Media release: 28 August 2000
TAX OFFICE AGAIN TOLD - PERFORM BETTER
Major shortcomings in the Tax File Number (TFN) system, including problems
with data and systems quality and a failure by the Australian Taxation
Office (ATO) to strategically manage its own system, are key issues featured
in the report, Numbers on the Run, released today, Monday 28 August 2000,
by the House of Representatives Economics Committee.
'The starting point for this inquiry into the management of Tax File
Numbers was the Auditor-General's finding that $460 million in revenue
was not being collected by the Tax Office,' House Economics Committee
Chairman, David Hawker, explained. 'The weaknesses and inefficiencies
we found in the Tax Office system, and the flow-on effects to other areas
of government administration, make this $460 million a conservative estimate.'
For 15 years the Auditor-General and parliamentary inquiries have found
shortcomings in the quality of ATO's data and systems. Numbers on the
Run reinforces the significant problems identified in the Auditor-General's
1999 performance audit of the Tax File Number system.
During its inquiry into the management of Tax File Numbers, the House
Economics Committee found:
- 65,000 potential duplicate TFNs, in addition to the 185,000 found
by the ANAO;
- 5.3 million potentially inactive (ie excess) registrations on the
ATO individuals data base (an increase on the 3.2 million excess TFNs
that the ANAO reported); and
- manual rather than automated systems, including the need for operators
to initiate checks for duplicate TFNs rather than the computer system
automatically doing these checks.
'TFN data and systems are the basic building blocks of our tax revenue system',
Mr Hawker said. 'High quality data and systems are crucial to ensuring the
integrity of the administration of taxation, income support, superannuation
and employment generally. The operation of the Australian Business Number
is also dependent on the quality of TFN data and systems. It is vital that
the Tax Office focus on getting the TFN basics right.'
The House Economics Committee's report also highlights significant potential
for fraud against the tax system and more broadly:
- anecdotal evidence suggests that excess TFNs are being used to commit
fraud, including claims that TFNs are available from youth hostels and
are being sold to set up shell companies. While the ATO considers that
excess TFNs pose limited risk, the ATO could not rule out the possibility
of fraud;
- there is significant scope for non-residents to choose between visa
types in order to apply for the one with the best tax treatment, and
to also misrepresent their taxation status to employers and on their
tax return in order to lower their taxes;
- there is strong anecdotal evidence that non-residents are using fraudulently
obtained TFNs as proof of work rights, particularly in the area of harvest
labour; and
- identity fraud is a significant and growing problem that represents
a significant cost to the community. Evidence on this issue included
a pilot study conducted by Westpac and the NSW Registry of Births, Deaths
and Marriages that found that 13% of birth certificates presented to
the bank were false.
'The Tax Office must ensure it has the capacity to manage these known and
emerging risks in order to guarantee the long term integrity of the TFN
system,' Mr Hawker added. 'The ATO places significant requirements on individuals
to comply with tax rules. In return, the Tax Office has an obligation to
ensure a high quality system that treats people fairly and in which the
government and the community can have confidence'.
'The 26 recommendations featured in Numbers on the Run are aimed at
ensuring there is ongoing quality and effective management of the Tax
File Number system. Australians should be able to feel confident in the
Tax Office, therefore the ATO must give a higher priority to TFN resourcing
and policy development by having sufficient staff and resources to effectively
manage its TFN system'.
MEDIA CONFERENCE
Monday 28 August, 1:30-2pm [after tabling]
Committee Room 2R2, Parliament House, Canberra
Copies of the report will be available from 12:50pm in the Media Conference
Venue
Further information:
David Hawker MP (Chairman) 02 - 6277 4837
(Parliament House)
Melissa Stutsel (Principal Research Officer) 02
- 6277 4587
Sally Webster, House of Representatives Media Adviser, 02 6277 2063 or
0401 143 724
For background information on the Tax File Number inquiry and a copy
of Numbers on the Run see:
Internet: (http://www.aph.gov.au/house/committee/efpa/TFNaudit/report.htm)
or
Contact the Committee Secretariat at:
Tel: 02 6277 4587
Fax: 02 6277 4774
Committee E-mail: EFPA.Reps@aph.gov.au
Email: EFPA.Reps@aph.gov.au
Committee Membership 39th Parliament
Chairman: Mr David Hawker MP
Deputy Chairman: Ms A Burke MP
Members:
Mr Anthony Albanese MP
Ms Teresa Gambaro MP
Mrs Kay Hull MP
Mr Mark Latham MP
Mr Christopher Pyne MP
Hon Alex Somlyay MP
Dr Andrew Southcott MP
TABLING SPEECH: DAVID HAWKER MP, CHAIRMAN
Mr Speaker, this report of the House Economics Committee examines the
administration of the Tax File Number system.
The Tax File Number system plays a major role across government in ensuring
good public administration. In 1997-98 it contributed to the collection
of over $110 billion in tax revenue; helped regulate a superannuation
industry with annual contributions of approximately $30 billion and supported
the distribution of about $50 billion in Commonwealth benefit payments.
Ensuring the ongoing integrity of the TFN system must be a high priority.
Hence the importance of this inquiry and why the findings are so significant.
That is why the findings of our inquiry are so significant. We found
major shortcomings in the TFN system, including problems with data and
systems quality and a failure by the ATO to strategically manage the system.
The impression that emerged from this inquiry is of an organisation
that is reactive rather than proactive; where emphasis is placed on strategies
that return a short term financial gain rather than ensuring the long
term integrity of the system; and where management philosophies and planning
are not well translated through the organisation.
Our report reinforces the significant problems identified in the Auditor-General's
1999 performance audit of the TFN system. It adds to 15 years of Auditor-General
and parliamentary inquiries that have found shortcomings in the quality
of ATO's data and systems.
While the ATO has acknowledged these problems, we do not believe that
they have taken sufficient action to address these ongoing concerns.
For example, the Committee does not consider that the ATO has adequately
explained the reasons for the large number of duplicate and excess
TFNs, including the extra 65,000 potential duplicates found during
this inquiry. This is the third report in ten months to hear evidence
of the fraudulent use of TFNs, particularly as part of illegal work by
non-residents. We do not consider that the ATO has ruled out the possibility
that these known surplus TFNs are being used to commit fraud.
The Committee also found ATO data and systems management lacking
when we compared it to other government agencies.
For example, in relation to archiving, Centrelink, the Australian
Electoral Commission and the Health Insurance Commission all archive inactive
electronic records as part of their data management system - a practice
which the ANAO considers to be better practice records management. Yet
the ATO claims this is too expensive and so has not archived since the
late 1980s.
Again, in the area of recording deceased tax payers, the ATO's
performance falls significantly behind other agencies. In this case, the
Australian Electoral Commission has made use of information on recorded
deaths since the turn of the century, and Centrelink has been matching
against Fact of Death data for several years. The ATO have acknowledged
the benefits that using this information will have for the quality of
TFN data and have been receiving Fact of Death data since April 1999.
Yet 12 months later, in April this year, they had still not managed to
make the systems changes required to actually use this information.
The Committee has made a series of detailed recommendations in the areas
of data and systems quality, data matching and TFN registration. The primary
aim of these recommendations is to ensure the ongoing integrity of the
TFN system. If implemented, these recommendations will improve the quality
of information on which decisions are based, assist in reducing fraud
and will also contribute to improving taxpayer service. The recommendations
will also have benefits for the other areas of government administration
that rely on the TFN system.
Our report also highlights significant potential for fraud against
the tax system, and more broadly. In particular, we looked at the growing
problems of illegal work by non-residents and identity fraud.
The current taxation system provides significant incentive and opportunity
for fraud by non-residents. The tax system provides a range of
concessions and penalties to non-residents in different circumstances.
Non-residents pay higher tax than residents on income earnt from work
and yet pay a lower rate of tax on investments such as bank accounts.
The system is further complicated by the fact that there is no close correlation
between visa types issued, tax treatment and the need to obtain a TFN.
Added to this is a system of self-assessment, where the check on residency
status is a box that is ticked on a tax return; and anecdotal evidence
that TFNs are available from youth hostels and for sale.
The problems of identity fraud and theft in relation to the use
of Tax File Numbers and more broadly was raised by financial institutions,
government agencies including law enforcement agencies, and individuals.
Anecdotal evidence suggested that false documents can be easily obtained
and used. The Committee heard that 1 in 4 frauds reported to the Australian
Federal Police involve the assumption of false identities. We also heard
about a pilot study conducted by Westpac and the NSW Registry of Births,
Deaths and Marriages that found that 13% of birth certificates presented
to the bank were false.
Our recommendations in both of these areas emphasise the need for the
ATO to get a better handle on the extent of the problem. They also focus
on the need for cooperation across the relevant agencies in each area
in order to manage these known and emerging risks.
This report draws on advice and opinions from a range of members of
the public and experts who participated in the inquiry. I thank these
people for their contributions.
I also thank the ANAO for the significant support and advice that they
provided during this inquiry. The professionalism and cooperation of the
ANAO officers who were involved reflects well on their organisation.
The Committee appreciates the cooperation that we received from the
ATO during the inquiry.
I would also like to thank all the members of the Committee and the
Committee secretariat for their contributions to this inquiry and report.
The ongoing quality and coverage of the TFN system is important for
the administration of taxation, income support, superannuation and employment.
The importance of the TFN system for Commonwealth administration must
be properly reflected in ATO decision making. The ATO must ensure that
the TFN system is one that treats people fairly and in which government
and the community can have confidence.
I commend the report to the House.
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