‘Dob in a boss’ rule would boost Australia’s tax take

Commissioner of the Australian Taxation Office Chris Jordan (right). The ATO would likely resist US-style changes. Picture: AAP

Over the last 20 years the United States has shown that when the country combines a tax rate structure that encourages small and medium business with a fair tax collection system it generates enormous employment momentum.

In this week’s budget, Treasurer Josh Frydenberg took enormous steps to reorientate the Australian economy towards generating employment in small and medium business. Add that to his earlier decisions to follow the US in bankruptcy laws and we have a rare event in our history – a treasurer who understands small and medium business.

But all those efforts will be of no avail if our tax collection rules not made fair. And, as I will explain below, we can eliminate the current tax thuggery and increase revenue if we adopt the US “dob-in” whistleblower techniques.

Currently Australia has one of the most unfair and brutal tax collection systems in the world. I am confident that the Treasurer will not leave the job half done and will concentrate his energies on our unfair tax collection methods once the budget has passed the federal parliament.

And what a great day that will be for the nation. Frydenberg will need to be very strong because the Australian Taxation Office will use every technique it can muster to retain its ability to cripple smaller enterprises by issuing tax assessments based on dubious grounds that immediately create a debt that ranks ahead of creditors. The tax assessment must only become a liability when the appeal process is concluded. And the current appeal system is infiltrated with people and structures that are biased towards the ATO officer who made the assessment.

The ATO used these outrageous powers to ravage Australian research; destroy law-abiding small enterprises by garnisheeing their income without proper notice; bankrupting those who followed the parliament’s well-structured laws in independent contracting arm; and issuing outrageous fines and penalties for people who are actually trying to do the right thing.

The Small Business Ombudsman and the Inspector General of Taxation showed clearly that the ATO put itself above the law of the land and there was no proper affordable appeal process. The ATO will claim that if Australia adopts the American system of proper appeal bodies and processes prior to an assessment being a binding liability, it would ravage revenue.

That’s total bunkum.

Twenty years ago Americans also had a corrupt tax collection akin to today’s Australia. The Americans found that making tax collection fair actually increased revenue in the long term because it gave enterprises confidence to invest, knowing the tax rules were fair and were properly administered. But to collect revenue owing without thuggery we must combine the American fair collection system with its whistleblower laws.

The US has discovered that by replacing thuggery with fairness it can implement a brilliant but simple tax collection mechanism: the whistleblower.

In Australia a person or enterprise considering artificially reducing their tax by, say, $1 million, will assess the odds of the ATO discovering the fraud and often say “it’s worth the risk”.

Australian tax avoiders trust that their close staff will not dob them in. And usually the staff don’t, because of the consequences.

In the US, if a tax avoider’s staff informs the Internal Revenue Service (IRS) of the avoidance and the $1 million in tax is collected then the whistleblower will receive up to 30 per cent of the proceeds. In our theoretical case, that’s $300,000. The IRS directly raises about $US14 billion a year via whistleblowers but the bigger gains are in much greater compliance. Would-be tax avoiders no longer think the risk is worthwhile. The whistleblower adjunct is the required addition to a fair system.

That will be also fought by the ATO because it means that tax collection is more efficient, so fewer staff are required. In the US the fair system, plus the whistleblower addition, slashed tax collection costs on a per head of population basis. Our collection costs have gone up and the ATO keeps requesting more money so it can increase revenue---often via thuggery which is often inconsistent with employment generation.

I don’t underestimate the enormous challenge Frydenberg will face. He will be white-anted on a massive scale. But he can rest assured that the nation is with him.

Footnote: Today I want to pay a special tribute to the readers of the Australian both online and in print. I first disclosed to Victoria and the nation the horrors of the Victorian omnibus legislation which gave the state government power to appoint unlimited numbers of officers with no particular training and ability who were able to jail people if they thought an offence was “likely”. The immediate response from readers, not just in Victoria, but around the land was the most incredible I have ever seen to any commentary I have written over 60 years of journalism. And that response from our readers triggered “good people“ and other media outlets to react in complete horror throughout the Victorian community and the nation. Parliament did its job and the omnibus clauses have been eliminated.