Do we want fewer, tougher tax men?

There is room for reform at the nation's tax office but Joe Hockey's proposal to knock tax administration and policing into place could be counterproductive.

When Joe Hockey’s said at the Press Club last week that he plans to get tough with the ATO if the Coalition wins government, he must have known it was a stroke of political genius.

How could he lose? It’s an simple story for journalists to run with because it’s hard to find anyone easier to demonise than the tax man. (Sorry, I mean 'tax person' – it would be wrong to suggest that only men can be ruthless, cold-hearted money-grabbers.)

And so a flurry of stories have implied what we all knew in out guts – we don’t really owe the tax office as much as they say; when they ask for outstanding debts in a forceful way they are being unfair; and it’s only their stuff-ups that cause all this bad blood in the first place.

That’s not what Hockey said in his speech, but the would-be treasurer has a good handle on the psychology of business. Tax is something others should pay, not me – in the fine tradition of Homer Simpson’s ‘Why can’t somebody else do it?’ campaign.

Hockey didn't need to make those claims himself when commentators are so keen to get a piece of the demagogue action. And if their stories need authority, there are plenty of accountants willing to step forward and say ‘yes, of course, the ATO are clumsy, brutish and heavy-handed'. 

They wouldn’t be playing to their own clients, now, would they?

None of this is particularly constructive. The fact is that many small businesses are prone to getting their books wrong, mismanaging credit and cashflow and ending up in tight spots when sectoral business cycles catch them off guard.

That’s only human. And the critics are right, it’s not something to punish so much as something to prevent.

And in fact, that’s just what the ATO did during the GFC. ACCI’s chief economist, Greg Evans, reminded Business Spectator that the ATO did a lot of the leg-work in this respect during the credit crunch of 2008-09. While banks slammed the door shut on many businesses, the ATO worked closely with thousands of SMEs to push out repayment schedules for tax debts.

However, Evans says ACCI member feedback suggests that level of flexibility, born of a true economic emergency, has begun to be wound back.

There is also much that can be improved in the way the ATO pre-emptively targets businesses that it thinks likely to get into trouble. A spokesman for Assistant Treasurer David Bradbury, who overseas the ATO’s operations, says the ATO already does this kind of targeting – friendly chats before a problem arises, rather than legal letters when it’s too late.

Moreover, Labor stresses that the incoming tax commissioner, Chris Jordan – who has two decades' experience consulting with KPMG – is already changing internal processes. For instance, until Jordan’s arrival there was the risk that when appealing a tax decision, the bureacrat who made the initial ruling could also be the one reviewing the case. This has now been ruled out.

The Council of Small Business of Australia sees the Hockey comments as being potentially counterproductive. Hockey said that, if he became treasurer, he’d consider splitting the policing of tax payment from its administration, and relocating the former function to the Department of Treasury.

The council's chief exective, Peter Strong, says he can’t see that helping things, and points out that the ATO has been doing some pre-emptive work – for instance, working on a project with COSBOA and mental-health charity BeyondBlue in 2010 providing counselling to owners of businesses under pressure. Tens of thousands of dollars of tax debt are hard enough to pay back without depression and anxiety making matters worse.

Strong would like to see more of this kind of work – targeting sectors, and types of firms within those sectors, well before they get into trouble. This kind of thinking will surely apply to many of the SMEs in the Ford Australia supply chain as orders start to dwindle.

The problem is that these kinds of interventions take time and human resources.

Yet in his speech Hockey made it clear that the number of staff at the ATO had become too large. He said: “When it comes to resources, this year alone, the government has increased the size of the tax office by over 500 employees to more than 22,000 staff.”

That will make ATO staff nervous when the Coalition has pledged to cutting 12,000 public servants over two years, albeit through “natural attrition”.

But cutting staff could, potentially, leave too few staff to liaise with hundreds of thousands of businesses doing it tough in 2014.

In that sense, Hockey’s comments are pulling in different directions. Businesses want a kinder, more cooperative ATO that talks to them rather than sending final demands or seeking winding-up orders. But that’s all to be done with fewer staff.

Given the importance of SME voters to the Coalition, Hockey’s comments were political gold. But in the rush to beat up the taxman, we’re missing the point that a more responsive, constructive model of tax collection can’t necessarily be achieved with fewer staff. 

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