Memo to Hockey: what’s really wrong with the Tax Office

Joe Hockey wants to shake up the Australian Taxation Office. It’s welcome news to accountants and taxpayers, but he’ll need more than rhetoric to fix the ATO’s problems.

Hockey has just discovered something that most taxpayers already knew: the Australian Taxation Office doesn’t play fair, and is most decidedly not independent.

The Coalition’s shadow treasurer has announced a Tony Abbott government would establish a new parliamentary committee to oversee the ATO, while threatening to split the Tax Office functions of administration and policing. But do the proposed reforms go far enough?

Hockey has been making sounds for a while now that he isn’t happy with how the Tax Office treats small business taxpayers. In yesterday’s post-budget address at the National Press Club, he said:

“If elected a Coalition government will immediately establish a standing parliamentary committee with a singular focus?—?the oversight of tax administration.”

The first task of the oversight committee would be to set down dates for regular semi-annual public hearings with the tax commissioner, in a format similar to the public hearings with the governor of the Reserve Bank. Sound familiar? Since 2007 the joint committee of public accounts and audit has been holding biannual hearings with the tax commissioner to answer questions about the Tax Office’s administration of the tax system. But in 2011 under the chairmanship of Rob Oakeshott, the committee?—?which included five Liberals, including Helen Kroger and Alex Somlyay?—?decided to revert to annual hearings. In explaining the decision, the committee said:

“Due to the expanded scope of the hearing, both in terms of the time needed and the increased number of witnesses giving public evidence, combined with the effort and resources required to complete the preparatory work, the committee has decided to hold future hearings with the tax commissioner annually rather than biannually.”

The committee’s second task would be an inquiry into the most effective organisational structure for independently handling and resolving formal taxation disputes. Hockey has previously raised the idea to completely move the appeals section out of the ATO into a different agency, recognising the audit function is different from an independent review. Yesterday he said:

“The Coalition stands ready to break up the Tax Office, so that its policeman functions are separate to its responsibility for administering the tax system.”

Tony Greco, a senior tax advisor at the Institute of Public Accountants, told Crikey: “Hockey wants to see a better relationship between business and the ATO especially when it comes to dispute resolution. Hockey approved Chris Jordan’s appointment as new ATO head but if he doesn’t see a massive cultural shift he will implement plan B.”

David Hughes from SMH tax lawyers reckons Hockey’s proposals are the most promising thing to happen in Australian tax administration in years. “At the very least, it shows recognition at the highest levels of the Coalition of the appalling track record of incompetence and mismanagement of the ATO’s administrative functions by officers and the resulting loss of faith in Australia’s taxation system,” he told Crikey, adding:

“Hopefully Mr Hockey’s comments will be backed by genuine action if the Coalition forms government. But reviews, parliamentary committees and promises of reform for better relationships will not be enough. The next government must show genuine steps towards rebuilding trust with taxpayers and it can do so by promising to pay meaningful compensation to those taxpayers who have lost so much at the hands of overzealous ATO officers.”

Over the last year Crikey has raised many issues about the actions and accountability of the Tax Office, including the muzzling of taxpayers by forcing them into signing confidentiality clauses in settlement of their cases to cover up errors and potential maladministration of tax officers, breaching the government’s model litigant rules and legal services directions, and using an unlimited legal services budget to bludgeon taxpayers into submission.

Last year the ATO was the biggest spender in the Commonwealth of legal services, donating a whopping $101 million dollars to law firms. These issues must be addressed as soon as possible.

One thing Hockey must do if the Coalition wins government is to appoint a strong assistant treasurer?—?the position with parliamentary responsibility for the ATO?—? who is prepared to get tough with the tax commissioner. Current Labor Assistant Treasurer David Bradbury is the weakest minister to hold this position on record. A number of times I put questions to him about serious allegations of impropriety and small business being disadvantaged by the ATO only to be told “administrative and operational matters within the ATO are a matter for the commissioner”.

Which just isn’t right. Taxpayers are being disadvantaged and Bradbury didn’t ask one question of the ATO. It is this attitude?—?of trusting the commissioner’s word that everything is OK?—?that Hockey must defeat.

This story was first published on Crikey.