Conduct of the inquiry
In 2016, at the start of the 45th Parliament, the Committee reassessed the previous parliament’s model of biannual annual report scrutiny, which had been conducted since the Committee’s formation in 2013. The revised review and reporting approach reflected feedback received in prior Committee reviews which supported an annual hearings cycle to increase efficiency yet maintain public confidence; but also to enable examination of ‘bigger picture’ contemporary tax administration matters.
Committee reviews could then focus on longer-term considerations of the ATO’s administration—for example, the 2017 review period covered its Reinvention Program which was the subject of an Auditor-General’s performance audit in the same period.
The Committee on Tax and Revenue is authorised by Standing Order 215(c) to examine annual reports of agencies allocated to it by the Speaker. Under its annual reporting powers the Committee may expand its focus to consider matters of broader significance to tax administration.
In reporting to the House at the conclusion of its first ATO annual report review in the 45th Parliament, the Committee made, for the first time, formal recommendations on tax administration; rather than merely flagging topics to be examined in the next period’s annual report review. This was a significant departure from past practice and resulted in 14 recommendations in the single report of the 2016 annual report performance review—of which the Government, and separately the ATO, as relevant, responded in October 2017—the same month the ATO’s 2016–17 Annual Report was tabled.
During the same period the Committee’s major review of taxpayer engagement with the tax system, referred by the then Minister for Revenue and Financial Services, the Hon Kelly O’Dwyer MP, was being conducted. It considered the ATO’s machinery of operations but also made recommendations to reform the tax system to better meet the challenges of revenue collection in a globalised digital economy—it also had a focus on the cash economy.
The taxpayer engagement inquiry, tabled in August 2018, also utilised the ATO’s 2017 report performance information and concluded with 13 recommendations. As of mid-February 2019 the Committee awaits a Government response, but has explored some of the administrative recommendations further in this review.
The 2017 reporting period bought new challenges for the ATO. These included the prolonged systems outages and delays in digital services occurring in December 2016 and early 2017, and later in May 2018 the revelations of Operation Elbrus under which the ATO’s internal controls for fraud and conflicts of interest had been subject to high level scrutiny.
The Tax Commissioner Mr Chris Jordan’s opening address to the Committee in March 2018 presaged what was to be a complex year for the ATO. The Commissioner started on a high point enumerating the ATO’s successes, which included improved lodgement figures and progress under the ATO’s ‘Reinvention’ of taxpayer services:
In 2016–17, the ATO delivered a highly successful tax time, increased prefilling of data and improved the experience with myTax. We had significant wins in the courts; we achieved good results under the newly established tax avoidance task force; increased the use of early engagement and alternative dispute resolution; improved our advice, guidance and assistance; and engaged meaningfully with small business, tax agents, the superannuation industry and other segments. We also continued our leadership contribution and participation in the OECD's Forum on Tax Administration's work program…including projects such as the Panama and Paradise papers, and we certainly kept a focus on tackling tax crime’.
At this point, however, the Commissioner brought the Committee’s attention to a new and less desirable focus: damaging allegations made by small business advocate Self-Employed Australia that the ATO abuses its powers against small business. ‘I want to address these claims’, he said:
…because they are to the detriment of small business owners and serve only to create more tension and needless worry for them. It is also important for me to call this out because of the potential broader impacts on the community's confidence in the ATO and the tax system.
The Commissioner’s speech foreshadowed a sequence of similar allegations made to Parliament and in the media during early 2018, all challenging the integrity of ATO’s actions. With their focus on the experiences of small businesses in particular, these allegations turned on themes investigated during previous Committee reviews—in particular the ATO’s powers and commitments to taxpayers under self-assessment, and the impacts of digitalisation on those commitments.
The terms of review
As already noted, under its resolution of appointment, the Committee may consider matters of broader significance to tax administration. The Committee’s major review of taxpayer engagement with the tax system, tabled in August 2018, had worked to thoroughly explore many facets of the tax system and made recommendations of both a policy and administrative nature.
Given both the challenges and opportunities entailed in the ATO’s Reinvention Program, Recommendation 11 of the taxpayer engagement report asked the ATO to consider its commitments to fair treatment of taxpayers and to review its primary commitment documents to ensure these set out an ethical framework that is easily understandable by both taxpayers and ATO staff. These primary documents include the Taxpayers’ Charter as well as a number of service level agreements which not only formalise agreed behaviour but also guide the way processes are philosophically undertaken.
Building on the work undertaken previously, the Committee decided to take a high level approach to the 2017 annual reporting review to further consider certain areas which had been canvassed in previous report recommendations, or had been the subject of recent external scrutiny. This supplemented the Committee’s standard ATO Annual Report review hearings with the Tax Commissioner, the Inspector-General of Taxation, tax professionals and peak associations, and especially considered the following:
The status of the Reinvention Program and the Auditor-General’s 2017‑18 performance audit of its costs and benefits;
The value of an ethical framework such as an organisational regulatory philosophy approach as explored in a dedicated hearing in Canberra with expert witnesses;
Consideration of the value of the current Taxpayers Charter and taxpayer protections and the review findings of the 2016 Inspector‑General of Taxation’s review of these; and
Follow-up of any progress on, or outstanding Committee recommendation activity.
A selection of topic areas were raised in a media alert dated 8 December 2017 when the Committee’s review was announced as areas of potential stakeholder interest. The Committee called for submissions from interested parties by March 2018. The media alert stated that: ‘The Committee’s inquiry may cover, for example, the ATO’s fraud control management in the wake of Operation Elbrus, the administration of the Australian Business Register and business debt, and the results of the ongoing audit of cash dominant industries.’
The topics as highlighted in the media alert were briefly addressed in the ATO’s primary submission and during hearings appearances. The Committee received input from the investigation work of the Inspector‑General of Taxation regarding the ATO’s fraud control management and feedback on debt administration from a variety of submitters.
The Committee had discussions with the ATO’s Deputy Registrar of the Australian Business Register (ABR) at a hearing on 28 March 2018 and the ATO gave an overview in its primary submission, but there was limited comment from participants on the administration of the ABR per se. The exploration of audits of cash dominant industries was similar. These latter issues had been canvassed during the inquiry into taxpayer engagement and also in other forums including the Government’s Black Economy Taskforce and the inter-agency Phoenix Taskforce.
Further prominent publicised tribulations for the ATO were reported from early in the reporting period, which also recommended the benefits of a ‘high-level’ approach in this review. As noted, these included taxpayer concerns aired through the ABC’s Four Corners program in April 2018, which reported unscrupulous debt recovery practices, just weeks after the Committee’s first hearing with the ATO.
Given the backdrop of events described, the Committee determined in late September 2018, near the completion of its annual report review cycle, to issue a fresh and direct call to taxpayers on 25 September 2018 to report their experience on matters of particular concern. The Committee received, in total, upwards of 30 submissions and supplementary submissions, some confidential, on matters of concern—18 of these were received in the last wave of submissions received from October 2018.
The purpose of this final media invitation for feedback was to test the ATO’s performance reportage in the 2017 Annual Report against the perceptions and experiences of taxpayers, which resulted in additional focus in the report on the taxpayer’s experience of engagement with the ATO. This in turn informed the Committee’s interest in the progress of the ATO’s reinvention of its service culture, and how well current frameworks are supporting commitments to procedural fairness across agency functions.
Machinery of the review
The Committee announced, in a media alert on 8 December 2018, the commencement of the annual report review and called for submissions of a general nature, officially closing in March 2018. It also targeted follow-up activity from previous report recommendations and the topics of announced focus as mentioned. As such the Government response of October 2017 to the 2016 Annual Report review provides a focus of interest.
The Committee convened four public hearings, all held in Canberra, on 28 March 2018, 23 May 2018, 29 June 2018 and 22 August 2018.
The Committee gives thanks to the valuable contributions made by all participants at these hearings, in particular the Commissioner of Taxation and Tax Office personnel, and the Inspector-General of Taxation and his supporting staff; who appeared at two hearings, and most of whom travelled to participate in hearings in Canberra. The first hearing of the review was conducted on 28 March 2018 which focussed on the ATO and Inspector-General of Taxation’s principal submission evidence.
The Committee is also grateful for the time provided by the representatives from the peak associations who travelled to Canberra to participate in a small roundtable hearing on 23 May 2018 to discuss issues of current tax administration performance and the longer-term view of the overall ‘state of the tax system’. Similarly, the Committee appreciated the time taken by academic and practice experts who prepared submissions and discussed at a half-day hearing on 29 June 2018 the concept of the ATO articulating an underlying philosophy of how it will conduct its regulatory processes and how this might relate to the current taxpayer protection framework.
The Committee’s final hearing on 22 August reflected on the ATO’s Reinvention Program and issues of finality; with both the ATO and the Australian National Audit Office who had completed a performance review of the program during the period.
The review received 34 submissions—26 of these primary and eight supplementary. A second round of submissions was received within the space of a fortnight in October 2018 in response to a media announcement seeking feedback on taxpayer experiences.
The Committee also forwarded extensive questions on notice following hearings, mostly to the Australian Taxation Office, and the responses to these were timely and considered and taken as supplementary submissions. The Committee is appreciative of these and the considerable resources devoted to prepare an often very detailed and technical submission.
It is also worth highlighting that in the month that the second wave of submissions was being received the ATO tabled the next year’s annual report, for 2017–18. Although not the subject of the review it did enable the Committee to reflect on ATO ‘promises’ to be carried out in the 2017–18 year and reported in the Annual Report.
The Committee would also like to take this opportunity to acknowledge the devoted work of Mr Ali Noroozi, the second and outgoing Inspector‑General of Taxation, who completed two successive terms in November 2018. He has scrutineered an environment subject to significant change in that time, particularly as a result of digitisation, only five years after the establishment of the Office. And in the space of the last three years he has also overseen the transition of his Office from having a mostly systemic review focus to also being the primary Taxation Ombudsman.
The Committee’s foci of interest in this review converges on two main themes of interest:
whether the ATO’s commitment to its reinvention of culture and values are being played out in taxpayer engagement and compliance activities; and
how well the ATO’s current governance, review and value frameworks ensure that ATO activities are both internally and externally accountable to taxpayers.
These themes are assessed in the report’s six chapters, which address:
The Reinvention Program—the ATO’s reinvention of its service culture, of its ‘people’ as well as its digital systems, and its measurements of progress against its commitments;
Taxpayers in dispute with the Tax Office—a survey of taxpayer evidence, experiences and concerns;
Fairness in practice and review—the ATO’s commitments to procedural fairness in its compliance activities, and its debt management, objections and dispute functions;
The role of the Taxpayers’ Charter—the updating of this commitment document with reference to other regulatory philosophy models; and
A review of structural governance and control mechanisms within and external to the Tax Office.
A list of submissions and supplementary submissions, some containing Answers to Questions taken on notice at hearings, are in Appendix A. Appendix B outlines the hearings and who participated.