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ABC News
29-07-2025
- Business
- ABC News
The tax office traded people for programs and is still grappling with the consequences
A decade ago the Australian Tax Office (ATO) management faced a tough choice. Confronting government demands to cut costs, they made a simple trade-off: people for programs. The ATO would slash staff numbers and instead rely on automated systems and slick computer algorithms to process returns and pick up tax fraud. The cost of that decision is only now being revealed, in half a dozen scathing reports by the auditor-general, the inspector-general of taxation, the Australian Public Service Commission (APSC) and others which provide a sweeping account of how the ATO is failing. The ATO has long been one of the most opaque agencies in the government. Its critics accuse it of a lack of accountability, and using taxpayer secrecy as an invisibility cloak to prevent scrutiny of its shortcomings. The external reports by the auditor general and others provide glimpses behind that cloak that can be used to build a picture of the ATO's troubled inner workings. That picture shows a tax system teetering on the edge, and an agency culture that ignores red flags. The saga began back in 2013, when prime minister Tony Abbott's incoming government was demanding an efficiency dividend. By this it meant the government should pay less money to run the ATO, even as the amounts raised by the office were soaring. Under Commissioner Chris Jordan, the ATO's response was to cut staff and throw resources into new technology that could do the work to process returns, to run the checks and detect fraud. Jordan, who stepped down from the ATO last year, spoke of modernising how the office works "as part of the digital revolution to make 'tax just happen'." Which is to say, tax collection without human intervention. The ATO isn't alone in this dilemma. Adapting to new technology is a universal challenge that tax agencies around the world are struggling with. But the ATO's trade-off has had serious consequences. Between 2013 and 2019, the ATO shed close to 6000 people — almost a quarter of its staff. Some of the hardest hit were those sections that detect fraud and chase up debt. The cuts were already beginning when Jordan became commissioner in January 2013, the first outsider in the top job in the agency's history. From 2011 to 2019, the indirect tax division, which collects GST and Customs excise, lost half its staff — more than 1000 tax officers gone. At the same time Jordan was bringing in more outsiders — partners from his old firm KPMG and top tier law firms, who typically would parachute in as deputy legal counsel and speedily be appointed deputy commissioners or higher. By 2021 the top four executives at the ATO all came from outside, though the incoming commissioner, Ron Heferen, has reversed that. In the new look ATO, law degrees were a minimal requirement for advancement, preferably with a history of working outside the office. Tax officers with training as police officers and experienced investigators ranked low on the totem pole. Most of the new ATO senior management had little or no experience in full scale audits of businesses, so it's not surprising that tax officers say the ATO moved largely to desk audits, a top-down process that doesn't get into the long grass of checking physical details. Reliance on technology extended to reliance on systems like the tax gap, a hypothetical estimate of how much tax the ATO is failing to collect. It's a small percentage number, which the ATO points to as a measure of its effectiveness. What happened with GST offers a stark example of what can happen when all of these things come together badly. Last year the ATO raised $85 billion in GST. That's a net figure that represents more than $2 trillion in underlying transactions. Monitoring this process has to be a mixture of clever algorithms (called risk models) to highlight suspicious transactions, and some form of manual follow up. In March 2018, the then inspector-general of taxation, Ali Noroozi, issued a report warning that checks on GST fraud were inadequate. He cited a 2015 ATO study which showed that its risk models were little better than random selection. Perhaps the most disturbing aspect of this was that the random selection study found that one in four GST payouts needed to be adjusted. The ATO brushes off the criticism. It says it was already aware of the problem and had begun to upgrade its systems. Through to early 2021, the ATO had just 150 staff involved in vetting suspicious GST claims before payment. It would be another year after Noroozi's 2018 warning before it began developing a new suite of monitoring tools "leveraging machine learning, artificial intelligence, and forensic analytics", which were due to be ready from late 2020. But the program ran a year late. Meanwhile an ATO spokesperson says the office had stopped a GST scam involving gold trading, which tax officers believed was the only major fraud threat. Each year, the ATO has a critical measure for external fraud risk. In both 2018 and 2019 it concluded the risk of fraud occurring was "almost certain" and the consequences for that would be "very high". But in May 2021 it revised this assessment, concluding that the fraud risk was "rare" and rated the possible consequences as "medium". Who made this momentous decision that the fraud risk was rare? The auditor-general said the ATO could not find any written record for who was responsible. At the same time, the ATO's calculations of the tax gap for GST was also indicating that the situation was completely under control. The ATO estimated that in 2019 it collected all but 7.6 per cent of the total amount of GST that should have been paid. By 2021, the ATO decided that the tax gap for GST had been slashed to just 2.7 per cent. It was another triumph for the regulator. Just two months after the risk assessment was downgraded and the tax gap was cut, the first signs of a growing wave of GST fraud hit the ATO. This was a different kind of fraud for the ATO. More than half the claimants were on welfare and while it seemed inevitable that they would eventually be caught, they didn't understand or didn't care. And there were tens of thousands of them. By year's end the ATO's systems would be overwhelmed. Both warning measures — the risk rating and the tax gap – had failed spectacularly. And the new software that could have detected the rise of bogus GST claims was 12 months late. Two new risk models to detect suspicious GST claims — one to target incorrect reporting, the other aimed at identity crime — were only plugged in on January 8 2022. It was only then, the auditor-general says, that the scale of the fraud wave became "clearly apparent". "The ATO did not have a procedure to respond to a large-scale external fraud event," such as it faced, the auditor-general's report says. In all, more than $2 billion in fraudulent GST claims were paid out to more than 57,000 people before the ATO got on top of it, in part by sheer numbers. It played whack-a-mole. While the ATO would attribute its success to its artificial intelligence and algorithms, a major part seems to have been throwing people at the problem. By May 2022 the ATO had moved an extra 470 staff to work on GST. The auditor-general says in 2023 total GST staff had been lifted to 2,144 — the highest level it has ever been. The tax gap for GST for 2021 has since been revised from 2.7 per cent to 4.3 per cent, and the gap for 2023 has jumped to 9 per cent. It's one of the biggest tax gaps the ATO faces. The risk rating for external fraud occurring has been upgraded from "rare" to "even chance", and the consequence of it happening from "medium" to "extreme". Remarkably, the auditor-general's report appears to suggest the ATO misled the finance minister when it asked for more funding for this, because it told the minister that this was the first time its fraud risk had been out of tolerance. The report says the figure had been out of tolerance in 2018 and 2019 — it's just that the ATO hadn't done much about it. Even with its new systems, the auditor-general concluded that the ATO's "framework for assessing and managing GST fraud risk is not fit for purpose". The ATO spokesperson told Four Corners that within six weeks of launching Operation Protego in April 2022, "almost all fraud attempts were being stopped". It was a dramatic recovery, which over 15 months blocked further fraud claims of $2.6 billion. But how could the ATO know the threat was over? Fraud experts say the only real way to test if a scam has been licked is to conduct a sample of random audits. The ATO was in the process of doing this last year when the auditor-general wrote his report, but the test was running eight months late. The results were due to arrive two years after it declared victory. The $2 billion GST debacle is a reminder how much dependence the ATO has riding on getting its technology right. And that's where a capability rating by the APSC says the ATO's biggest problems lie — in technology and in its senior management. The report released last March notes that the ATO has 130 committees, which are forums for consensus rather than making decisions. Staff saw its tech systems as "outdated, clunky and … affecting productivity". One tax officer said that "we have nine critical systems coming to end of life or out of support, we are having to make trade-offs to keep some on their last legs and invest in others". Another staff member described how they needed to use 14 different computer systems just to process one case. While banks can automatically compile lists of suspicious accounts, a report on identity fraud by the former inspector-general of taxation, Karen Payne, last year described how tax officers once a week manually compile a list of suspect bank accounts used for ID fraud, on a spreadsheet. Other staff members told the APSC they did not believe the ATO had "the skills to manage the complex relations required to collaborate with and influence multinational software companies". Overhanging this is the ATO's failed efforts to oversee a mammoth new business registry for companies, directors and other records which was supposed to cost $500 million. The government took the project away from the ATO in August 2023 after the projected cost blew out past $2.5 billion. In another report the auditor-general raises concerns over how ATO personnel handle perceived conflicts of interest in negotiating for major new software systems. Ballooning costs for tech upgrades mean "this will continue to be a major risk to the organisation into the future", the APSC concluded. The more immediate problem that the ATO is struggling with is the mountain of collectable debt — that's tax that is undisputed and should have been collected by the ATO, but wasn't. It's a cumulative total, which from 2014 to 2016 was almost static, at $19 billion. But from 2017 collectable debt took off. By 2024 it had reached $52.8 billion, and almost three quarters of the increase has come from one area, activity statements, which mainly covers GST and Pay As You Go tax payments. The rise coincides with the ATO's move to make tax payments easier, through the MyGov app and other automation. Perhaps the unkindest cut was another auditor-general report this year, which took on one of the ATO's most revered performance measures, the tax gap. While the ATO's target is to reduce the tax gap, the AG concluded it was "inappropriate" to link its estimates to reported results. For the four chief tax gap measures the audit office "was unable to obtain sufficient appropriate evidence of whether the dollar value of the tax gap reported represents good performance relative to the reported target", it said. In short, we don't really know how the ATO is performing. And it suggests the ATO doesn't know either.
Sydney Morning Herald
01-07-2025
- Politics
- Sydney Morning Herald
Anti-corruption body wastes time with a triviality
On the eve of its second birthday, the National Anti-Corruption Commission was able to celebrate by announcing its first finding of misconduct against a public official. But do not get excited – it is pretty low-level stuff: a senior public servant (their name has been concealed) inappropriately placed her sister's fiance into a job. This is pretty ordinary work, and not an especially spectacular start for Australia's premier anti-corruption body. It is the kind of matter commonly dealt with by the Australian Public Service Commission, not an anti-corruption body. It really looks well beneath the role of the NACC. There is real work to be done, but the NACC is distracted by dealing with comparative trivialities. The first two years of the NACC have been a real disappointment. There is negative feel to it, as though the NACC's leadership team are unwilling to flex their muscles. Even the decision to conceal the names of those involved in this incident is puzzling – they did wrong, so why not expose them? The NACC emphasised that it regarded the matter as serious and pointed out that the principal miscreant was in a senior position. The evidence collected showed the breach was deliberate and flagrant. It was a misuse of public power, a misallocation of public money, and it meant that a person who deserved to get the job missed out. Yet the NACC seems to be more concerned to protect the wrongdoers than to expose the wrongdoing. This is a dispiriting position to be adopted by the agency charged with overseeing transparency and accountability in the public sector. The public is denied transparency; those breaking the rules escape accountability. Loading We should not be surprised. Everything we have seen so far from the NACC suggests it is not up to the task of tackling serious corruption. The NACC's decision not even to open an investigation into the six persons referred to it by the Robo-debt royal commission was an early sign that something was not right. That decision, which was an awful error, needed to be corrected by Gail Furness SC, the statutory inspector of the NACC. Ms Furness' report exposed that the NACC commissioner himself was unable to manage a basic conflict of interest – yet he is the person to whom public officials should turn to get guidance on their conflicts of interest. That misjudgment by the NACC commissioner led to a finding of 'officer misconduct' on his part – so, ironically, the first finding of misconduct about the NACC was a finding against the NACC.
The Age
01-07-2025
- Politics
- The Age
Anti-corruption body wastes time with a triviality
On the eve of its second birthday, the National Anti-Corruption Commission was able to celebrate by announcing its first finding of misconduct against a public official. But do not get excited – it is pretty low-level stuff: a senior public servant (their name has been concealed) inappropriately placed her sister's fiance into a job. This is pretty ordinary work, and not an especially spectacular start for Australia's premier anti-corruption body. It is the kind of matter commonly dealt with by the Australian Public Service Commission, not an anti-corruption body. It really looks well beneath the role of the NACC. There is real work to be done, but the NACC is distracted by dealing with comparative trivialities. The first two years of the NACC have been a real disappointment. There is negative feel to it, as though the NACC's leadership team are unwilling to flex their muscles. Even the decision to conceal the names of those involved in this incident is puzzling – they did wrong, so why not expose them? The NACC emphasised that it regarded the matter as serious and pointed out that the principal miscreant was in a senior position. The evidence collected showed the breach was deliberate and flagrant. It was a misuse of public power, a misallocation of public money, and it meant that a person who deserved to get the job missed out. Yet the NACC seems to be more concerned to protect the wrongdoers than to expose the wrongdoing. This is a dispiriting position to be adopted by the agency charged with overseeing transparency and accountability in the public sector. The public is denied transparency; those breaking the rules escape accountability. Loading We should not be surprised. Everything we have seen so far from the NACC suggests it is not up to the task of tackling serious corruption. The NACC's decision not even to open an investigation into the six persons referred to it by the Robo-debt royal commission was an early sign that something was not right. That decision, which was an awful error, needed to be corrected by Gail Furness SC, the statutory inspector of the NACC. Ms Furness' report exposed that the NACC commissioner himself was unable to manage a basic conflict of interest – yet he is the person to whom public officials should turn to get guidance on their conflicts of interest. That misjudgment by the NACC commissioner led to a finding of 'officer misconduct' on his part – so, ironically, the first finding of misconduct about the NACC was a finding against the NACC.
The Guardian
02-05-2025
- Business
- The Guardian
Coalition proposes ‘migrating' public servants to regions in last-minute tweak to plan to slash workforce
Just a day out from the federal election, the Coalition has again amended its policy on cutting the public service, raising the prospect of staff being 'migrated' across the country to fill roles in regional areas. Voters might expect to have a clear understanding by now of how a Liberal-National government would manage the nation's public service. More than 7.5 million people have already cast a ballot ahead of Saturday's poll, and Peter Dutton's policy costings are public. But in a final pitch to voters on Friday, the shadow treasurer, Angus Taylor, revealed a new element of the plan. He said a Dutton government would 'migrate' workers as he confirmed the Coalition's cuts would be 'focused on Canberra'. 'Natural attrition happens everywhere, but we'll move people around appropriately to meet the needs of regional areas and frontline services,' Taylor said. 'We will migrate people around to make sure that we keep our numbers where they are in regional areas.' Taylor released a final set of budget numbers on Thursday, including details on the Coalition plan to slash the federal workforce by 41,000 positions over five years. Designed to achieve budget savings worth $17.2bn, the cuts would come from Canberra-based jobs and be delivered through a hiring freeze and natural attrition, with 5,000 vacant positions left unfilled. The Coalition has said the cuts would exclude defence and security agencies, as well as 'frontline services'. Dutton initially promised to immediately reverse 41,000 hirings but was forced to abandon that pledge following a backlash. Labor and the Coalition do not agree on the starting figure for the size of the bureaucracy. The government cites Australian Public Service Commission figures showing about 70,000 employees nationally. Taylor and Jane Hume, the opposition's public service spokesperson, use a figure of 110,000, taken from Australian Bureau of Statistics, which includes Defence personnel. The suggestion of moving jobs out of Canberra is reminiscent of the Abbott-Turnbull-Morrison government's decentralisation agenda, when a National party push saw public service jobs and agencies, including the agricultural and veterinary chemical regulator, relocated to regional areas. The Australian Pesticides and Veterinary Medicines Authority has suffered from serious cultural and workforce issues since being relocated to former minister Barnaby Joyce's electorate of New England in 2016. Earlier this month, Joyce said the Coalition should restart decentralisation efforts if it won the election. Asked about whether attrition from jobs in Sydney, Melbourne and Adelaide would fit into the Coalition's current plan, Taylor said services would be maintained 'outside of Canberra'. Analysis by Guardian Australia shows the Coalition would not be able to downsize the public service without cutting frontline, defence and national security-related jobs. APSC figures show 11,782 staff left the federal bureaucracy in 2024, with 6,665, or 57%, coming from the home affairs and defence departments, the Australian Taxation Office and Services Australia. The majority of staff leaving each year come from frontline or essential jobs, in part because the four agencies make up 48% of the total workforce. The prime minister, Anthony Albanese, on Friday repeated comparisons to former Queensland premier Campbell Newman's government. About 14,000 public servants were sacked in the state between 2012 and 2015. Labor believes Newman's tumultuous one term in office remains toxic in the minds of voters. Taylor on Friday insisted the Coalition's plan had been clear from the start.
The Guardian
24-04-2025
- Business
- The Guardian
Albanese condemns Dutton's pledge for mass public service cuts ‘only in Canberra'
Peter Dutton has pledged to cut almost two-thirds of Canberra's federal public servants if elected, in a move Anthony Albanese has slammed as 'outrageous'. In a testy press conference in Tasmania on Thursday morning, the opposition leader batted away questions about not visiting a single proposed nuclear power station site, as well as about-faces on immigration and tax breaks for electric vehicles. But a question levelled at Dutton about how many public service jobs would be cut in Tasmania unravelled the Coalition's policy to crack down on 'government efficiency'. Dutton said the opposition's plan to downsize the public service by 41,000 jobs by 2030 via attrition would only apply to Canberra-based roles, with 'none' being slashed outside the capital territory. 'We've been clear … we're not reducing the public service – only in Canberra. We've been very clear about that from day one,' he said. The national capital employs almost 70,000 federal bureaucrats, according to the Australian Public Service Commission's figures. Under Labor's most recent federal budget, that number is projected to rise further as the Albanese government expands the workforce to 213,439 roles over 2025-26. Speaking in Perth on Thursday, Albanese said the comments showed Dutton was 'not ready for government'. 'Asio, the Australian Signals Directorate, all of our security and intelligence agencies – where does Peter Dutton think they are based? They are based in Canberra, in our national capital,' he said. 'The Department of Defence. Do they think that the CDF [chief of defence force] and the senior defence leadership in this country aren't based at Russell [defence's administrative headquarters] in Canberra? Where does he think they are?' Dutton accused Labor of a 'scare campaign' after the government warned earlier this week that whole departments and agencies could close if the plan went ahead. More than 40,000 staff are employed across just 10 agencies in Canberra. Those include the defence department – Canberra's biggest employer, with more 9,000 jobs – and the home affairs department, with 5,500 roles. Services Australia, which processes income support payments, has almost 4,500 staff in its ACT offices, with the health, industry and foreign affairs departments also employing thousands of staff. Earlier in the Thursday press conference, Dutton also conceded the Coalition's proposal to establish a nuclear power policy, with seven reactors placed around the country, might not be popular among voters. The opposition leader's campaign has yet to stop at one of the proposed sites, with his closest visits in the Hunter and south-west Western Australian regions so far steering at least 50km clear of the identified power stations. 'We made a tough decision, not for political vote-winning exercises, but for what is in the best interest of our country in relation to nuclear power,' Dutton said. 'It is a proven technology accepted by the prime minister in relation to nuclear submarines and, as you know, the prime minister is not too far from Lucas Heights [home to a nuclear medicine facility]. 'He sleeps well at night and he wants to whisper under his breath about safety and all the rest of it but he has never accepted the challenge for a debate in six months in relation to nuclear.'
