Supplementary report by Senator Andrew Murray: Australian Democrats
December 2002
Senator Andrew Murray: Australian Democrats
Supplementary Report on the Provisions of
the Inspector-General of Taxation Bill 2002
1.1
The Australian Democrats recognise that the
proposed new Office of the Inspector-General fulfills a Coalition election 2001
promise. Generally speaking, we take the view that a Government is entitled to
create such new bodies as it believes will meet a particular need. Any
Government is entitled to try new concepts out. So, although we have serious
reservations about the potential effectiveness of this new agency, the
Democrats will not oppose its creation.
1.2
There is a danger it will end in tears. The
expectations of tax professionals and other tax activists concerning the new
office seem extravagant, and bound to be disappointed. Funding is low,
competition and even confusion as to roles is apparent, and unless amended, the
design of the legislation will result in the Inspector-General’s independence
being compromised. There is also a danger that this position will be used as
yet another opportunity for business to exercise special influence, as is the
case in the heavily business oriented Board of Taxation.
1.3
Turning to the Report, the Democrats support the
substance and the conclusions of the majority, but find that the
recommendations do not adequately address the flaws that have been exposed in
the proposed legislation. Legitimate concerns were raised prior to drafting,
but even after this inquiry most of these outstanding issues remain unresolved.
1.4
A submission to the inquiry from the Australian
Institute of Company Directors saw the Inspector-General of Taxation (IGT)
having the ‘potential to secure significant and lasting improvements in the
administration of taxation in Australia’[1].
Yet at the same time they put forward the view that the powers of the IGT are
too narrow. The difficulty for the Government is avoiding a conflict with
existing oversight and other taxation bodies, but leaving enough scope to make
a real contribution to better tax governance. The IGT needs to have a clear
direction and sufficient powers to be effective from the start.
1.5
Submissions to the Inquiry have quite clearly
demonstrated that the proposed IG has substantial support. While witnesses
held common concerns about some of the provisions they were prepared to see the
Bill proceed rather than to jettison the legislation altogether. Mr. Sheppard
captured this general attitude when he told the Committee:
We think it has the potential to
make a difference, and we are happy to give it the benefit of the doubt at this
stage and, hopefully, make the position work.[2]
1.6
The Australian Democrats agree that this
proposed legislation should be allowed every opportunity to succeed - but
provisions need to be strengthened or changed to safeguard the independence of
the IGT. In my view, the Committee was too timid in merely seeking government
undertakings or assurances that measures would be taken to protect the
independence of the IGT.
1.7
The Australian Democrats will seek to put
statutory safeguards in place that will ensure that the IG is indeed an
advocate for all taxpayers, that this advocacy role will not be compromised in
any way, nor the IG’s independent status eroded. Independence must actually be
independence if it is going to meet expectations even halfway. While I
appreciate that there is strong support for the establishment of the IGT, as a
response to systemic problems in taxation administration, it is essential that
the office has the capacity, and independence, to enable it to deliver the
results taxpayers expect.
1.8
In particular, I am concerned to ensure that the
new office is able to attend properly to issues across the Australian Taxation
Office – that means all the major ATO avenues of revenue generation, of
prudential control and supervision, and across the ATO business lines.
1.9
My concerns with the proposal as it stands
centre around three aspects:
- the independence of the office and its work program;
- the breadth of its remit; and
- the adequacy of its funding.
Independence
1.10
Clause 8 (2) of the Bill requires that the IG
may be directed by the Minister to conduct a review. The conduct
of a review may also be formally requested by the Commissioner of
Taxation, or by a resolution of one or both houses of the Parliament or by a
resolution of a Parliamentary Committee. However these parties may not direct
that a review be carried out. I agree with the request mechanism. In contrast
the IGT must comply with directions given to the office under section 8.2 by
the Minister, and yet it is supposed to be an independent body. This issue was
raised by almost all of those that put submissions into the Economics Committee
inquiry.
1.11
During the committee hearing on this Bill I
raised a comparison with the Australian Federal Police, in that they have a
body of resources and list of tasks to do. These tasks are done on priority,
and considering the funding level of IGT is a mere $2 million, I remain
concerned that action and activities will be done on those things that have the
loudest supporters. The strength of advocacy will be greatest and most
articulate within the business community and this will have to have some
effect, even if this is only perception, on what activities are pursued.
Safeguards are necessary to ensure that a broad range of systemic issues may be
addressed, and I feel that the current arrangements are not strong enough in
this regard.
1.12
The capacity of the Minister to direct a review
has the potential to undermine the independence of the office. It also poses
the risk that the resources of the IG will be absorbed by ministerially
directed work to the extent that other issues cannot be adequately addressed.
Recommendation 1
I recommend that Clause 8 (2) of the Bill, which requires the
Inspector-General to comply with a direction of the minister that a review be
conducted, be deleted.
1.13
In determining his or her work program, it would
be appropriate for the IG to consult widely with taxpayers, tax professionals,
Treasury, and the Board of Taxation, as well as the relevant Parliamentary
standing comittees. Currently the Bill includes only the requirement that the
IG consult with the Commonwealth Auditor-General and the Commonwealth Ombudsman
in setting his or her work program.
Recommendation 2
I recommend that Clause 9 of the Bill be amended to include that a
requirement that in setting his or her work program, for the IG to consult with
those the IG sees fit, particularly tax professionals, taxpayer groups, the
Board of Taxation and relevant Parliamentary committees.
1.14
I also strongly endorse the Committee’s view
that the Bill should include merit based selection criteria for the office of
IG.
Recommendation 3
I recommend that the Bill be amended to insist on merit-based
appointment.
1.15
A further issue in relation to the independence
of the Inspector-General arises in regard to the reporting framework included
in the Bill. The Australian Democrats believe that if the role of the IG is to
carry conviction in the minds of taxpayers and is to be an effective means of
identifying and remedying systemic problems in the administration of the tax
system, the reporting process must be open and transparent.
1.16
Clause 11 of the Bill enables the Minister to
cause a review report to be tabled in each House of the Parliament, but does
not require that this be done. It is essential for the credibility and
independence of the office that review reports are publicly released in a
timely manner. The only exceptions to this principle should be in regard to
matters of public interest, or the protection of individuals. Such exemptions
are already more than adequately provided for in the Bill in clauses 22 to 27.
For example, clause 23 is clearly intended to protect the privacy of any
taxpayer. Also clause 26 stipulates that:
If a person who makes a
submission under section 13 has told the Inspector-General, or a member of the
Inspector-General’s staff, that the submission is to be kept confidential,
then: ...
(b)
information contained in the
submission must not be included in a report under section 10 or 41.
Recommendation 4
I recommend that Clause 11 of the Bill be amended 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.
Recommendation 5
The Minister should provide a copy of all review reports
to the Commonwealth Auditor-General.
Functions of the office
1.17
The office of IG should enhance the advocacy of
taxpayers concerns, and this role is not adequately expressed in the Bill as
drafted. The office should also be able to examine the legislative or policy
issues, which underlie systemic administrative problems, and to consider the
admistrative systems of other government agencies where these result in
problems for taxation administration.
Recommendation 6
The object of the Act should contain a clear statement that the
purpose of the IGT is to improve the administration of taxation for the benefit
of all taxpayers, provide independent advice to government on taxation administration,
and enhance the advocacy of broad (but not individual) taxpayer concerns in
regard to systemic taxation administration matters.
1.18
The office should also be a useful source of
advice in the consideration by government of new proposals, bringing to selected
issues a special expertise in administrative issues.
Recommendation 7
The functions of the Inspector-General should include the ability
to review taxation policy and legislation to the extent that it has been
identified as the source of systemic taxation administration problems. The
office should also be able to advise the Government concerning potential
administrative problems which may arise from the implementation of new
proposals, or which have arisen as a consequence of administrative systems
utilised by other government agencies.
Funding
1.21
The Ombudsman made an important point that the investigations that are
being proposed to be undertaken by the office of IG are heavily resource
intensive. This further reinforces the concern that this may very well only
end in tears as a consequence of there not being sufficient resources to get
any real level of effectiveness out of the IG. This is especially the case
considering the level of expectation that has been placed upon this office by
the stakeholders who have been involved to date.
1.22
I share the concerns expressed in a number of submissions to the inquiry
that the level of funding proposed for the office of $2 million per annum is
likely to be inadequate to enable its functions to be effectively discharged.
However, should the capacity of the Minister to direct the IG be deleted as
recommended above I would be a little more reassured in this regard. Should
this recommendation not be adopted, I would urge the Minister to ensure that
any direction to conduct a review which is likely to require a significant
proportion of the budget of the office to fulfil, be accompanied by a
commensurate allocation of new funding.
1.23
I also endorse the recommendation of the majority that the efficiency
and effectiveness of the office of IG be independently reviewed within five
years of its establishment, and that the adequacy of its funding be considered
at that time
Senator Andrew Murray
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