The watchdog with a missing eye and that’s short of a few teeth
The dog’s not rabid
I thank the committee and the secretariat for the good work that has been carried out on this self-referred inquiry. The report is well written and makes an otherwise dry topic somewhat interesting. It’s an important piece of work.
I will admit that my impressions of the Inspector‑General of Taxation and Taxation Ombudsmen (IGTO) going into this inquiry was of a rabid dog, but as the inquiry progressed I realised the dog was a good dog (certainly by no means perfect), just with one eye missing and few teeth. The committee’s recommendations offer remedies, but fall short in some areas, which I shall address below.
Watching the Australian Tax Office
The Australian Tax Office (ATO) performs a very important function trying to make sure everyone–individuals, sole traders, small family companies, small to medium enterprises, large companies and multi-nationals–pay their fair of tax, although they are not always successful in their endeavours.
Because of the importance of the ATO, it is granted significant powers by the parliament, some of a rather coercive nature, in order to discharge its duties. In all circumstances where significant powers are exercised without due care or proportionality, abuse can occur, particularly against the little guy.
No more striking an example exists than the ATO’s abuse of garnishee powers in 2017. Many people will remember the disturbing ATO internal email that accompanied the abuse: “The last hour of power is upon us... That means you still have time to issue another 5 garnishees.... Right? "
The IGTO is where people can go if the ATO has exceeded its brief, abused its power or got it plain wrong (or even partially wrong). Unfortunately it lacks necessary independence, is under-resourced, is constrained by the very organisation it is supposed to watch over, and lacks adequate legal means and resources to provide protection to complainants and whistle-blowers.
Independence
The committee has examined the issues of the IGTO’s independence and has made recommendations in that regard.
One area covered in the report but not specifically addressed by way of recommendation is the IGTO's lack of tenure. Whilst it is five years, that time is but a heartbeat when entering a role like this. Time is needed to get one’s feet under the desk and to truly get on top of the task. Achieving the latter would most likely occur late in the term of appointment, by which time their mind would most reasonably (because they are human) turn to and be distracted by the issue of re-appointment.
The Auditor‑General is appointed for ten years. So too should the IGTO.
Recommendation 1:
The IGTO's appointment should be for a 10 year non‑renewable term.
Under-resourced
The committee finds that the number of complaints received and dealt with by the IGTO has increased by 26 percent from 2015-16 to 2018-19 whilst funding marginally decreased.
Recommendation 1 of the committee’s report calls on the Australian Government to assess whether the IGTO is adequately resources. This is a misguided recommendation. There is no need for the government to conduct any assessment. It is already clear that the IGTO is woefully under resourced and the government must act in relation to this.
Recommendation 2:
The government address the shortfall in funding necessary to allow the IGTO to discharge its functions properly.
Constraints
Much is said in the report about the lack of access to all ATO and Tax Practitioner Boards records, data, and systems. It cannot be that that access to these systems is contingent on the permissions/co-operation of the organisations over which the IGTO has oversight.
Arrangements need to put in place such that different ranks and areas of different responsibilities within the IGTO have greater or niche access. By the time the position of IGTO has been reached access should be full and unfettered.
I acknowledge the committee’s recommendation in relation to improving the IGTO's access to ATO and Tax Practitioner Board information and systems, but I consider it necessary to make a further and more specific recommendation.
Recommendation 3:
The IGTO should have full and unfettered access to all ATO and Tax Practitioner Board records, data, and systems.
Protection of Whistle-blowers
The committee clearly spells out the limitations that the IGTO has in respect of dealing with whistle-blowers and makes a number of recommendations which I fully support.
However, there is a very important matter that was not dealt with completely by the committee. That matter involves whistle-blower Mr Ron Shamir whose situation is discussed in paragraphs 4.30 to 4.38 of the committee's report (and my comments in regard to him must be read in conjunction with these paragraphs).
I will start by saying that I met with Mr Shamir in 2016 and have maintained occasional contact with him since that time.
Mr Shamir was the subject of an irresponsible spray under the protection of parliamentary privilege by Tax Commissioner Chris Jordan before the committee's October 2019 estimates hearings. Whilst I respect the Tax Commissioner and think that, by and large, he does a good job, his attack on Mr Shamir was unnecessary, cowardly and unprofessional and represents a nadir in his professional career. I would like to think that if presented with the same circumstances again the Commissioner would choose a different course of action.
I have met a number of government and private sector whistle-blowers in my time and I can say that they are often ‘different’ from the normal run of employees. It takes a certain personality to stand up and call out a wrong in relation to the conduct of one’s employing organisation. Whistle-blowers tend to be tenacious, argumentative and can come across as quite annoying in their quest for correctness. But they are also righteous and in many instances downright heroic.
Mr Shamir was both righteous and heroic.
It is worthy of pointing out that on affidavit submitted by an ATO official to the Fair Work Commission, Mr Shamir had an impeccable record up until 2012, when he made a disclosure.
Unfortunately he was marched out of the ATO whilst performing a task he was compelled by law to complete after the IGTO issues him with an Ombudsman Act Section 9 notice. That notice created an offence for persons causing, or threatening to cause, detriment to him as he complied with the notice.
When he sought protection from the IGTO under the notice, it was never provided.
Mr Shamir became the victim of a catch 22. Under section 8 of the Ombudsman Act 1976 (the Ombudsman Act), before commencing an investigation, the principal officer of an agency that is to be the subject of the investigation (in this case the ATO) must be informed. But the IGTO needed more information in order to formally instigate an investigation and for that it needed information from Mr Shamir that required the protection of a section 9 notice. Whilst there is no need to inform the principal officer of the issuing of a
section 9 notice, without an investigation on-foot you can’t properly issue the section 9 notice.
This was discussed during hearings. On 6 December 2019 the following exchange took place between myself, the IGTO, and her General Manager:
Senator PATRICK: I'm going to go to questions relating to your interaction with the tax office in terms of getting information. We talked about this last time around. Maybe if we go on the record and talk about what I've talked about this morning: the section 8 and section 9 interaction and your view on how that operates. You get to a point where you say, 'I want to conduct an investigation, and issue a section 9 notice.' We just heard from the Ombudsman that you have to start an investigation before you issue the section 9 nine notice.
Ms Payne: That's correct. I'll back up a bit. Before we get access to anything we have to have commenced an investigation of some sort. There are two types of investigation we can conduct. One is in response to a tax complaint, which is: 'The tax laws are affecting me personally.' That is a complaint by an individual taxpayer or indeed a tax practitioner who wants to complain that the Tax Practitioner Board is not administering their registration, or is not dealing with them appropriately. In both those instances it is a tax complaint, and before we can commence that investigation we are under an obligation to notify the tax office or the Tax Practitioner Board that we're about to commence that investigation. So that's the tax complaints. In circumstances where we have own-initiated a systemic review or where this committee or any other committee has asked us to conduct a review of the tax systems or tax administration systems, by virtue of the fact that we have announced that review we then have access to particular records with the tax office. I might see if one of my colleagues wants to expand on that.
Mr Pengilley: Legally, under section 8 the notification needs to happen before we can exercise powers under section 9. As Ms Payne has pointed out, how that notification takes place might depend on the type of investigation. If it's a systems investigation or a systems review we notify publicly. If it is one of a tax complaint we notify privately, directly to the ATO, through an agreed system of process by which they understand that's the notification an investigation has commenced.
I do not say that the then IGTO was not acting on good faith when he issued the Section 9 notice, only that he did so in serious legal error leaving Mr Shamir out in the cold.
Mr Shamir, his wife and young children have suffered tremendously as a result of these circumstances and this warrants remedy.
Recommendation 4:
Mr Shamir should be granted compensation either under the Scheme for Compensation for Detriment caused by Defective Administration or, failing that, as an act of grace payment.
Nothing will properly restore Mr Shamir and his family to his pre-disclosure situation. He is a smart and articulate man with considerable analytical skill who I would certainly employ in some capability if not for the fact he does not live in Adelaide.
Mr Shamir is trying to rebuild his life. I ask, having consulted with Mr Shamir, that any questions in relation to this awful affair be directed to my office. Mr Shamir has done his public duty and we should ask nothing more of him.
Review of the IGT Act
The catch 22 must be resolved. The committee’s recommendation 10 proposes that the Australian Government review the Inspector‑General of Taxation Act 2003 (the IGT Act) and its interactions with the Ombudsman Act, with the objective of improving the IGT Act's clarity. I support this recommendation but offer a more prescriptive suggestion in relation to this.
Whilst resolving the catch 22 described in para 1.24 above, the government could also extract referred sections of the Ombudsman’s Act and include them in a revised self-contained IGT Act.
Recommendation 5:
To provide clarity on the legislative powers and functions of the IGTO, and to provide operational clarity, there should be a self-contained IGT Act.
Rex Patrick
Senator for South Australia