I am delighted to have this opportunity to speak to the Challis Tax Discussion Group this evening.
I have been invited to speak on my role in the administration of the income tax law.
Of course, the Commissioner of Taxation has absolute autonomy in the actual administration of the tax laws.
Perceptions of a non-partisan administration of the taxation laws are as fundamental to successful tax systems (and hence successful government) as are non-partisan judicial systems to the rule of law and sustaining a democratic society.
For this and other reasons, the Commissioner of Taxation has - and will continue to have - absolute discretion in the day to day administration of the tax laws.
At the same time, democratic government is held accountable by society for the taxation system that it imposes and so must be able to deliver a system that accords with democratically expressed preferences.
This is the part of tax administration that is within the Government's domain - tax administration policy - and this is my challenge as Minister for Revenue.
The Government's roles in tax administration include:
- putting in place a robust tax design framework that generates tax laws that are unambiguous, responsive to the legitimate concerns of taxpayers, and conducive to effective administration;
- adequately resourcing the tax administration function; and
- ensuring that appropriate accountability and review mechanisms are in place to identify and remedy any problems in tax administration.
These, then, are my broad responsibilities as Minister for Revenue and Assistant Treasurer and I will be speaking about each of these responsibilities this evening.
Ministerial role
The creation of my position - Minister for Revenue - is indicative of the importance that the Government places on the effective and efficient administration of the tax system.
I have been charged with overseeing the revenue base of the tax system. This extends beyond particular `tax issues' and goes to the heart of the Government's budgetary framework - helping to ensure the Government is in a position to fund those programmes and services we see as vital to the social fabric of the nation.
At the same time, because the tax system is part of the lives of all Australians, my brief goes far beyond the efficient collection of revenue. I need to be confident that tax administration is aligned with Government policy and responsive to legitimate community concerns.
I also see it as my role to communicate the Government's broad strategies in relation to the tax system - as clearly as they can be articulated at any point in time in such a dynamic environment.
Australians have a right to understand the overarching tax policy framework and the rationale for different elements of the tax system. At the same time, there are enormous potential benefits to the Government from consulting with individuals and businesses who understand what the Government is trying to achieve and who are able to provide creative input within the broad policy framework.
I am convinced of the importance of communicating effectively the need for reform in any area of government policy for which I have responsibility as Minister for Revenue and Assistant Treasurer.
Consultation can then become a creative dialogue between business and government on the best ways of achieving policy goals in the interests of the community.
Tax Design Framework
At the outset, I acknowledged that the Government is responsible for putting in place a robust tax design framework.
You cannot have good tax administration unless the tax laws themselves are sound.
A well functioning tax system will require constant change and an ongoing focus on improvement.
Today, I will discuss some of the recent and proposed Government initiatives to improve the tax laws themselves.
I would also like to mention some of the complex legal issues confronting me as Minister in relation to tax administration - in the hope that I will be able to discuss these issues with you - if not tonight, then in the near future.
Community Consultation and Advice to Government
A key initiative that the Government has put in place to improve taxation law is a commitment to consultation with the community, including, of course, the tax advising professions.
As Minister for Revenue I am aware of a general perception that there is a need for a stronger business voice in tax policy advising, particularly as it relates to tax law design and matters of tax administration policy.
Consultation with business has been fundamental to the success of Business Tax Reform in areas such as debt/equity distinctions, thin capitalisation, simplified tax system, capital allowances and consolidation, to name a few.
The Government has recently responded to advice from the Board of Taxation on incorporating consultative processes in tax design.
Board of Taxation recommendations on community consultation
The Board of Taxation provided very wise and considered advice to the Government on the importance of consulting with the community in the development of tax laws.
The Government responded to the Board's recommendation at the beginning of May and we have largely adopted all the Board's recommendations.
During the development of future tax measures, we will be working from an in-principle position of:
- consulting on all substantive tax legislation initiatives;
- except where there is commercial or market sensitivity, revenue or tax avoidance sensitivity, or similarly compelling reasons not to consult;
- seeking early external input in the identification and assessment of high-level policy and implementation options;
- seeking technical and other input from external stakeholders (including the Board of Taxation) in the development of policy and legislative detail;
- thoroughly road testing draft legislation and related products prior to implementation;
- ensuring policy intent for each new measure is clearly established and described by public announcement;
- announcing for each new substantive tax measure a consultation process, with roles and responsibilities specified;
- releasing an indicative forward programme of tax legislation; and
- providing better feedback to external participants in consultation processes.
The Board of Taxation will have an ongoing role in monitoring the processes of consultation, and conducting post-implementation reviews of major pieces of tax legislation to ensure that government policy intent has been effectively translated consequent upon consultations undertaken.
The Government's continuing commitment to consultation is a significant step towards addressing past criticisms about tax design.
The Legislation Function
I am also aware that there have been criticisms that there has been, in the past, a bias towards tax laws with complex anti-avoidance or revenue protection provisions, at the expense of simplicity for taxpayers.
The Government has moved to address these concerns with the transfer of the tax legislation function from the Tax Office to the Department of the Treasury from 1 July 2002.
There are a number of important benefits sought from this change.
- Treasury currently has responsibility for providing tax policy advice. The
transfer brings accountability for tax policy and legislative design more
directly under Ministerial control.
- The change in responsibility will also reinforce the need for whole-of-Government perspectives to be taken into account in tax law design processes.
- The new arrangements see policy and legislative development brought together, providing maximum opportunity for legislation to be developed in a manner consistent with the policy intent set by Government.
- Working arrangements between the Tax Office and the Treasury will ensure that the administrative, compliance and interpretive experience of the Tax Office fully contributes to policy and legislation processes.
- The Tax Office will now have the opportunity to focus even more on its core business of tax administration.
The Secretary to the Treasury and the Commissioner of Taxation, in consultation with the Office of Parliamentary Counsel as appropriate, have been asked to develop working arrangements between the agencies in developing future tax measures that seek to build on progress to date in ensuring a high level of integration across the policy, legislative and administrative aspects of change.
Emerging tax policy issues
I said earlier that taxation law is a dynamic environment. I am conscious that businesses and individuals need and want certainty in the tax laws and in tax administration as a basis for being able to decide how to manage their affairs.
But I am also conscious that tax law is constantly evolving - by way of judicial interpretation as well as changes in government policy.
Change will continue to be part of the tax landscape and it is part of my role as Minister to promote smooth transitions.
I will mention two areas where laws affecting tax administration are currently evolving. I raise these issues for discussion only, because no new policy directions have yet been considered in relation to these issues.
The Daniels decision
I imagine you are all aware of the Full Federal Court decision in the matter of the Australian Competition and Consumer Commission and the Daniels Corporation. The Court ordered that Daniels' solicitors were not entitled to refuse to comply with a statutory demand for documents on the ground of legal professional privilege.
This decision is before the High Court on appeal. Pending the outcome of the High Court case, it would not be appropriate for me to comment on the issues. But it is part of my role to listen to the views of taxpayers and tax advising professions on the interplay between the access powers of law enforcement agencies and legal professional privilege.
I am conscious - as a lawyer - of the importance of encouraging clients to make a full and frank disclosure of their affairs to legal advisers so they can get accurate advice. I am also conscious - as a Minister - of the need for enforcement agencies to have strong investigative powers in cases of potential unlawful activity.
The public policy tradeoffs in such areas are very sensitive ones. In the case of taxation, there is a delicate balancing act between the rights of individual taxpayers and the welfare of Australian taxpayers as a body. The Government needs to be well informed, having heard the views of different interests in the community, to be able to decide the appropriate balance.
Taxpayer secrecy provisions
A similarly complex issue currently confronting me as Minister for Revenue is the need to find an appropriate balance between:
- protecting the confidentiality of individual taxpayer information; and
- allowing taxpayers to permit access to their tax information.
At the present time, I am receiving representations from aggrieved taxpayers or their advisers or from Members of Parliament, regarding claims of maladministration by the Australian Taxation Office - an agency for which I have Ministerial responsibility.
As a Minister of State, I am expressly precluded from access to individual taxpayer information held by the Tax Office under section 16 of the Income Tax Assessment Act and similar secrecy provisions in other tax laws. This is entirely appropriate for the reasons I mentioned at the beginning of my address tonight: tax administration needs to be, and be seen to be, non-partisan.
Nonetheless, there need to be processes in place to ensure effective and accountable handling of decisions or policies for which I am ultimately accountable.
This is simply another example where there is a need to ensure that tax administration is flexible in a dynamic environment.
Resourcing Tax Administration
While it is not my role to determine how laws are implemented and administered, it is certainly the role of Treasury Ministers to ensure that the Tax Office is well-resourced and has appropriate processes in place to carry out its functions efficiently and effectively.
You would be aware that the Budget announced additional funding to the Tax Office of more than $1.5 billion over four years.
I am aware that business voices had called for additional funding to be made available to the Tax Office, particularly for its interface with clients.
Review of Tax Administration
To this point, I have spoken largely about Government initiatives already implemented.
In talking to you about accountability and review mechanisms for tax administration, I am moving into an area where the Government is still considering the details of its policy responses - including:
- the proposed review of governance arrangements for statutory authorities such as the Tax Office; and
- the establishment of the Inspector-General of Taxation.
Governance of statutory authorities
Prior to the election, the Government announced that it would review the governance arrangements for statutory authorities and office holders. Such a review would include the governance of the Tax Office, but would be seeking whole-of-Government outcomes for all statutory agencies.
This review may well have important implications for the future of tax administration.
Inspector-General of Taxation
The Government has made a commitment to establish the office of Inspector-General of Taxation by the end of this year, and this commitment was reflected in the Budget where funding of $2 million per year was allocated, commencing this financial year.
On 29 May, I released a Consultation Paper setting out the Government's proposals for the new office of Inspector-General of Taxation and the Board of Taxation has since conducted an impressive consultation process on this paper in a very tight timeframe.
I received the Board's advisory report on the Inspector-General last Friday evening. It is a comprehensive and detailed report and it deserves far more than a few days' of my consideration. So I am not going to announce my response to the Board's report tonight.
As well as giving careful consideration to the recommendations in the report, I am also considering the Board's overview of the consultation process. I have been interested to learn of the views of taxpayer groups, tax professionals, and other interested parties.
I should also say I am impressed by, and appreciative of, the high level of participation in the consultation process.
While I am not in a position to discuss the final details of how the office will be established, I would like to take the opportunity to explain the Government's policy intent for the Inspector-General.
Dealing with systemic complaints
First and foremost, the Inspector-General will focus on identifying and recommending solutions to systemic problems in tax administration. This is a new role.
The Inspector-General will not take over any existing functions in the tax system. The Inspector-General will not supplant existing avenues of review - including the right to complain to the Ombudsman or appeal to courts and tribunals - which will continue to be available.
However, existing review processes - many of which focus on individual cases or specific problems - are not designed to deliver a whole-of-system perspective to the Government. At present, it is not possible for the Government strategically to direct the resources of review bodies such as the Ombudsman or the Auditor-General to tax administration issues that are most critical to the needs of taxpayers and their advisers.
The Inspector-General, by comparison, will be able to initiate inquiries and reports into systemic issues on the basis of concerns raised by affected groups. The Inspector-General will operate with an `open-door' policy.
I understand that there is almost universal support amongst stakeholders for this aspect of the Government's initiative.
Independent advice on the tax system - an advocate for taxpayers
Second, the Inspector-General will provide independent advice on tax administration.
I am aware that there has been concern for some time that, in relation to tax administration, the Government relies heavily on advice from the Treasury and the Tax Office that may or may not reflect business and community views.
In whatever form the office of Inspector-General of Taxation is finally established, a critical role will be as the advocate for taxpayers to the Government.
The critical importance the Government accords this role is reflected in the fact that the Inspector-General will be established as an independent statutory officer with similar independence and access to information about tax administration as the Commissioner of Taxation.
This will ensure that the Inspector-General will be equipped to be a powerful advocate for taxpayers.
The establishment of the office of Inspector-General is part of my `need to know' about the system, its impacts and opportunities.
This will enhance my ability to respond quickly to serious problems in the tax system, including where legislative amendments are required.
I am determined to ensure that this initiative is a success and I am committed to serious and timely consideration of any advice given, or recommendations made by, the Inspector-General of Taxation.
Appointment of the Inspector-General
The success of the office of Inspector-General will depend, to a large extent, on appointing an individual who will enjoy the respect and cooperation of all stakeholders. At the same time, the Inspector-General will need an in-depth understanding of the tax system and how individuals and businesses interact with that system.
I recognise how critical it will be to get the right person for this job.
Conclusion
I have talked, at some length, about my role in the tax administration system as Minister for Revenue and Assistant Treasurer.
Can I just close by saying how much I am enjoying the role and, in particular, the many opportunities that I have in this role to interact with taxpayer groups, tax professionals, and policy discussion groups like your own.
I am constantly exposed to very creative and innovative thinking about tax design and tax administration and this is a privilege.
Thank you again for the invitation to meet with you this evening.