Chapter 5

Other issues

5.1        This chapter examines issues associated with the administration, implementation and cost of tax receipts. Evidence presented to the committee providing suggestions or alternative approaches to minimise these issues is also discussed.

Availability of final Budget figures

5.2        The amendments state that a notice of assessment should include 'a breakdown of how the amount of the assessment was spent on different functions in the financial year'. The amendments also require these calculations to be based on the proportion of Budget expenditure on each function.[1]

5.3        Projections of government expenditure are released with the Budget, and are updated as necessary in the MYEFO and again at the next Budget. The final Budget figures are published in the Final Budget Outcome, which is usually released at the end of September each year (the Charter of Budget Honesty Act 1998 requires that governments provide a final budget outcome report no later than three months after the end of the financial year).

5.4        The ATO gave evidence to the committee regarding their approach to providing notices of assessment to taxpayers, and submitted that the delay in the final Budget figures being available would have implications for their assessment process:

From our point of view, if we need to provide personalised information to taxpayers, that information has to be timely, accurate and final. So, to the extent that there is a lack of the data which we need to provide with an assessment, we would have to wait until we had that. If that was not final and accurate until September then we would not be able to provide that to taxpayers before then. Where the information to be provided is part of the assessment process, we would have to be extremely careful that the information we provided was timely, accurate and final. That would mean that we would not be able to issue assessments until we had that.[2]

5.5        However, many tax returns start to be assessed and finalised before the end of September. The ATO, under the Income Tax Assessment Act, has an obligation to serve notices of assessment 'as soon as conveniently may be after any assessment is made'.[3] This timing issue was discussed by officials from Treasury during their evidence to the committee:

Senator PRATT—How soon do people start getting tax returns lodged and looking for their money back? It seems to me that there is a direct link between you getting your tax assessment and any money back and at the same time the government being ready to give you this information. Is there a problem there?

Mr Parker—Yes, there is a problem in terms of the ability to administer these things. It goes, as I mentioned at the outset, to timeliness and accuracy. Every year we publish the Final Budget Outcome, which has detailed reporting on what actually happened for the financial year. It can be amended in the event of new information as you get it, if there are errors and so forth. That is required to be published by 30 September every year. When I sign off on the accounts for the Treasury, that is generally in August or something like that, once the whole thing has been audited properly.

Senator PRATT—Is it September because it takes time—

Mr Parker—It takes time, yes.

Senator PRATT—to pull that kind of information together?

Mr Parker—That is right. And someone could lodge their tax return straightaway, essentially.

5.6        The proposal, as currently drafted, refers to "Budget expenditure". It is not clear if it is intended for the final Budget figures to be used when considering Budget expenditure, or whether estimates may be used. Given this uncertainty, it is understandable that the ATO may be inclined to wait until the Final Budget Outcome is available. However this would likely interfere with their obligations to taxpayers who lodge their tax returns early in the assessment process. In cases where the ATO would return money to a taxpayer, it would effectively be holding that money for longer than what is otherwise necessary, to the detriment of the taxpayer.

5.7        If final Budget figures are not available at the same time as tax returns start to be assessed, estimates of expenditure from other Budget documents could be used. This would likely result in some minor inaccuracies in the assessments.

5.8        However, as noted earlier, the estimates released in the Budget are updated during the financial year to reflect policy decisions, variations in economic parameters and other developments. These updated figures are published in the MYEFO and when a new Budget is released. For instance, updated estimates figures associated with the 2009–10 Budget were published in November 2009 for the 2009–10 MYEFO, and again in May 2010 for the 2010–11 Budget. The following table illustrates the degree of variation in expenditure figures related to recent Budgets.

Table 5.1: Estimates/outcome of general government sector
expenses from recent Budgets

	Initial Budget estimates ($b)	MYEFO estimates ($b)	Revised estimates released at next Budget ($b)	Final Budget Outcome figures ($b)
2008–09	292.5	303.6	324.4	324.6
2009–10	338.2	340.2	343.1	339.2
2010–11	354.6	354.3	-	-

Sources: Budget Paper No. 1, MYEFO and Final Budget Outcome for the 2008–09, 2009–10 and 2010–11 financial years.

5.9        Therefore, while the figures would still not be final and other minor inaccuracies as a result of the figures remaining as estimates may still exist, there would be less than a two month period during which policy decisions or economic variations could vary these estimates.

5.10      During the public hearing conducted for this inquiry, the ATO acknowledged that any uncertainty in this area would ultimately depend on how the law was drafted.

CHAIR—If you put appropriate riders on the tax receipt then and say that, due to the fact that the final figures have not yet been released, this tax receipt has been calculated against the budget figures, or MYEFO or whatever it might have been, which were the most recently available figures, then that surely squares that away. It is as accurate as it could possibly be at that date.

Mr Monaghan—That, of course, always depends on what the law requires. The point I am making is that, for us to provide personalised information to taxpayers, we would need to have that in a timely, accurate and final way and, where there was uncertainty in any of those things, we would have to wait.[4]

Committee view

5.11      The intention behind the amendments is to provide taxpayers with indicative information about government expenditure and debt. The committee acknowledges the ATO's concerns about the income tax assessment process requiring accuracy and timeliness. The committee considers that the updated estimates released with the following financial year's Budget in May could be used to calculate the breakdown of government expenditure on a tax receipt. This would address concerns about the impact of the tax receipt proposal on the timeliness of the income tax assessment process.

5.12      In response to concerns about accuracy, the committee is of the view that although these figures are estimates rather than final Budget numbers, this should not be a matter of significant concern given the rigour of the Budget process and the fact that the estimates are sufficient for governments to base their expenditure for the upcoming financial year when the Budget is released. This is provided that the tax receipt clearly indicates which figures have been used and details any further assumptions made.

Recommendation 3

5.13      The committee recommends that an explanatory note be inserted into the amendments to allow the most up-to-date publicly available government estimates of Budget expenditure available on 30 June (of the relevant financial year) to be used in any calculations to breakdown how the amount of an individual's assessment was spent on different government functions.

Alternative approaches

5.14      An alternative method to provide information on government expenditure and debt on an individual taxpayer basis was suggested by Professor Quiggin in his submission to the committee. Professor Quiggin noted that a website with a calculator that could be used to show income tax payments are spent could be more beneficial to taxpayers than a paper tax receipt, and could help ensure that tax assessments remain uncomplicated:

The general idea of informing members of the public how their tax dollars are spent is a good one. However, it is also highly desirable that tax assessments should be as simple as possible. A reasonable compromise might be to include a link or reference to a website where taxpayers could use a calculator to derive the relevant information. This approach would have the added merit of being expandable and customisable so that interested taxpayers (a minority, but one to be encouraged) could obtain more information regarding areas of specific interest.[5]

5.15      In addition to allowing for customisation and the ability for more detailed information to be provided to taxpayers who seek it, another likely advantage is that such a website would be available continuously and be easily accessible throughout the year. A website would also allow for easier feedback from taxpayers regarding the way the information is provided and the possibility of more frequent improvements in response.

5.16      Depending on the cost of sending additional documents to each taxpayer along with their notice of assessment, there may also be cost-savings (either immediately or in the long-term) in developing and maintaining a website. During their evidence to the committee, officers from the ATO suggested that paper tax receipt system would cost approximately $10 million over four years, with the majority of the outlay likely to occur in the 2011-12 financial year.[6] The ATO later advised that they estimated the cost would decrease to $2 million a year in 2012‑13 and 2013‑14.

5.17      The State of California currently operates a website which invites state taxpayers to enter the amount they paid in state income tax and then shows how the money would be distributed.[7]

Committee view

5.18      The committee accepts that the proposal for a tax calculator on a government website to be introduced may have merit, but does not believe it is a suitable alternative in itself.

5.19      A website would be subject to the same constraints regarding the availability of Budget information and the ability to provide a thoroughly accurate snapshot of how a taxpayer's income tax payment is spent by the government at any given point in time. To ensure accuracy, there may be a need to review the calculations used on the website as updated Budget figures, such as those released in the MYEFO, become available. Further, the cost-effectiveness and overall success of the website would be severely restricted by the degree to which taxpayers are aware of its existence and remember to access it.

5.20      Overall, once the methodology and processes associated with preparing paper tax receipts has been developed, the committee considers that the ongoing costs associated with them should not be significant compared to the benefits of information on government expenditure and debt becoming more easily available to taxpayers.

Recommendation 4

5.21      Subject to the committee's other recommendations being adopted, the committee recommends that the amendments to the Tax Laws Amendment (2010 Measures No. 4) Bill 2010 proposed by Senator Cormann on sheet 7010 be introduced as a Bill, and that the Bill be passed.

Senator Alan Eggleston
Chair

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