussions with the ministers at the time and also with a parliamentary hearing which had representation from all sides of the parliament. So it's really part of that process, though certainly the amnesty wasn't covered in that territory.

Senator GALLACHER: I'm really curious about how an employer would actually comply with this amnesty. Take a step back and forget the amnesty. If someone came to you as the deputy commissioner of superannuation and said, 'I've got this awful problem: I haven't paid super forever and I've only got seven years worth of records, which I'm obligated to have,' what would you do? Would you calculate prior to that? Would you say: 'You've come clean. That's what you've got. Here's the penalty. Off you go'?

Mr O'Halloran : Certainly that situation exists today, as you would suspect. I think the important thing is certainly the obligation to come forward on the best available information in good faith. You're right: the recordkeeping requirements after a period are certainly not compelled to be kept. In looking at it, as we do now with the submission of super guarantee charges, depending on what's supplied—and some key issues are obviously the period, the employee, the TFN for the employee and other information, but there are also sources outside of, perhaps, tax and superannuation records such as enterprise agreements, payroll records et cetera . To be clear, I think that, as in any voluntary situation where people come forward, people will have whatever records they have or perhaps on a good, long basis, and normally we would accept that as trying to trade off what records are likely to be available and what ones it's reasonable are probably proxies for that estimation as well as what might be the sort of calculations that come out of that, bearing in mind that things like nominal interest and the like are calculated through the lodgement process.

If your suggestion is that the absence of records in an audit sense restricts the ability of a person to come forward, I think the answer would be no. It would be what seems reasonable in coming forward and, of course, depending on where the law lands and other aspects through the parliamentary process, we're certainly building a system that tries to balance what clearly could be an intention of the parliament to allow people to come forward with relative ease but also to recognise some of those features. We've obviously had some experience last year with some of the behaviours, and that might be useful insight into the instances of some of those long-term declarations or coming forward—the average period.

Senator GALLACHER: In the current situation, without the legislated amnesty, are there any examples of people coming forward and actually paying for 26 years or 25 years where a worker or group of workers have had their full entitlement restored?

Mr O'Halloran : The population I draw from is people from when the previous amnesty was announced up to the end of February. We had one instance where one person did come forward for, effectively, back to 1993. The average was five quarters. Seventy-three per cent of those that came forward were microbusinesses. Averages are averages, but it was about five in 27,000 and about five employees. It did cover the full spectrum, but certainly it was in that approximately three- to five-year period—I haven't done a deep analysis—and it was of that ilk, with one case back to the full period. From memory—and I would perhaps have to take it on notice—if you did a scatter diagram, there weren't many up towards that extreme amount of long-term noncompliance. If you have a look at, perhaps anecdotally, you see clearly the amount of businesses that have been around for 30 years and so forth, if they're larger than small businesses, tend to have some longevity or perhaps some better records. But most of the people that came forward were relatively small businesses for all sorts of reasons, and it was relatively that three- to five-year period and relatively small amounts. That money, of course, as we've canvassed before, was paid back to those employees where it was paid.

Senator GALLACHER: There's been a continual stream of media reports about major employers not honouring their obligations. I think there was one in the news today with a $350 million underpayment. All the evidence we've had from the small business council and the like is that 96 per cent of employers in the small-business sector are doing the right thing. Is it just true that the 3½ to four per cent of people who go out there to break the rules, not apply the rules or not record the rules are always going to be there? From the Taxation Office's perspective, will you ever get 100 per cent compliance in an area like this?

Mr O'Halloran : A hundred per cent in anything is always difficult, but I would say two things. I heard some of the previous evidence. One of the major changes has been what was referred to by the previous session, Single Touch Payroll, and the visibility of when payments are made by an employer to an employee. That's a major visible. Another thing is that, whilst I can't comment on specific cases, there certainly are reasons for noncompliance, ranging from big systems and payroll-type calculations through to, as you said, some of the more mischievous ends, or perhaps cash-flow problems et cetera. Whilst it's perhaps contentious, clearly there are views on the theoretical tax gap. I make the point that, on our own figures, let alone our experience more broadly, we're now seeing 95 or 96 per cent of superannuation guarantee being paid. That would seem to correlate with what we're seeing from some of the quite significant early data around Single Touch Payroll. Is our aspiration for 100 per cent? Of course, because people miss out on things. I think all of these things come together—the amnesty, perhaps subject to the parliamentary process; some of the new visibility of our data; and that we've got an ongoing audit and review program et cetera. I think all of those things are certainly actively seeking to change behaviour, and one way is to try to find a way to see the system in operation. I think we've come a long way in the last few years. In short, yes, there'll always be some level and that's why we have a strong audit program.

Senator GALLACHER: Thanks, Chair. I'll come back if there's time.

Senator McALLISTER: Can I just start at the beginning about the nature of the problem of unpaid super. It's an issue this committee has previously canvassed. How would you describe the scale of the problem? Mr Jeremenko, you're the policy lead, I suppose.

Mr Jeremenko : So any amount of unpaid super is too much.

Senator McALLISTER: Of course.

Mr Jeremenko : The latest figures that the tax office have in their annual report are that the gap is $2.3 billion, which members of the committee would be aware is decreasing on previous years which is very encouraging. That's right: it's just under a four per cent gap of the total SG. But that is still too much.

Senator McALLISTER: Noted. What does your data tell us about categories of persons who are more likely to be affected—high-risk demographics?

Mr Jeremenko : The tax office are probably best to add to it; however, from discussions with the tax office, we are aware that there is a significant proportion of smaller businesses that are in the category of not being able to, for whatever reason, pay their SG on time and contribute to that gap. I'm sure Mr O'Halloran has the actual data.

Senator McALLISTER: Thanks very much. Mr O'Halloran, in answering, I am interested in the employer side but I'm also interested in the employee side and whether there are particular categories of employees that are more affected than others.

Mr O'Halloran : A couple of things if I may, Senator. Firstly, if I look at the complaints or employee notifications, if you've heard that term before, that we get from employees, or former employees, who believe they have not been paid super guarantee, and just the headline figure, the demographics from a gender perspective are about 49 per cent women and 51 per cent male. I think that perhaps pertinent to your point is that, for some years now, it has been in what I'd call the service industries and small businesses where the claims have been made. The preponderance of notifications of course is triggered when people leave employment—they're former employees. So I think the categories around the sorts of service industries, small businesses and small to microbusinesses are the characteristic. They do tend to be—I just have to stop and think about it—complaints from people who may not have been in the employment for too long but that's not totally true. If you look at where the employee notifications come from, it's certainly not transient people but people who are often providing services of some description or perhaps construction-type areas et cetera. That's not to say it's the only source, but I'm just trying to answer what the anecdotal feedback is because there are some issues where super guarantee may not be due because they're, arguably, paid less than $450 a month.

Senator McALLISTER: That's another problem; I'll save that for another day. By the sounds of it, the information you're providing to me is based on the complaints process. When you are calculating the gap, is there capacity to disaggregate the data, for example, between men and women in understanding the way in which that $2.3 billion gap which you calculate affects the wider population?

Mr O'Halloran : Affects the—

Senator McALLISTER: So you've got a $2.3 billion gap at population level. Have you got the capacity to disaggregate that, for example, to examine the impact on men and women; or young people and old people?

Mr O'Halloran : I'm more than happy to take it on notice but I'd have to say, because it's what's termed a top-down methodology, it's a theoretical gap. My suspicion is no. I know that industry super and others have a different methodology that they use—and I'm not commenting on that—but my short answer is: I don't think ours would aggregate that way because of the way it's built. It comes from a theoretical assessment, builds in some assumptions around award versus the 9½ per cent and averages and those sorts of things. It's a bit past my skill for today, but I think it's unlikely because it is very much a modelling exercise.

Senator McALLISTER: Just on this broad policy area, have you been asked to provide data to the retirement incomes review at this point about unpaid super?

Mr O'Halloran : ATO?

Senator McALLISTER: Yes.

Mr O'Halloran : No, not to my knowledge.

Senator McALLISTER: But, even if you were asked to, you wouldn't be in a position to provide any gender based information about the impact of unpaid super on women, based on your earlier answer.

Mr O'Halloran : That's my assumption, obviously depending on the question, for the reasons that I've said, but certainly we would provide—

Senator McALLISTER: The model doesn't work like that.

Mr O'Halloran : That's out of the gap data, to be honest, but obviously we would do our best to provide whatever factual information we could assist the inquiry with.

Senator McALLISTER: Of course. Can I ask about the methodology for calculating the gap? We talked about it earlier with Industry Super. I asked them explicitly to walk through how they come up with their number. Their number is twice as big as yours, and that does seem like a significant and non-trivial problem that we ought to get to the bottom of. Can you explain—recognising your technical limitations—how it is that the $2.3 billion number is arrived at?

Mr O'Halloran : The short answer, to the best of my ability today—and I apologise that I hadn't quite prepared to run through that; perhaps I should have—is, firstly, you're right: there are two different methodologies that are being applied. Industry Super builds on, as I understand, really a population count and then works back upwards. The OECD, for our types of gaps, suggest and support that it should be a top-down model, where you start with the theoretical amount of super guarantee that should be paid and then build in assumptions around gross and net differences as well as some of the industry differences within the different rates of, if you like, the mandatory 9½ per cent.

Senator McALLISTER: Contribution.

Mr O'Halloran : Yes, as opposed to award rates.

Senator McALLISTER: Is it your assertion that your model does adjust for that?

Mr O'Halloran : That's my understanding. I would like to take it on notice, because I know I've been asked this question before, and I'd really prefer to give a technically strong answer, if I may. I apologise.

Senator McALLISTER: That would be really terrific. I know that the Industry Super association and the ATO have been in dialogue about that methodological question in the past. To the extent that it is appropriate, a kind of clear understanding of the differences in approach and why they produce different answers would be extremely helpful, because this committee has been kicking this around since 2016 or 2017, and it would be helpful to try and get to the bottom of it.

Mr O'Halloran : I think the gaps are prepared for different purposes. I'm not trying to be awkward here. I'm just saying, from our point of view, as our overall tax gap program, the trend is the indicator that we're trying to track—the difference that our contribution makes. I certainly don't mean this lightly in any way—we don't dispute there is a gap—but certainly that is the main thing that we've been trying to work on for the last few years in the super guarantee space. Certainly two things were apparent as a result of whatever the size of the gap is. One was that people couldn't see their information et cetera. So we use it very much to monitor the trend. I know Mr Jeremenko touched on it before.

To be, hopefully, helpful: yes, there's been a reduction in the gap for the 2016-17 year—when we published it this year, in the last couple of weeks. Obviously I'd like to claim responsibility for that reduction, but I think that would be totally inaccurate. What is important is that the trend has declined over the last three or four years. I think general awareness in the community and the fact that it's not pretend money, if I could put it that way—the superannuation guarantee is important for employees' future et cetera—and even the committee inquiry from two or three years ago have helped the awareness of superannuation guarantee. I think it's in a very strong spot. I just make the point about the trend, and then we build from the gap. We don't use it to target, because it's not appropriate to target or try and draw the data to make non-modelling assumptions. We rely very strongly on our operational work as well as some of the other activities that we do to get a sense of where we can best support or where we can best deflect or defer our audit activities or our risk assessments et cetera.

Senator McALLISTER: The strong proposition put before us by some witnesses is that the amnesty is poor policy relative to the other alternatives available to government. I want to just explore that with both organisations. In particular, the argument is that an amnesty will have limited effect in recovering super. To be honest, I think the Treasury's own numbers suggest that the amount to be recovered is a very small proportion of the amount likely to be outstanding. Also, secondly, it will make things worse and, thirdly, there are better options available.

It would be helpful to understand what the compliance process is at the moment, because the argument put to us, really, is that we'd be better off beefing up the compliance process and that the compliance process at the moment doesn't really cut it, to be frank. Could we just engage with that proposition, because that is the core proposition before the committee?

Mr Jeremenko : Perhaps I will start. It's important to note that the amnesty is of course part of the super guarantee integrity package, if I can call it that, that has been passed by parliament. That ensured that single touch payroll was rolled out to small business and had, in certain instances, up to 12 months in jail for employers who were doing the wrong thing.

The combination of the amnesty, which, as some of the witnesses have given evidence on already today, is a backward-looking measure. The package of measures that has been passed by parliament and which gives those extra powers to the tax office and introduces single touch payroll is very much from that date forward. So the $230 million, which is the figure that is estimated to be collected of SG, super guarantee, as a result of this amnesty is an amount—it's still a lot of money. On average, we're assuming that's from 10,000 employers and 50,000 employees. If you average that out, that's around $4½ thousand per employee that would otherwise not be collected.

As part of the combination of the retrospective nature of the amnesty and the forward-looking nature of the already-passed extra powers, that is the suite of policy options that the government has put forward which aims to address both that SG gap and then tries—through this one-off, unusual amnesty—to bring forward that extra $230 million, which is superannuation that people don't have currently.

Senator McALLISTER: But the alternative pathway would be to undertake strategic audits retrospectively and to identify underpayment through audit of ATO records. That's specifically the proposition that is being put before us; that that would be better than encouraging a small number of people to come forward via an amnesty. What work does the ATO do in terms of retrospective compliance activity? I'm particularly interested in compliance activity that is not complaints based.

Mr O'Halloran : There are a couple of things. Firstly, just a point on the amnesty itself. Of course, one element—which I can comment on rather than the policy elements—is that once people come forward and declare past noncompliance, if you like, obviously we'll be monitoring that those employees continue to get their super guarantee: that, coupled with the visibility of payments. So there is a go-forward element which, obviously, I think is important for the health of the system and the rights of employees.

On your compliance question: we certainly have a relatively large audit program. I'll just run through some context, if that's useful, but I'm more than happy to be quite specific. We have an audit area that does something like 28,000 cases a year—

Senator McALLISTER: On super explicitly?

Mr O'Halloran : Yes, super guarantee explicitly, and, increasingly, because of some data that also includes employer obligations around PAYGW. There is obviously a marriage there but it's, effectively, for what I'm saying now on the super guarantee work. You're right, there are two types of work for us: two types of sources. One is driven by complaints from employees and former employees. Over the last few years we've moved that from being a majority amount of work to about 40 per cent of our work now, and 60 per cent are cases which have been selected from other sources of information. We've tried to correct what was seen to be an imbalance.

Of course, even the EN work was never done exclusively just because somebody had made a complaint. Obviously, the veracity needed to be checked. So we have ramped up the amount of what we term 'ATO initiated' cases. Certainly, from three years ago, in 2016-17, when the audit work raised—and I may need to pause to give you the breakdown—something like $481 million in assessments, in the last two years we've raised assessments for over $800 million in both years.

Senator McALLISTER: And again, that goes just to SG—that's not related to other payments?

Mr O'Halloran : No, that's just SG. That's correct.

Senator McALLISTER: Thank you.

Mr O'Halloran : The issue, of course, of whether one can audit one's way to total compliance is always a difficult balance and that's why the STP reporting is so important. If I could just be specific that the issue, that continues to be something which the government has sought to at least give us some additional powers in relation to director penalty notices and the like, is the incidence of entities that may go insolvent once the debt's raised, which is quite high in super guarantee-type debts. Normally in, if you like, income tax matters and the like, in perhaps the small business area the inability to collect—of course, once a company folds we can't collect the super guarantee, though we can apply director penalty notices but it's still in the order of 40 to 50 per cent, so that makes the debt uncollectable as you'd appreciate. Though some of the change of powers have helped.

I think there are two things with the amnesty. I might have to pass to Assistant Commissioner Ford to get the breakdown on a bit more of the case work. But the proposed amnesty, of course, does not pause our audit work. I still think that's a feature that may be misunderstood, even in the media. This is not a stay arrangement. Both of these things are running and continue to run parallel should there be law. Therefore if we investigate people—which we highlighted two weeks ago, for the first time we're already now able to see for some 400,000 businesses whether they paid by the due date. That's been unseen before. So we actually had blindness around whether an employer was paying. And, ultimately, it's about the money that goes to the account. We have a strong audit program. We do reviews and audits. Yes, there's discussion around the penalty regime, and I acknowledge that that's been a few times and I'm happy to talk through that. We apply penalties. We're conscious of applying our current arrangements where there is or isn't discretion or personal circumstances given that many of these are small businesses and we have to look at those things and should. At the same time, over the last few years—I'll have to check the figure—we've also given back millions of dollars directly to employers as a result of our audit work. I'm happy to pass to John or is that enough information?

Senator McALLISTER: That's okay. On the question of penalties, have you used the maximum penalty, the 200 per cent penalty, on recovery?

Mr O'Halloran : A couple of things and, obviously, this committee and its predecessors have asked a lot of questions around the penalty. Firstly, in answer to your direct question, in 2018-19 we applied the 200 per cent penalty on one occasion. That's one. In terms of the overall figures, in three per cent of cases where a penalty was applied the penalty was over 100 per cent and in 19 per cent of cases it was over 50 per cent. So I think my point is whilst I accept that there are strong views around what penalty should be applied, if I look at super guarantee and the way it's constructed at the moment for income tax purposes, in fact a 90 per cent penalty, for all intents and purposes, is the maximum penalty that can be applied. So whilst we do remit penalties for 200 per cent, as under our current guidelines, to take into account individual circumstances, we have gradually moved—and in fact we recently distributed some further clarification for our staff and we've shared it publicly around trying to be clearer about what is an acceptable condition for remission and by giving some further examples so that at least there's more consistency in the application. I think there's plenty of literature to highlight differing views on whether such significant penalties are a disincentive to come forward, and that's why as part of the package, if I may, the visibility of seeing the payments and with Single Touch Payroll is actually the game changer. Previously we couldn't see what we couldn't see and conversely there was a lot of audit work that was really just trying to collect basic information as opposed to being able to target intentionally noncompliance.

Senator McALLISTER: I've just got one more line of questioning. It's a follow up from Senator Gallacher's questioning around record keeping and the completeness of the information associated with somebody accessing the amnesty. As I understand it the legislation has some exclusion clauses, which prevent some categories of persons from accessing the provisions of the amnesty. Can you tell me what threshold, in terms of disclosure or willingness to pay, an employer would need to meet to avail themselves of the amnesty? In the most extreme scenario, if someone comes forward and says: 'I've been upgrading for five years. I've only got records for one. How about I pay my super for the last 12 months?' would we let them have the amnesty? What are the criteria that would be applied to determine whether or not someone goes through door A or door B in terms of their willingness to cooperate?

Mr O'Halloran : I can only talk about what we're designing, for obvious reasons, subject to how the law may or may not land. I think I'd reference two things. Under the current law employers are required to come forward. I won't say it's self-assessment but it's certainly an obligation that exists now, that employers who realise they've paid late need to come forward. In terms of the amnesty: I'm not quite sure I understand or agree, other than that the conditions of what makes a person eligible, the period of the nondisclosure, goes backwards from 30 March 2018, and that there also needs to be a commitment to pay the money or enter into a payment arrangement—so therefore the defaults on those.

As for what you're perhaps suggesting: I was going to say settlement, but I don't mean it in that way. No, the SG shortfall is the SG shortfall. The nominal interest is 10 per cent and therefore the amnesty—as I'm reading it and would apply it, with some characteristics around streamlining so it's quite clear that people are applying for the amnesty et cetera—would actually be focused on collecting the full amount. In fact, to be honest, that's why there's an incentive. I would think that from a policy point of view, the incentive to be able to claim deductibility et cetera is actually about the behaviour and it's not about a negotiated payment of an amount. It may be a negotiation around a payment arrangement—what can be done over a period et cetera—but it's certainly not about a part payment in the sense of a negotiation. It's shortfall, plus nominal interest so the employee gets their full entitlement and is not disadvantaged because of the historical nonpayment.

Senator GALLACHER: If this legislation were to pass, are you saying that 12 months down the line we could have visibility, perhaps not of the names or details of people, but about what the amnesty achieved?

Mr O'Halloran : I would expect that would be one necessary for the commissioner, and one which we would want to report back on. I might have to check with Treasury. I'm not aware that there's any particular report-back in the legislation or associated discussions. But we would want to report back in the spirit of transparency—as well as given some of the other characteristics of the proposed bill, where there is clearly a change of gear around the remission of penalties.

Senator GALLACHER: Your position is exceedingly clear, and I respect that, but the reality of small business life is that people may not even remember who they employed 26 years ago, let alone have records for them. That's the area where I'm very unclear as to how this amnesty would operate.

Mr O'Halloran : Perhaps I could pick up that point? If I can be brief: clearly, people come forward and do a full and frank disclosure on the best available information that they have. It is in good faith, if I can put it that way. Obviously, in moving forward our audit program will continue whilst the amnesty's going. In a post-amnesty environment, subject to where the law lands, we would continue our normal course, where we would be doing ongoing audits, however sourced. Obviously, we would apply whatever penalty options we do or don't have. Our normal course in an investigation or an audit would be that the period of review is three to four years. We normally go back, conscious of the recordkeeping.

If your question is, 'Would we revisit the amnesty period?' unless there were some suggestion of fraud, or evasion or those sorts of things, it would be very much focused on two things. One is, obviously, the go-forward position, but in particular I think I have a responsibility on behalf of the commissioner to make sure, as best I can, that the community are well aware that this is a one-off opportunity where the commissioner does have discretion. We would therefore make sure, as best we can, that people are aware of the amnesty and of the importance of turning their mind to reviewing records et cetera and coming forward.

Senator McALLISTER: I think it's just the ambiguity around the time frame to which the amnesty relates. As Senator Gallacher has sought to highlight, it's a very long time period. I gave an extreme example of someone seeking to deal with just one year of their obligations, but if a person comes forward, as Senator Gallacher has pointed out, and says, 'I'm willing to deal with seven years of my obligations,' will there be any process by which the ATO actually looks at that employer's records and says, 'Based on information provided over the last 26 years, it seems like you might owe just a little bit more'? I am concerned that the scope of the bill, as described, significantly overstates what it might be able to deliver in terms of recovery of entitlements for employees, basically. I don't understand what the means are to deliver on this 26-year promise that's contained in the legislation.

Mr O'Halloran : Perhaps I can't cover the policy rationale. All I can say is that, if the amnesty law lands as currently drafted, it's not an unusual situation. It's obviously got some legislative elements in it. But our normal position, as always, is that we often receive voluntary disclosures from people who have applied their best endeavours. We look at it at different degrees, but certainly the message that the law seems to impose is that people are encouraged to come forward. They should come forward. It's not to be a cavalier exercise. Therefore, it's more likely than not that we would accept what they bring forward, because we may not have records back that far either in some instances. We will obviously provide information and advice as to the sorts of sources of information that should be available. I make the point clearly that there may be circumstances where people perhaps can't identify former employees and the like. That's probably the closest one. Obviously, we can't distribute money unless we can identify the employee. We'd just be there to help people find out how we can meaningfully support the amnesty application for the period about which they've come forward, where we can facilitate it as opposed to interrogate it. We can't determine the previous periods. We started down this journey some years ago. Regarding some of the elements of the super guarantee system—to the ATO, as the responsible agency for non-payment of SG; that is my responsibility on behalf of the commissioner—there are things that we just didn't have visibility on. Even if we had visibility annually, it was well after the event.

Senator McALLISTER: Mr Jeremenko, why not draft it in a more constrained way? Why 26 years?

Mr Jeremenko : The answer to that is that this is the first time there's been a superannuation guarantee amnesty. It's a one-off, as the minister has said a number of times publicly, and as I said again today. One way of interpreting the large period of time is that, because it hasn't happened before, to do otherwise—to shorten the period of time by which employers can confess, if you like, to not paying the SG—would potentially rob the workers of the super that they would be owed. Mr O'Halloran said that only one instance, in the 25 or 26 years of coming forward, has happened since the amnesty was announced—if I'm not verballing him. It's an extreme—

Senator McALLISTER: I don't feel that's a representative sample of behaviour in—

Mr Jeremenko : Well, it's a fact, as it has been presented to the committee. The point is—

Senator McALLISTER: Yes, but it's not a representative fact. If one person has chosen to do so, that's not representative of what's happening in the labour market.

Mr Jeremenko : The counterfactual is that the employees who are missing their super will get nothing. That's what this is about. This is about getting $230 million of super that is otherwise not going to appear.

Senator GALLACHER: I thought Mr O'Halloran's evidence was that there is a continual audit program of the SGC, and the Single Touch Payroll will identify more opportunities, and we will, slowly but surely, recoup more superannuation.

Mr Jeremenko : That's right, but particularly as Single Touch Payroll is going forward. The $230 million is the historical amount that we have modelled and is expected to be brought into those employees' super balances as a result of this amnesty.

Senator GALLACHER: Was the model done against what potentially has been lost?

Mr Jeremenko : Well, that is—

Senator GALLACHER: Is it 10 per cent of what should be collected? Is it one percent of what should be—

Mr Jeremenko : No, it is part of the broader package, as I said, of the Superannuation Guarantee Integrity Package, which has the jail time for employers of up to 12 months. It brings in the Single Touch Payroll and gives those extra powers to the tax office. If you include that as well, that is the additional part of the policy lever that is trying to reduce that SG gap.

Senator GALLACHER: In your words, not mine, 'The 26 years is in place because potentially people could be seen to have been robbed of their SGC guarantee.' What is the amount that you've modelled in collection, as a percentage of what has been robbed?

Mr Jeremenko : The 230 million is versus zero, if there's no amnesty.

Senator GALLACHER: What is the potential upside?

Mr Jeremenko : That's a hypothetical. I don't know how I can answer that.

Senator GALLACHER: You've modelled 230 million, so you must have modelled a percentage of how much was outstanding.

Mr Jeremenko : Based on a conservative estimate of the number of employers that have come forward in the normal course of events and without any amnesty—and the most recent figures from the tax office are around 15,000 to 17,000 employers; the modelling included a conservative figure of around 10,000—that is assumed to double, so an extra 10,000 employers come forward. That will result in the extra 230 million. It's assumed on average there are five employees per employer, so there are 50,000 employees in that, and—

Senator GALLACHER: Will they all get their 26 years worth of entitlements?

Mr Jeremenko : There is no visibility at this stage as to over what period—apart from what Mr O'Halloran gave in evidence earlier where, if I heard him correctly, he said on average it's around five quarters, which is just over a year, not 26 years, and that was one instance.

Senator GALLACHER: Over what period of time is your modelling done? The 230 million that will go—

Mr Jeremenko : In terms of the collection, it's over the period of the amnesty, which will be six months after royal assent: May or June, or later, depending on the passage of the bill and royal assent. But, because of the design of the amnesty, a portion of that 230 could well include amounts going back 20 to 25 years. But I would just point to the fact that, until it's collected, there's no way of actually knowing what proportion of that 230 relates to older SG debt, if I can put it that way, versus more recent—hence, the number of years.

Mr O'Halloran : Senator, if—

Senator GALLACHER: How did you model it? Is the modelling available to the committee?

Mr Jeremenko : I'm happy to talk through it in more detail, but if it gets into the real nuts and bolts of the modelling, we might need to take it on notice and consult with the modellers.

Senator GALLACHER: You should take it on notice or tell us now.

Mr Jeremenko : But I'm not sure what the question is.

Senator GALLACHER: I'm very simple. If people haven't had their SG guarantee for 26 years and the employer wants the amnesty, are they going to get their 26 years worth of SGC? That's the question before the committee. The evidence before the committee is that most employers in this area either won't have records past six or seven years or haven't kept any records at all. How do you get to a figure of payment that says these people are now not being robbed?

Mr O'Halloran : I have a comment that's not so much on the modelling, but I hope this is useful. This is evidence, but it's anecdotal, in the sense that it may not be on point. If I look at the complaints that we've had over the last two to three years and probably longer, when people come forward, assuming that they are not actually paid SG, 86 per cent of notifiers report unpaid super for two years or less. So that's 25,000 to 30,000 people a year who have come forward that an employer hasn't paid. Fourteen per cent of notifiers—and this is off a base of 25,000 to 30,000—report unpaid super for two years or more. And nineteen per cent of notifiers—and I can't do the sums in my head—report unpaid super for three quarters or less. My point, at least in terms of the operational elements, is that the incidence of long-term nonpayment either is not coming up through our audit work or—even if it's factually incorrect; that is, an employee thinks they're entitled—is not coming up in that long-term tail. I'm not saying that it addresses your point, but I think they're close to on-the-ground stats that perhaps give a context on the likely incidence of that longevity. I hope that's useful.

ACTING CHAIR: I might ask just some quick questions, because I know you've been in the stand for a long time. Given that today we've talked, I think most usefully, about stocks and flows, if there were no amnesty then how would we address any of the stocks—that is, the unpaid super?

Mr Jeremenko : That is the policy question that Treasury was advising the government on, and the government obviously has chosen to proceed with an amnesty. I haven't had the chance to talk to this yet today, but important is the 'carrot and stick', if I can call it that—and some of the evidence before the committee has used that same terminology—that is built into the amnesty. The floor of a 100 per cent penalty from the tax office has been put into the amnesty for those employers that haven't come forward but should have. That extra hundred per cent stays way beyond when the amnesty finishes. So that is the stick, the carrot being the deductibility and the waiving of the penalties. But the waiving of the penalties does not reduce by a dollar the amount of money in unpaid super that goes to those employees who would otherwise not have received it.

Another way of putting that is: the government is forgoing the value of those penalties in terms of the waiving and the deductibility. It doesn't affect the level of superannuation that is collected for the employees. That is the way that the amnesty has been designed to work. I note that, in a number of the submissions before the committee and evidence today, the international evidence has been pointed to. Industry Super Australia, amongst others, have pointed to the need for that carrot and stick approach in an amnesty, which the government certainly believes exists.

ACTING CHAIR: So without the amnesty in place there's no real prospect of getting the unpaid super?

Mr Jeremenko : Apart from, as Mr O'Halloran said, the ongoing compliance that the tax office will do. Absent the tax office finding employers and unpaid super that they wouldn't have otherwise, that's correct.

ACTING CHAIR: Let's just interrogate that for a moment. How viable would it be for the ATO to audit every single small business?

Mr O'Halloran : It would be nearly impossible regardless of the budget. Also bear in mind—and one of the other senators outlined this previously—that the ATO is responsible for the administration of the super guarantee charge. I don't think in any head of revenue one can audit your way to success totally, but certainly a key deficiency that was in place has been rectified in the last few years. That has been that we can see, when payments are due, how much those payments are. Therefore, going forward, we're now able to see when there's not—


Mr O'Halloran : It's Single Touch Payroll and the reporting from the funds. That's actually the one that allows us to do two things. One is to, as was described earlier, have a broader strategy that doesn't just eat away the elephant but actually gives facts. By definition, we're then already improving our analytics to modify behaviour but also to better target those that are clearly withdrawing from the system and, therefore, get to them much earlier. In previous evidence I said that a lot of the complaints we were getting might be five quarters after the incident itself. Even as I'm sitting here today, for the first time I'm starting to get some preliminary analysis for quarter 4 of 2018-19, which normally would be 17 months away from the end of the year.

ACTING CHAIR: In terms of the stocks, the policy in place is the amnesty. In terms of the flows and improving compliance, your collective view is that the STP will improve compliance?

Mr Jeremenko : That's correct.

ACTING CHAIR: I want to ask one other thing. I think one of the witnesses said that they hadn't had any consultation over this package. Given that we're having consultation today and that this bill has already been through a process in the past, I thought perhaps you might be able to give us a view on that.

Mr Jeremenko : Certainly. As part of the general course of business at Treasury we engage, consult, discuss policy matters, ideas coming from industry, coming from consumers, coming from a whole range of people. A number of organisations over recent years have proposed elements of the amnesty that the committee is examining today. ASFA, the representative body of the super system, has recommended, in discussions with Treasury way back in 2015, a six-month amnesty. The Inspector-General of Taxation has recommended elements of this amnesty, particularly the deductibility of the unpaid super, as has the Board of Taxation. Since the announcement of the amnesty there have been a number of organisations that have come out in support.

To go back to the consultation question, those consultation discussions go way back, as far back as 2015, and obviously the nature of the amnesty itself was one where the government needed to announce it and make it effective from announcement, so as not to give any opportunity for employers who didn't want to do the right thing to hold off, if I can put it that way.

Senator GALLACHER: The $99 million that's in the forward estimates, how does that come about?

Mr Jeremenko : That is a combination of the increased super guarantee revenues, so that $230 million figure, which is then reduced slightly by the deductibility under the amnesty and then the waived administration fees, which is the part 7 penalties, in addition to the administration fee, which is the $20 per employee per quarter. Those combined produce the $99 million over the forward estimates.

Senator GALLACHER: Does the $230 million that you mentioned get completely written off in tax deductibility?

Mr Jeremenko : Sorry, I may have misspoken. The tax on the $230 million goes to that. Obviously the $230 million goes to the employees—the government doesn't get that—but there is a 15 per cent tax in the fund. So it's 15 per cent of the $230 million.

Senator GALLACHER: It's 15 per cent of the $230 million over the four years.

Mr Jeremenko : Netted against those other things. I don't think I made that clear.

Senator McALLISTER: Netted against the deductions that are then against the income tax.

Mr Jeremenko : Correct. So it's those four interactions—

Senator GALLACHER: So everybody's a winner, the government included.

Mr Jeremenko : Two of those are increases and two of those are decreases, and that nets out at that $99 million over the forwards.

Senator GALLACHER: I have a much broader question to Mr O'Halloran. You're currently involved in some high-profile data-matching with Centrelink recipients, where you share information from two departments.

Mr O'Halloran : Yes.

Senator GALLACHER: Is it not possible to do some algorithm or data-matching in this space and just crack down on those people who are not competing fairly in the marketplace and are avoiding their responsibilities?

Mr O'Halloran : I suppose there are two things, if I may. In fact, that's what STP and MATS and MAAS is about. I can't underestimate—I'll answer the front end of your question in the moment. If you look at the source of what's important to employees, it's obviously that money ends up in their superannuation account, as it should.

Senator GALLACHER: Absolutely.

Mr O'Halloran : Real money, not just 'It's in transmission,' not just, 'It's been promised on payday,' et cetera. That's why we've spent so much time, dare I add with the support of the superannuation industry and others, to actually build a system that, within 10 days of the money going into a member's account, it is reported to the ATO. That's an enormous task in the last few years. I won't go into the details, but 400,000 employers, 750 million records we've just checked to start some work. I think that is the game changer to do that.

The relevance to Centrelink as an agency, or DHS and its various component parts, the first step that we needed to do—I think the important priority off the back of Single Touch Payroll, which, by the way, now has something like 515,000 businesses in Australia reporting 11 million employees, which means that for every pay event we're getting information of the payday reporting—the salary and wages reporting—which, by definition, includes the super guarantee that's promised, for want of a better word, to the employee. That, to me has been the important starting point. As to the future of data with other agencies, there are two or three things there. One is obviously appropriate legislative provisions et cetera, which may or may not exist now, and certainly our focus at the moment is on getting Single Touch Payroll working as it is already so we can identify nonpayments and payments and timely payments.

Senator GALLACHER: I accept that integrity of the data is the future, and everybody agrees on all of that. But I think it's fairly ironic that you're matching data with Centrelink and sending people historical bills, they have to prove that they haven't incurred them, and yet we don't do this with three or four per cent of really recalcitrant small business employees who are cheating the system. I find it fairly ironic that they get an amnesty whereas someone on Centrelink payments gets a bill and an obligation to prove they don't have to pay it.

Mr O'Halloran : Senator—I'll say this just for the record—we don't send bills to these people. But, on your broader point, up until the introduction of Single Touch Payroll and fund reporting—you're quite correct—we had no visibility of employer details in a timely way, let alone being able to match the payment. We had granular data that was reported through member contribution statements from funds every year, some 35 million records. With the introduction of what I've just described, what we're now able to identify off the superannuation system, between the employer and the employee, is the name of the business and the ABN. We in fact can track whether it's salary sacrifice, an employer contribution et cetera. That's a first, because predominantly the superannuation system up until now—and it didn't matter what type of fund was there—wasn't built so that there was visibility on the employer. It was very much about the transaction of the contribution. With strong support and some legislative changes, we now can actually see employers, as you've described, who have a pattern of nonpayment—in shorthand, underpayment—and that's a first. That's actually what Single Touch Payroll and some of the changes have done. Prior to that we had no visibility because the payment of super guarantee was very much a contractual relationship between the employer and the employee—and I hope you don't mind me framing it that way. That's the game changer.

Senator GALLACHER: The deputy commissioner said that last week—if it wasn't a debt to the ATO, it was a debt to the employee and the super fund, and you were third in line.

Mr O'Halloran : That's right. So the visibility of recalcitrant employees—sorry, employers. I apologise. It's been a long day.

Senator GALLACHER: There are probably some recalcitrant employees as well.

Mr O'Halloran : That visibility of employers at, effectively, a payday event is the new feature which previously we didn't have other than in aggregate data. I hope that's useful.

ACTING CHAIR: That concludes today's hearing. On behalf of the committee I'd like to thank all those who have made submissions and sent representatives here for their cooperation in this inquiry.

Committee adjourned at 16:53