What's in Jordan's ATO arsenal?

Conversation

In January 2013, Chris Jordan AO starts as Federal Commissioner of Taxation in charge of the Australian Taxation Office. He follows Michael D'Ascenzo AO, who was not reappointed after his seven-year term.

Jordan will be only the 12th Commissioner and only the second external appointment in the ATO's history. All appointments have been male. The first commissioner, George McKay, appointed from the New South Wales public service in 1910, seems to have died from overwork in 1917 after administering on a shoestring the federal land tax and income tax introduced in 1915 to help fund World War I. The next commissioner, Robert Ewing, appointed an assistant commissioner to help. In his 22-year innings until 1939, Ewing oversaw a new federal estate tax, payroll tax, and the turbulent time before World War II, when the federal government took over the income taxes of the States.

Jordan is a former chairman of KPMG and company director. His appointment has been widely welcomed especially by business and professional groups. He has been on the Board of Taxation since its establishment in 2000 and was appointed chairman in June 2011. His early working life as a policeman may also stand him in good stead.

So what are the challenges facing Jordan in his new appointment?

Today, the ATO is an organisation of 25,000 people that collected net tax of $273 billion in 2010-11. Jordan will be responsible for the income tax, GST, fringe benefits tax, petroleum and mineral resource rent taxes, medicare levy, fuel taxes and higher education levies. The ATO also administers parts of the superannuation system, child support, the Australian Business Register and Valuation Office.

The ATO is under constant pressure to increase revenue collection. Most revenue is collected through its highly effective income tax and GST withholding systems. These ensure electronic transfers from taxpayers to government coffers throughout the year. The ATO manages these systems at a remarkably low administrative cost of a little under $3.5 billion a year, a cost to revenue ratio of about 1 per cent. This does not include compliance costs of taxpayers and business and we know that these are significantly higher than direct governmental costs of tax collection, and regressive in their impact.

Jordan's main responsibility – and biggest challenge – is to keep this efficient organisation running well. He will have to manage his staff so that sick days are kept to a minimum and make sure the next computer roll-out stays on budget. He has lost one valuable support in this task, as Jennie Grainger, former Second Commissioner in charge of Compliance, has just taken up an appointment in Her Majesty's Revenue and Customs in the UK. Several other leading ATO staff are also retiring, including senior legal experts.

Some have suggested that Jordan can – and should – lead a change in ATO culture, presumably to make it more business and taxpayer-friendly. One commentator, for example, suggests that he will better understand the plight of small business

It is true that the ATO has a strong organisational culture. Being the subject of widespread popular dislike will do that. ATO staff also understand their importance to government. Still, caution is needed: that strong culture contributes to the morale of ATO staff, and that helps keep the revenue rolling in.

Jordan has demonstrated his effectiveness in liaison with government and business. He will no doubt strengthen the work begun by D'Ascenzo in engaging with taxpayers and the tax profession about most aspects of administration and interpretation of tax law.

But it is important that the commissioner of taxation is – and is perceived to be – absolutely independent both of the government of the day, and of undue professional or business tax influence.

Jordan faces the challenge of handling revenue collection in relation to high wealth individuals, including investigations into international tax evasion started under D'Ascenzo. He must oversee controversial large corporate audits that challenge cross-border transfer pricing activity and tax planning. He becomes commissioner in an era of unprecedented and expanding inter-governmental tax cooperation.

Jordan will be in charge of new risk-based audit, settlements, and real-time information disclosure arrangements with large business. UK Secretary of Taxation Dave Hartnett was at the forefront of these developments. He recently retired amid public controversy that he took "enhanced relationships” with big business too far. Within limits, a prickly relationship between business, the profession and the commissioner is probably healthy. It won't be Jordan's job to be liked.

What of Jordan's role in tax reform? That is only a small fraction of the job. In 2002, Treasurer Peter Costello moved the tax legislation function into Treasury. Jordan will keep his seat on the Board of Taxation, but only as an ex officio member. He may be able to strengthen the voice of the core administrator in Treasury's tax law reform processes. That would be a good thing. But his main job is to keep that revenue – about $750 million per day – rolling in to fund government to do what the public wants it to do.

Miranda Stewart is Melbourne Law School's professor and director of tax studies at University of Melbourne. This story first appeared on The Conversation. Reproduced with permission.