Chapter 4 - Independence, Transparency and Resourcing
Introduction
4.1
The independence of the office of
Inspector-General, its ability to respond to issues raised by taxpayers and tax
professionals, and the transparency of its operations were issues which recurred
frequently in the submissions received by the inquiry.
4.2
There was a general consensus in evidence to the
Committee that, to fulfil its proposed function effectively, it was critical
that the office must be able to determine its own work priorities, and that its
reports be made public.
Work program
4.3
The Bill provides the Inspector-General with
discretion to set the office’s work program, with at least annual consultation
with the Commonwealth Auditor-General and Commonwealth Ombudsman.
4.4
This discretion is not absolute, however, as the
Inspector-General must comply with any direction by the Minister to conduct a
review.
4.5
The conduct of a review may also be formally
requested by the Commissioner of Taxation, a resolution of one or both houses
of the Parliament or a resolution of a Parliamentary Committee, however, they
may not direct the Inspector-General to conduct a review.
4.6
The Inspector-General may also initiate a review
on his or her own initiative, including where a systemic tax administration
issue has been raised with the office by taxpayers, tax professionals, the
Ombudsman, or any other party.[1]
The Bill contains no requirement that the Inspector-General consult with
taxpayers or tax professions, or any party other than the Ombudsman and
Auditor-General, in the course of setting his or her work program.
4.7
Ms Susan Johnston, Department of the Treasury,
told the Committee that;
The bill makes it clear that the inspector-general allocates his
time and resources, including to inquiries that are initiated at the direction
of the minister. Basically, the inspector-general prioritises all the things he
has to do. Obviously, a direction from the minister to conduct a particular
inquiry is going to carry weight.[2]
4.8
A submission from CPA Australia commented on the
appropriate balance between reviews directed by the Minister, and those arising
from issues put forward from the tax payer perspective:
The main issue is to ensure that an appropriate balance is
obtained between issues raised by the Government through the Treasury Ministers
and issues raised by taxpayers and their advisers either directly or
indirectly. Our view is that priority should be given, in the short-term at
least, to genuine and legitimate concerns raised by taxpayers and their
representatives given that the existence of such concerns is the primary reason
behind the establishment of the IGT in the first place.[3]
4.9
A number of witnesses, however, were concerned
that the discretion allowed to the Inspector-General was illusory—that such
discretion could be undermined by the demands placed on resources by a
ministerial direction.
4.10
In evidence to the Committee, Professor Cynthia
Coleman, representing the Australian Institute of Company Directors, noted
that:
Currently, the minister can direct the inspector-general to
undertake a report into something. The holder of that office has no choice.
That could tie up resources on what they perceive as a frivolous irrelevant
issue. So we think that clause should go. They should always have a choice on
what they do and direct their own work flow.[4]
4.11
Ms Johanna Lowry, Institute of Chartered
Accountants in Australia, also agreed that a potential exists for a direction
from the Minister ‘to tie up the efforts of the inspector-general so that he is
not able to address other things that both houses of parliament, for example,
may have thought worthy.’[5]
4.12
Mr Marks-Isaacs, Australian Institute of Company
Directors, wanted the necessity for the inspector-general to follow a
ministerial direction removed. He stated:
Whilst the inspector-general is established so that the minister
can direct it, it is always a question and the inspector-general is always
potentially compromised by it.[6]
4.13
The Committee notes, firstly, that the $2
million budget per annum is small in relation to other bodies such as the
Auditor-General, Australian Competition and Consumer Commission and Ombudsman.
Secondly, it notes concerns that directions by the Minister to undertake
reviews could potentially ‘tie up the efforts of the inspector-general so that
he is not be able to address other things.’[7]
4.14
The Committee, howevernevertheless,
considers that there is little risk of the Government monopolising the
Inspector-General’s resources.
Information gathering powers
4.15
The Inspector-General will have statutory
information gathering powers able to be exercised for the purposes of
conducting a review into tax systems or, where necessary, to obtain particular
information for the purposes of deciding whether a review may be required.
4.16
The Inspector-General may also invite submissions
or hold meetings, and otherwise consult with members of the public, particular
people or organisations, in the course of a review.
4.17
The Inspector-General may also publish
submissions or records of meetings held in the course of a review, except where
publication would be prejudicial to the public interest, reveal confidential
information, or allow identification of an individual taxpayer or tax official
other than the Commissioner of Taxation.
4.18
Voluntary disclosures of information held by the
Commissioner of Taxation and requested by the Inspector-General for the
purposes of a review would be authorised disclosures for the purposes of
secrecy and privacy laws.[8]
4.19
The Inspector-General will be empowered to
compel the production of information and documents by a tax official, or to
require a tax official to attend before the Inspector-General or a member of
staff to answer questions. This power extends to circumstances where it is
necessary to obtain information from a former tax official.
4.20
If the disclosure of information requested by
the Inspector-General would be prejudicial to the national interest, the
Minister may give a certificate to the Inspector-General with the effect that
the information or documents covered by the certificate need not be disclosed.
4.21
There is no provision for the Inspector-General
to compel the disclosure of information by any persons other than tax officials
or former tax officials.
Legal professional privilege
4.22
The Bill provides that the Inspector-General has
access to legal advice obtained by the Commissioner of Taxation that is
relevant to an inquiry into a systemic tax administration issue, and can see
legal advice obtained by parties in the private sector which is relevant to
matters under consideration.
4.23
The Bill contains measures to protect client
legal privilege, which is not waived by disclosure to the Inspector-General.
The Bill states that information or a document does not cease to be the subject
of legal professional privilege merely because it is included or referred to in
a submission to the Inspector-General, or provided by the Commissioner of
Taxation or a tax official in response to a request or requirement made by the
Inspector-General under the provisions of the Act.
4.24
The Bill also limits the ability of the
Inspector-General to refer to privileged legal advice in a report, including an
annual report to Parliament.
4.25
The submission from the Australian Institute of
Company Directors recommended that those sections of the Bill dealing with
legal professional privilege be amended to ensure they do not provide an
opportunity for a challenge in the courts that legal professional privilege has
been specifically abrogated in relation to taxation matters.
4.26
The Taxation Institute was also concerned by the
provisions of the Bill in respect to legal privilege, and suggested that Clause
27(2) of the Bill should be removed.[9]
4.27
The Committee notes that the provisions of the
Bill are not intended to abrogate professional legal privilege in regard to
taxation matters and proposes that the Government give consideration to
including in the Bill an explicit statement to that effect.
4.28
The Committee also notes that a recent decision
of the High Court (Daniels Corporation International Pty Ltd v Australian
Competition and Consumer Commission) may have implications for the application
of clause 27 and suggests that the Government seek advice from the
Attorney-General on this matter.
Reporting and publication
4.29
The Bill provides that after completing a
review, the Inspector-General must make a written report to the Minister
setting out the subject and outcome of the review, and any recommendations
concerning how the system could be improved.
4.30
Reports may not include:
- information that would be prejudicial to the public interest
where the Minister has given the Inspector-General a certificate to this
effect;
- information about the tax affairs of an individual taxpayer that
would allow the identification of that taxpayer;
- the names or specific identifying information of tax officials
other than the Commissioner;
- information that has been provided to the Inspector-General in
confidence; or
- commentary on legal advice disclosed to the Inspector-General
that would result in the waiver of legal professional privilege held by the
client.[10]
4.31
The Bill also requires the Inspector-General to
provide the Commissioner of Taxation with an opportunity to address criticisms
of tax officials where the Inspector-General proposes to include such
criticisms in a report, and the report cannot be finalised unless the
Commissioner has been given this opportunity.
4.32
Taxpayers Australia, in a submission to the
inquiry, supported this latter clause but felt it did not go far enough,
preferring that the Inspector-General be required to seek the ATO’s input or
commitment on recommendations prior to the report being submitted to the
Minister. [11]
4.33
Both the Taxation Institute of Australia and the
Australian Institute of Company Directors expressed a concern that there was
not a stipulated time period within which the Commissioner must respond to such
criticism, and suggested that a time period of 21,[12] or 30 days with the option of
a mutually agreed extension of time,[13]
be imposed. The Committee concurs with these views and suggests that the Bill
be amended to impose a time period for response by the Commissioner of
Taxation.
4.34
The Committee is of the view that the
Government should consider amending Clause 25 of the Bill to replace the
reference to ‘a reasonable opportunity’ with a time limit of within 30 days of
being invited to do so by the Inspector-General, or within such longer period
as is mutually agreed.
4.35
The Bill authorises the Minister to publicly
release or table reports by the Inspector-General, and the action of releasing
reports attracts statutory protection against legal action. The Minister may
publish part of a report where there is concern about the reporting of
sensitive or confidential information.[14]
4.36
A number of submissions commented on this
reporting framework, contending that leaving the publication of the
Inspector-General’s reports to the discretion of the Minister detracted from
the authority and accountability of the office.
4.37
The Explanatory Memorandum for the Bill states
that the Inspector-General is required to prepare written reports on reviews
‘to facilitate public dissemination of the findings of the review.’[15] Witnesses to the inquiry
referred to this point as indicating a general intention to publicly release
review reports.[16]
4.38
The recommendation of the Board of Taxation in
this regard was that:
The Inspector-General should be able to publish reports of
reviews of the systems used by the Australian Taxation Office to administer the
tax system, and recommendations to the Government about where these systems
could be improved (but not advice to the Government), but only after giving the
Minister a reasonable opportunity to comment. A person whose interests would
be adversely affected by the publication should be given a reasonable
opportunity to comment, and to have their comments included in the
publication. The Inspector-General should not be liable to be sued for
an act done in good faith in exercise of any power conferred by the
legislation, including the power to publish.[17]
4.39
In arriving at this position the Board
considered at length the possible impact of allowing the Inspector-General as
an adviser to Government to independently release reports, and on the
relationship that should exist between the Inspector-General and the Minister.
It also acknowledged that the weight of submissions to the inquiry was strongly
in favour of the power to publish.
4.40
The Government’s response to the Board of
Taxation recommendation agreed that it was important that the
Inspector-General’s reports become public. It concluded, however, that:
A key function of the Inspector-General of Taxation will be to
advocate the concerns of taxpayers to the Treasury Ministers to enable fast
resolution of any systemic problems in the tax system. For this reason, the
Inspector-General will report to the Treasury Ministers.
The Inspector-General’s inquiries and reports may include
recommendations for legislative amendments or changes in administrative
processes. It is desirable for recommendations involving changes to the tax
system to be released simultaneously with the Government’s decision on such
changes to avoid speculation and uncertainty about the taxation system.
Accordingly, it is proposed that the Treasury Ministers would have the
responsibility for releasing reports by the Inspector-General.[18]
4.41
The Government response also noted that the
Inspector-General of Taxation is not intended to duplicate the roles of the
Auditor-General nor the Ombudsman, both of whom have a continuing public
reporting role on tax administration.
4.42
Submissions to the Committee which argued that
the new office should report to the Parliament also generally argued that the
model outlined in the Bill was substantially flawed in not incorporating the
taxation functions of the Ombudsman in the new office, and in serving too much
as an adviser to government rather than an independent taxpayer advocate.
4.43
Whether the Inspector-General reports to the
Treasury Minsters or to Parliament, and whether the Inspector-General has the
authority or requirement to publish or table its reports, are key and recurring
themes in submissions to the Committee. A number strongly urged that the
Inspector-General be authorised to report to the Parliament rather than to the
Minister, who has discretion to either make the report public or not.
4.44
Even when reporting to the Minister was accepted
as the preferred model, concerns remained that reporting be as open and
transparent as possible, as indicated by Mr Mitch Hooke, Business Coalition for
Tax Reform, in evidence:
In terms of reporting, again our submission to the Board of
Taxation and subsequently to this committee said that we want to see the public
reporting quite broad—obviously, to the Treasurer then back to parliament. It
has to be open, accountable and transparent if it is going to be effective and
of course qualified by any commercial sensitivities.[19]
4.45
The International Banks and Securities
Association of Australia also remained concerned at the control exercised by
the Minister over the release of reports:
[T]he purpose of the Ministerial control over the public release
of the Inspector-General’s review reports is not clear and it could detract
from the transparency and independence of the review process. We would favour
a process that would make public the Inspector-General’s review reports on a
timely basis, subject to the limitations contemplated in Division 4 of the
Bill. [20]
4.46
The submission from Mr John Morgan proposed a
solution to concerns that this Ministerial control over publication diminished
the independence of the office. The submission supported the Inspector-General reporting to the Minister,
noting that mandatory reporting to the Parliament might have cramped the advice
and the effectiveness of the Office in identifying systemic problems with tax
administration and then precipitating remedial action, but suggested that
the Inspector-General be able to report to the Parliament when he or she
considered it necessary to do so.[21]
4.47
The Institute of Chartered Accountants in
Australia suggested, in its submission, a similar option:
Given that the detailed provisions of Sections 22 to 27 [of the
Bill] limit any adverse effects that may occur on making the report public, the
ICAA believes that the Bill should give the Inspector-General of Taxation the
specific authority to make any report public, after consulting with the
Minister as to whether the Minister wishes to exercise his or her powers under
Section 22.
The ICAA strongly recommends that where the Minister does
exercise his or her discretion under Section 22 to disallow the public release
of any part of the Inspector-General’s report, that the Minister is required to
publicly state under which sub-section they are exercising that discretion.[22]
4.48
The Inspector-General is also required to
provide an Annual Report to the Minister, to be tabled in the Parliament, which
will include details of any directions given by the Minister during the year to
conduct a review. Ms Johanna Lowry, noted, however, that ‘there is no
requirement for the annual report to say why certain reports were not publicly
released.’[23]
4.49
The Australian Chamber of Commerce and Industry
recommended that the annual report be a detailed report of the issues lodged
with the Inspector-General, matters which have been addressed, and the outcomes
of those matters.[24] A supplementary submission
from the Department of the Treasury provides
some advice in this regard:
There are annual reporting requirements and
conventions that apply to all Commonwealth agencies. These include statutory
requirements in the Financial Management and Accountability Act 1997 and
annual reporting guidelines approved by the Joint Committee of Public Accounts
and Audit under subsections 63(2) and 70(2) of the Public Service Act 1999.
The Inspector-General’s annual report would need to conform to such
requirements and, in practice, this would involve reporting on reports prepared
and submitted to the Minister.[25]
4.50
The Committee accepts that there may be
occasions when the tabling of a review report, or parts of a report, is not
appropriate. For example, where information is in the form of advice to
Government, and where the disclosure of such material would be prejudicial to
the public interest. Nonetheless, the Committee has noted the views expressed
in evidence to the inquiry in regard to the publication of reports and
considers that the independence of the Inspector-General as well the transparency
of his reviews could be enhanced by tightening the reporting obligations
contained in the Bill. The Committee accepts that there are already certain
limitations placed on information that can be included in an
Inspector-General’s report to safeguard the public interest, individual privacy
and confidentiality.
4.51
The Committee recommends that the
Government give consideration to amending the Bill to require the Minister to
cause a copy of each review report to be tabled in each House of the Parliament
within 15 sitting days of that House after the day on which the Minister
receives the report, except where the Minister determines that the disclosure
of the report would be prejudicial to the public interest or would breach the
privacy of a taxpayer.
4.52
Where the Minister does not table a
report, or part of a report, the Minister should cause to be tabled in each
House of the Parliament within 15 sitting days of that House after the day on
which the Minister receives the report an explanation outlining the reasons for
not releasing the report.
Budget
4.53
Funding of $2 million per year for four years
for the office of Inspector-General of Taxation, commencing in 2002-03, was
included in the 2002-03 Budget.[26]
4.54
Although not a provision of the Bill as such, a
significant proportion of the submissions received by the Committee expressed
concern at the proposed budget for the new office.[27]
4.55
A number of submissions contended that the
proposed level of resourcing was insufficient to enable the Inspector-General
to fulfil the functions of the office to a satisfactory degree.
4.56
Taxpayers Australia Inc considered that the
budget was most unlikely to be sufficient to ‘enable the Inspector-General to
attract sufficient experienced and knowledgeable staff to fulfil the required
statutory role.’ [28]
4.57
The Institute of Chartered Accountants in
Australia submitted that the proposed budget suggests either that:
- the Inspector-General would have to restrict the number of
projects that are undertaken, in which case important issues may never be
addressed; or
- the Inspector-General’s core role would become merely an
instrument for raising potential issues, leaving it up to the ATO or government
to fund further investigation, which detracts from the independence and
transparency of the role.[29]
4.58
The Institute considered both propositions
unacceptable, making the role of the Inspector-General a token position.
4.59
A different view, however, was taken by the
Australian Chamber of Commerce and Industry:
The new position, despite being limited in resources, should be
able to make a significant addition to taxation oversight. In spite of being
limited in funds, the Inspector General should be able to perform the role of
objectively monitoring and examining taxation administration within the
allocated funding.[30]
4.60
The Committee also appreciates the evidence
provided by the Taxation Ombudsman that his office has the equivalent of about
ten full-time resources devoted to taxation matters, at a cost of about $1.6
million.[31]
4.61
The Committee notes that concerns about the level
of funding are linked with those about the ability of the Minister to direct
that reviews be undertaken, and the potential that this could curtail the
capacity of the office to address issues raised by parties other than the
Minister.
4.62
The Committee believes that this matter of
funding requires close monitoring and should be covered in detail in the annual
report.
Review of the office
4.63
The Board of Taxation recommended that the
efficiency and effectiveness of the new office should be reviewed within five years
of the appointment of the first Inspector-General of Taxation, and this
recommendation was subsequently agreed to by the Government. The desirability
of an independent review of the effectiveness of the office after a period of
operation was also endorsed by submissions received by the Committee.[32] This review commitment,
however, is not included in the Bill.
4.64
The Committee recommends that the
Government consider amending the Bill to require an independent review of the
efficiency and effectiveness of the office of Inspector-General of Taxation
within a period of five years from the appointment of the first
Inspector-General. The review is also to include consideration of the scope of
the functions of the Inspector-General and the adequacy of its budget.
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