Does the ATO have too much power?
Bowing out after 10 years, Australia’s Inspector-General of Taxation Ali Noroozi worries about the power wielded by the ATO and highlights the importance of trust and independence.
- Trust in the ATO is important for ensuring voluntary compliance but has been threatened by a run of bad publicity.
- The outgoing Inspector-General of Taxation Ali Nozoori says tension between his office and the tax commissioner is healthy.
- He suggests changes to tax administration to allow independent oversight and review.
By Garry Shilson-Josling
Now that he’s stepping down from his role as Inspector-General of Taxation (IGT), the very diplomatic Ali Noroozi is loosening up just a little.
Noroozi’s second five-year term finishes on 6 November, and he announced in July that it would be his last. For most of the past decade, his working relationship with Tax Commissioner Chris Jordan has been widely speculated to be tense.
Now that he is on the home stretch, he no longer pretends the relationship is anything else. Instead, he argues for the benefits of a working relationship that keeps everyone on their toes. He quotes former parliamentarian and long-time Australian Taxation Office (ATO) critic Bronwyn Bishop’s comment that his job was “not to have nice cups of tea with the commissioner”. He says “a degree of tension between the scrutineer and the subject of scrutiny is healthy”.
Even so, he is not taking the opportunity to give unsolicited advice to his successor, whomever that may be. “Look, I think one should have the good grace that when one finishes one should keep his nose out of things, just like my predecessor was a complete gentleman and did not dabble in anything I did.”
A degree of tension between the scrutineer and the subject of scrutiny is healthy.
And he remains cautious about taking public pot-shots at the Tax Commissioner, despite the insight gained from the myriad complaints his office has fielded from the ATO’s “clients”. At the same time, he does not shy away from his record of scrutiny and criticism, or from his ideas for change in tax administration. He believes they would improve the ATO and the tax system in general. He argues that confidence and trust are the best motivators for voluntary compliance.
The importance of trust
Noroozi quotes academic research backing his views about the link between compliance and trust. It’s a view shared widely among tax professionals, including Kevin O’Rourke, indirect tax partner at Deloitte. “Even if the ATO does nothing, money still flows in, in enormous quantities,” O’Rourke says. That happens because the ATO is trusted. If the trust weakens too far, “it undermines the voluntary compliance strategy”, he adds.
The ATO has been the subject of some bad press in recent years. Technology is magnifying the effect on its reputation. Perceptions that multinationals don’t pay enough tax have become common. Jordan himself acknowledged the reputational pressure as recently as March, declaring in a Cairns speech that: “I do not underestimate how important it is that people have trust and confidence in me and the ATO”. (You can read the Acuity interview with Jordan in the February/March 2018 edition.)
Trust under pressure
Noroozi acknowledges that trust in the ATO has come under pressure recently, and not just because taxpayers see others getting away with dodging their fiscal duty.
“Look, the ATO has done some really good things under the current commissioner,” he says. “He has done some good things. He really has tried to make the place more user-friendly, so you should get credit for that. But he’s also had some major issues.”
The Inspector-General zeroes in on three areas. One is the highly publicised IT failures of 2016 and 2017 and their long aftermath. “There are continuing irritants for tax professionals with the portal,” Noroozi points out. “I mean, it’s down a lot for maintenance.”
Then there was the fraud case in which the son of former ATO deputy commissioner Michael Cranston is alleged to have been part of a massive tax fraud conspiracy. It led to the ATO senior executive being charged with improperly accessing restricted information and caused a political uproar, with various political groups expressing deep concern, Noroozi notes. “But ... they all trusted in my office to conduct a review, so all of that heat was taken out of it.”
The review has been completed but because it contains recommendations to the government, the Inspector-General is unable to release it directly. The minister is required by law to publish it within 25 parliamentary sitting days after it goes to the minister – in this case, by late October.
Photographs: Nic Walker/Jessica Hromas/Fairfax Syndication
Then there are the series of stories stemming from a joint investigation by Fairfax Media and ABC’s Four Corners that depicts a heavy-handed approach by the ATO to small business debt collection, in particular by using garnishee notices. Jordan attacked the investigation as “offensive and inaccurate”, taking particular issue with the Four Corners program’s title, A Mongrel Bunch of Bastards.
“In recent years they have had what some may call a series of scandals, of which I think particularly the Four Corners program has really affected their reputation,” Noroozi says.
An unhappy report
Just how badly he thought the ATO’s reputation had suffered was laid out in an Inspector-General’s report to Treasury in April. It was revealed in July when the report was obtained by the Fairfax/Four Corners journalists. When asked for his views on the Four Corners program, Noroozi points to the once-secret report now on the IGT website.
The report is not happy reading. It criticises the ATO for using a media strategy that denies the existence of problems and discredits people raising concerns. It says attempts to use these tactics “have not reflected well” on the ATO, and not only fall short of public expectations, but are increasingly irrelevant. Modern communications technology allows a quick and coordinated response by those who see a divergence between their experience and the ATO’s response. Spin is just not as effective as it used to be.
In this changed environment, the ATO and the IGT have to work together to regain the trust of the Australian people, Noroozi says. Despite a very short turnaround time, his report recommends a range of measures, including legal help for taxpayers in dispute with the ATO, compensation for those hurt by its mistakes, and a genuine response to taxpayer concerns rather than attempts to downplay them.
“Everybody makes mistakes, but it’s how you deal with that mistake that people will judge you by, and I make this point in the submission,” Noroozi says. The report also recommends promoting the IGT’s ombudsman role.
The IGT office was established in 2003 under Noroozi’s predecessor, David Vos. Its original brief was simply to look into systemic issues relating to tax administration and law. But in May 2015, that brief was widened to include handling of complaints about the ATO and Tax Practitioners Board. Those complaints now consume about three-quarters of the IGT’s resources. In the release announcing his departure, Noroozi said his office had already handled more than 7000 complaints.
The flow of new complaints is still rising, both in terms of numbers and complexity, he says. It’s not that the ATO is making more mistakes; rather, the IGT is becoming better known and acquiring more of that precious commodity called trust. Responsibility for that can be assigned in large part to Noroozi’s own efforts to make his office better known, according to Michael Croker, tax leader at CA ANZ. “He’s been out and about, talking to lots of people during his tenure – professional associations, industry associations, individual taxpayers,” Croker says.
With such a volume of disputation, the potential for head-butting between the IGT and the ATO is obviously great, but Noroozi says that in most cases the ATO and IGT come to “some level of agreement”. Fundamental disagreement is rare, which is impressive, given that the IGT has no formal coercive power over the ATO.
When the IGT investigates complaints, its recommendations are not binding on the ATO, but Noroozi insists that they can still pack a persuasive punch when legal daggers are drawn. “Obviously, you know, our findings, people may decide to share that in the court and they might find that it’s not binding but they might find it helpful,” he says.
With his exit looming, Noroozi says he no longer has “skin in the game”, and so feels more comfortable offering suggestions for policymakers. Two, he says, are especially important.
One is for an appeals group in the ATO. The idea was presented in a January 2015 report into how tax disputes are managed and while there has been no action, Noroozi’s enthusiasm for the idea is undiminished.
As it typically does when compiling its reports, Noroozi’s team drew on the experience of other countries – the US, the UK, Canada, New Zealand and Ireland – to form the recommendation. The report found that the degree of separation between the staff making the decisions and the staff reviewing them was smaller than in any other comparable jurisdiction.
The IGT’s proposed alternative would be headed by a new second commissioner. Because second commissioners are appointed by the minister rather than the commissioner, the head of the group would not have a potential conflict between career progression and criticising the boss. As with the suggested appeals group, Noroozi is keen to argue the case for an oversight board to sit above the ATO.
It would have an independent chair and links to the IGT, enabling it to cross-check the information flowing up from within the ATO itself, and it would draw on private sector expertise. Noroozi recommended it in 2011 and it was floated as an idea by the Australian Labor Party when it was last in office, but the proposal currently lies dormant.
The underlying motivation for both the board and the appeals group is the same. Noroozi worries that the ATO simply has too much power, particularly power concentrated in the commissioner. As a result, he sees the need for structures independent of the ATO to provide checks and balances. This focus on independence is a recurring theme with Noroozi. He stresses that to be able to fulfil its role in nurturing trust in tax administration, it must not just be independent but be seen to be independent to nurture the trust it requires to play its part.
Both goals would be easier to reach if the Inspector-General were to be appointed for a non-renewable term of 10 years, in line with the auditor-general, rather than the current renewable five-year terms. And Noroozi wonders whether it is appropriate to have both the Inspector-General of Taxation and the Tax Commissioner reporting to the same minister, the Treasurer. “I couldn’t say this before because they would have thought it was for my own benefit but I am now putting it forward as a good thing for the system,” he says.
Garry Shilson-Josling has been chief economist at both Australian Associated Press and MMS Standard and Poor’s Australia/NZ, and an economist at the Commonwealth Bank of Australia.
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