Why the robodebt royal commission is set to uncover ATO systems failures: Robert Gottliebsen

If the robodebt royal commissioner Catherine Holmes does her job – and I am sure she will – she will soon discover that a key reason for the breakdown of the scheme was that the Australian Taxation Office systems failed.

One of her terms of reference is to set out the “measures needed to prevent similar failures in public administration”. If she keeps digging, she will discover that exactly the same failures are currently taking place in the “public administration” of family business tax in Australia. And, as happened in robodebt, the systems break downs are eroding confidence in tax collection in Australia.

The ATO even transplanted to the robo scheme its treasured “French system of justice”, whereby family businesses are told their tax bill (often without detailed calculations) and then must prove the ATO wrong. Exactly the same thing happened to pensioners who were required to prove the ATO calculations wrong.

The history of how the ATO manoeuvred its way into pensions tells us how easy it is for politicians of both sides to fall into public service traps.

On the surface, the ATO-Centrelink policy looked sensible: Centrelink payments should be matched against income information held by the Tax Office to identify individuals who wrongly received welfare payments when their earnings made them ineligible.

The Centrelink people started doing this in the Howard years on a manual basis. The Gillard government introduced an automated system of crossmatching data from the two agencies which greatly increased the detection of fraud but it was still being checked.

In 2016, the ATO could do no wrong in Coalition government eyes. So when the ATO told the government that by using ATO taxable income figures the government could automatically determine pension entitlements and where people had over-claimed, cabinet was sucked in. It allowed the ATO to adapt its tax systems to determine Centrelink payments. It was, of course, a total fiction because the ATO systems and taxable income figures are simply not good enough to make that sort of determination.

For example, the ATO systems produced fortnightly earnings based on annual income reported to the Tax Office as the equivalent to actual fortnightly earnings. In the real world outside the ATO, Centrelink beneficiaries were actually engaged in intermittent working practices.

The ATO’s “French system” of justice meant that the onus of correcting its errors fell on to the pensioner: they were assumed guilty and had to prove their innocence. As with family businesses, the human cost of the ATO systems failures was horrendous.

In family business, the solvency of the enterprise is threatened by calculations that are often nonsense. Similarly, pensioners could be sent into poverty by the incorrect demands to repay money.

But robodebt went further. Honest law-abiding citizens were effectively accused of cheating the government and the taxpayer.

Applying the Tax Office’s French justice system on Centrelink’s communication systems meant that citizens faced horrendous difficulties in trying to correct their records.

When the Coalition’s Stuart Robert was given the “hospital pass” of trying to make sense of what happened, it became clear that the ATO systems had caused horrendous hardship and incorrect assessments. The government began repaying the money.

But the Coalition did not immediately grasp the implications for the wider tax system.

Making it harder for politicians, accountants on the frontline are too scared to tell the truth because they fear retribution.

The Coalition government’s failure to link the ATO system weaknesses shown in Centrelink to family business means a much larger revenue hole than robodebt has been created. The task to fix the systems and the appeal process is yet to be done.

The ATO claims that family business owes some $34bn in tax. Much of the money is owed by people in the building industry who have no hope of paying it even if the calculations are right.

But, just as in robodebt, much of that $34bn represents dubious tax calculations to which penalties and interest have been added. The new government is hoping that the $34bn supposedly outstanding will help its bottom line.

There is no doubt that some of the money is legitimately owed, and collection was delayed by Covid. But time has gone and the building industry and other parts of the family business networks are now in a desperate situation, so even legitimate debts might not be collectable.

And the failure of the Coalition to force the ATO to use the “English system” of justice and set out why it believes a debt is owed, so taxpayers can then dispute or agree with tangible calculations, is now undermining confidence in family business tax collection in Australia.

As the ALP’s Julie Owens and the Coalition’s Jason Falinski found in an all-party parliamentary inquiry, a proper appeal system is long overdue.

The robodebt royal commission can easily be turned into a Coalition-blasting event and will become a waste of time. But the former chief justice of the Supreme Court of Queensland is an excellent appointment. If she digs deeper, then the commission can start the process of restoring conference in the family business taxation system and prevent robodebt happening again.