Australia has one of the most unfair tax systems in the world
All major political parties in opposition have recognised the issues in our tax rules, but fear embracing fairness will hit revenues. The reverse is more likely.
ROBERT GOTTLIEBSEN @BGottliebsen
January 28, 2025
All three major political parties in opposition have recognised the unfairness in Australia’s tax collection rules, but once they gain office they are “snowed” by the Australian Taxation Office and fear embracing fairness will hit revenues.
The reverse is more likely. In 2003, the Howard government set up the Inspector General of Taxation “to improve the administration of taxation laws for the benefit of all taxpayers, tax practitioners and other entities”, including small businesses.
IGTO still does good work, but because John Howard and Treasurer Peter Costello did not give the IGTO enough power, and did not change the way the ATO collects tax in the years which followed, their aim was thwarted by the ATO.
Fast-forward to 2015 and the Coalition politicians in power did not realise ATO systems had fallen into neglect, partly because the ATO relies on its unfair and horrendous powers. No need for top rate systems.
The Coalition government foolishly inserted the flawed ATO systems, plus some of its unfair collection methods, into the social security area. It did not work and the RoboDebt scandal erupted.
In reaction to RoboDebt, the current ALP government has wisely decided to increase the IGTO powers, delivering a big improvement on the Howard/Costello measures. But, again, the ATO snowed-in an elected government and inserted a series of “escape clause” words to give the ATO option to avoid fairness.
For example, the ATO, in responding to requests by the IGTO, is only required to use its “best endeavours” and be “reasonable”. Clearly this caveat should either be removed or, alternatively, qualified so the IGTO has an absolute right to information — provided the information actually exists.
As it now stands, there is a danger it will become a repeat of 20 years earlier, when John Howard and Peter Costello were “snowed”.
With an election approaching, my friend and former Woolworths chairman John Dahlsen has put together an integrated tax policy document to show how we can improve on the fairness model created by an earlier parliamentary committee, headed by the Liberals’ Jason Falinski and the ALP’s Julie Owens.
Dahlsen points out the core of the unfairness is that when the ATO raises a tax ‘assessment’ the assessment automatically becomes a debt at law, whether the assessment is accurate or not.
From that point on, the ATO charges taxpayer interest and penalties. Then, the taxpayers must prove to the ATO they have paid the right amount of tax.
Unlike the Criminal Code, where the Crown must prove guilt beyond a reasonable doubt, under the ATO rules it is the reverse.
Under the Dahlsen proposal, any political party committed to tax collection fairness should adopt a policy which ensures:
• A tax assessment cannot be declared a ‘debt’ until all appeals have been finalised.
• Tax owed can only be reported on or collected once an assessment has been declared a debt.
• The onus of proof of a debt is on the ATO.
• Interest and penalties cannot be applied until a tax assessment has been declared a debt.
Vital in this base policy is to increase the authority and resources of the Inspector General of Taxation, including:
• The IGTO to have automatic and unrestricted access to all ATO tax files and information.
• The ATO must fully co-operate with the IGTO in IGTO investigations and reviews. There should be ATO sanctions for noncooperation.
• The IGTO to have the power to issue a ‘requirement’ to the ATO to do or not do something in relation to a taxpayer assessment. The ATO need not comply but must report to Parliament on reasons for noncompliance, subject to taxpayer privacy. The IGTO should comment on the ATO processes, particularly where improvement might be appropriate for other taxpayers.
• The IGTO should, in determining a taxpayer’s affairs, have the power to award costs against the ATO and the costs incurred by the taxpayer’s own time and resources, which can be monumental.
• The IGTO will review the ATO’s Taxpayer Charter to create a Taxpayer Bill of Rights for Parliament’s consideration.
• Increase the IGTO’s funding so it has the capacity to support increased volumes of taxpayer complaints effectively and receive a statutory set percentage of the ATO’s compliance-related budget measure program funding (where taxpayers need support most).
• The party supporting tax fairness should also investigate USA tax whistleblower laws to determine what contributions such laws could make to tax collection and taxpayer protection in Australia. Under the US system, the ATO would have power to compensate citizens when information is given to the ATO, leading to more tax. It can include a maximum percentage of the tax gain.
In an ideal world, all three parties should embrace the above policy, but the nation desperately needs at least one party to raise the flag of fairness for Australian taxpayers.
