The Tax Office has warned that privacy laws prevent it from sounding early warnings about potentially insolvent companies such as National Buildplan Group before they collapse.
The admission to the Senate estimates committee came after Nationals senator John Williams queried what the Tax Office could do to help prevent "big hits to small business" when construction groups with government contracts failed.
"If a company is behind in its GST payments, its PAYG payments and perhaps its superannuation payments, is there any way that the ATO can raise the red alert with ASIC [the Australian Securities and Investments Commission], if they are trading insolvent?" Senator Williams asked.
"[National Buildplan] has fallen over owing $60 million. One plumber in Tamworth has been done for $481,000. They are big hits to small business. It is getting far too common."
But officials said that while the Tax Office does see "early signals" when businesses are in trouble, it is prohibited from sharing that information with credit ratings agencies, creditors or even other government departments due to "secrecy provisions".
"When businesses are accumulating debt to the Tax Office, we are generally not the only people they are accumulating debt to," Tax Commissioner Chris Jordan said. "So we are very conscious of the fact that we might be the first to be able to identify that businesses are not viable. As to what we can do with that information, though, we are very restricted."
Mr Jordan said the Tax Office would be "very happy" to see the rules changed.
Senator Williams said the regulations should be changed to ensure builders receiving state and Commonwealth contracts could be checked by the Tax Office to ensure they were meeting their obligations to staff and subcontractors. "If they are not paying the Tax Office, it's a pretty good sign that they won't be able to pay their subbies."
National Buildplan was placed into administration in April. The company is set to be resurrected under a Deed of Company Arrangement but unsecured creditors are likely to receive a maximum of 5¢ in the dollar.