Chapter 1: Australia's Tax Consultation Processes

1.1 Australia has, by international standards, a high level of public and media interest in taxation issues. There is also widespread public debate on taxation matters. This is matched by extensive discussion between government, the business sector and the community on taxation issues. Peak industry, taxation and community representatives contribute to the public debate through published papers outlining their views on taxation issues. There is also intense lobbying involving frequent meetings between these representatives, ministers and senior government officials.

1.2 The Government welcomes community involvement in the taxation debate and gives serious consideration to community suggestions for improvements to the taxation system.

1.3 For example, as part of the policy development process, each year the Treasurer invites the community to submit policy suggestions to be considered in framing the forthcoming Budget.

1.4 Treasury undertakes liaison and consultation on tax policy and legislation on behalf of the Government. The Australian Taxation Office (Tax Office) also conducts consultation on taxation matters. Both Treasury and the Tax Office have an active consultation programme which focuses on the particular areas of responsibility of each agency. The Tax Office is generally included in consultation arrangements undertaken by Treasury.

1.5 The purpose of the liaison undertaken by Treasury is to build and maintain direct relationships with community stakeholders by providing timely access to emerging issues relating to the operation of the tax system. These relationships enable Treasury to gain a deeper understanding of how taxpayers are impacted by the tax and superannuation system-in-use, improving Treasury’s ability to adopt a holistic approach in providing tax and superannuation advice to government.

1.6 Particular divisions within the Revenue Group of Treasury also liaise with community stakeholder groups on more specific areas of tax such as excise, superannuation and international tax.

1.7 Although external participants are often specialists in particular tax areas, divisions are also encouraged to build relationships with more diverse stakeholder groups including welfare groups and software developers. This ensures a broader range of views and enhances Treasury’s ability to adopt a more holistic approach to tax design.

Tax Office consultative forums

1.8 The Tax Office convenes a number of consultative forums which give a broad range of stakeholders a voice in how the revenue system is administered. The forums include professional advisory committees, liaison groups, expert panels and industry partnerships. Treasury has observer status at some of these forums which allows it to collect information regarding the tax system in operation. However, there have been some instances where external participants have expressed disappointment that Treasury participants are unable to engage in policy discussion in these forums.

Community consultation on the design and implementation of tax legislation

1.9 In August 2000 the Government announced it would establish the Board of Taxation as a non-statutory body to advise the Government on the design and operation of Australia’s tax laws, including on issues relating to the integrity and functioning of the tax system. An important role of the Board is to ensure that there is full and effective community consultation in the design and implementation of tax legislation.

1.10 Consistent with this role, in 2001 the Board commenced an evaluation of how community consultation could be made more effective. Responding to the Board’s recommendations, the Treasurer announced in May 2002 the in-principle approach the Government would take to the future development of tax measures. The approach is outlined in Box 1.1. The Taskforce on Reducing Regulatory Burdens on Business (Banks Taskforce) regarded this approach as a useful guide in considering a whole-of-government policy on consultation.1

1.11 The Government recognised that the consultation process should be reviewed periodically to ensure that the expectations of government and external participants are being appropriately managed. Accordingly, the Treasurer asked the Board of Taxation to undertake an ongoing role in monitoring the processes of consultation.

1.12 The Board of Taxation also undertakes consultation on specific topics at the request of the Treasurer.

Box 1.1: In-principle approach to tax consultation

The Government announced in 2002 that during the development of future tax measures it would be working from an in-principle position of:

  • consulting on all substantive tax legislation initiatives, except where there is commercial, market, revenue or tax avoidance sensitivity or where the flexibility government requires in managing the timing of policy change limits the extent and form of consultation that can be undertaken;
  • seeking early external input in the identification and assessment of high-level policy and implementation options;
  • seeking technical and other input from external stakeholders (including the Board of Taxation) in the development of policy and legislative detail;
  • thoroughly road-testing draft legislation and related products prior to implementation;
  • ensuring policy intent for each new measure is clearly established and described by public announcement;
  • announcing for each new substantive tax measure a consultation process, with roles and responsibilities specified;
  • releasing an indicative forward programme of tax legislation; and
  • providing better feedback to external participants in consultation processes.

Consultation on announced tax measures

1.13 Since the Government’s announcement of May 2002 there has been consultation on most significant announced tax measures. Where there has been no consultation, this has been mainly because those measures were of a minor or technical nature or there have been timing restrictions.

1.14 Consultation on announced measures takes one of three forms — open public consultation, targeted public consultation and targeted confidential consultation. Consultation on some measures may include more than one approach.

1.15 Public consultations are open to anyone who is interested. Such consultations may be advertised in newspapers and posted on the Treasury website. For open public consultations, discussion or policy papers or exposure drafts of legislation are generally prepared and made available. Submissions are sought in response to these papers and these are also frequently made public on the website.

1.16 Participants in targeted consultations are generally chosen because they have expertise in the area or because they belong to a group that may be specifically affected by the legislation. Responses can be in the form of discussions at meetings or written submissions.

1.17 In the case of confidential consultations, participants are required to sign an undertaking not to divulge details of the consultation. However, if participants wish to discuss a confidential consultation with someone who is not a party to the consultation they can request that this party also be given the opportunity to sign an undertaking and participate.

1.18 The scope of the consultation process varies from measure to measure. In some cases the government may announce a public review of an area of taxation, invite submissions and conduct consultations to develop a policy position. For example, in the 2005-06 Budget, the Government announced a broad review of the taxation treatment of plantation forestry and called for submissions from interested parties.

1.19 More frequently the government may announce the broad outline of policy intent and task Treasury to conduct consultation on the detail of the policy. For example, in the 2006-07 Budget, the Government announced a plan to simplify and streamline superannuation and sought public reaction to that plan prior to determining the details of the policy.

1.20 In many instances consultation occurs at both the policy development and legislation development stages. For example there were a number of modifications to the consolidation regime enacted in March 2005 where consultation was conducted at both the policy development and legislation stages, including confidential consultation on draft legislation.

1.21 In some cases, particularly where there are market or revenue sensitivities, the specific policy may be quite settled by the time of any public announcement and either there is no consultation or consultation is limited to establishing whether the proposed legislation reflects the policy intent. For example, a measure to remove unintended consequences of the GST laws which would have allowed property developers to gain unintended tax benefits was announced on the introduction of legislation into Parliament in March 2005. Following the introduction of the legislation there was targeted confidential consultation on amendments to the legislation prior to its passage.

1.22 Extensive consultation at the policy development stage has been conducted for a number of major items since May 2002, notably the Review of International Taxation Arrangements, conducted by the Board of Taxation, and the Review of Aspects of Income Tax Self Assessment, conducted by the Treasury.

1.23 Consultation arrangements for announced taxation measures enacted in 2005 are outlined in Box 1.2.

Box 1.2: Consultation on announced tax measures enacted in 2005

During 2005, 125 taxation measures were enacted by legislation. (One of those measures included 276 technical corrections and amendments.)

Consultation was undertaken on 58 of those measures.

Of the 58 measures legislated in 2005 on which consultation took place, there was targeted confidential consultation in relation to 33 measures, a combination of both open public consultation and targeted confidential consultation or targeted public consultation in relation to 18 measures, targeted public consultation in relation to 5 measures and open public consultation in relation to 2 measures.

Of the 58 measures, consultation occurred in relation to both policy and legislation development in 37 cases, consultation on policy development only in 6 cases and legislation development only in 12 cases. Consultation on policy development generally takes place following the announcement of a measure by government; however, there were two cases where there was targeted confidential consultation prior to the announcement of the measure and a further case where the policy change was initiated by industry participants themselves.

There was no consultation on 67 measures either because they were of a minor or technical nature or due to timing restrictions. Of these, 34 were additions to the list of Deductible Gift Recipients.

Evaluation of consultation on announced measures

1.24 Treasury has implemented a system for evaluating its community consultation processes on specific tax measures. Treasury assesses its consultation performance against the expectations outlined in the section ‘What can participants expect from Treasury?’ in the brochure ‘Engaging in Consultation on Tax Design.’ This includes obtaining feedback on stakeholder experience of the consultation process, such as opportunity for input, time for consideration of issues, whether participants felt their input was given adequate consideration, and satisfaction with the way the process was conducted. It also gives participants the opportunity to comment on what worked well and what could be improved and to raise any issues or concerns they may have about the consultation process. This information is used to improve consultation performance and a high-level survey is reported regularly to the Board of Taxation.

1.25 Participants have indicated that they are generally satisfied with the consultation processes. However, concerns have been expressed about the time allowed for consultations and the provision of feedback to external participants.

1.26 Other measures Treasury has taken to improve taxation consultation arrangements are outlined in Box 1.3.

Box 1.3: Measures to improve consultations

  • Publication of a report ‘Treasury’s Consultation Processes on Announced Tax Measures’ three times a year on the Treasury website. The report provides details of announced tax measures, the consultation strategy for each, the progress of that consultation and the name and contact number of the officer responsible for conducting the consultation to facilitate interested parties making contact.
  • Production of the brochure ‘Engaging in Consultation on Tax Design’ to inform and assist potential participants in community consultation. The brochure includes an explanation of the roles and responsibilities of both Treasury and external participants. Further information on consultation processes and issues is also available on the Treasury website under ‘Community Consultation’.
  • Ongoing development of internal guidelines on how to plan and conduct consultations.
  • Staff training and internal seminars to share learnings from consultation experiences.
  • Development of a confidential website to allow for easier exchange of documents involved in confidential consultations.

Consultation timeframes and the legislative process

1.27 As noted above, external participants in consultation processes have expressed some concerns with the timeframes for consultation processes. In some situations managing the timing of policy change limits the extent and form of consultation that can be undertaken.

1.28 Generally a measure cannot be introduced into Parliament any sooner than two months after consultation is concluded. Often more than two months is necessary, depending on the scope and complexity of the measure and whether draft legislation was prepared for the consultation process. The steps that occur following consultation are outlined in Box 1.4.

1.29 While there are examples where these processes have been truncated (for example, where the government has considered the matter to be of sufficient urgency), these examples are exceptional.

Box 1.4: Processes following consultation

  • Treasury considers the issues identified in consultation and advises the government concerning the policy options.
  • The government decides the policy.
  • Draft legislation is prepared. If draft legislation was prepared for consultation, it is updated to reflect any changes arising from consultation.
  • A further five weeks is required from the time the draft legislation is completed until it is introduced to allow time for:
    • the Office of Parliamentary Counsel to finalise the Bill;
    • Treasury to finalise the explanatory memorandum for the Bill;
    • the Treasurer or Minister for Revenue and Assistant Treasurer to consider the draft Bill and explanatory memorandum; and
    • the government to clear the draft Bill for introduction into Parliament.

Feedback and Treasury’s role as a confidential adviser to government

1.30 Treasury’s role as a confidential adviser to government imposes some limits on the type of feedback it can provide to external participants in consultation processes. Treasury conducts community consultation on behalf of the government. Treasury is not a decision making body and its role in the consultation process is to listen to the views of participants, provide advice to government as to what those views are and advise the government on how to deal with issues raised during the consultation process.

1.31 Treasury’s policy advice to government, including advice on issues raised during consultations, is provided in confidence. The decision on how to deal with those issues rests with the government. Consequently, it is not generally possible for Treasury to give participants feedback on policy issues which are under consideration by government.

Processes for minor policy and technical amendments

1.32 The main mechanism by which suggestions on technical issues are collected is through the Technical Issues Management Subcommittee (TIMS) of the Tax Office’s National Tax Liaison Group (NTLG). Such issues may be dealt with either administratively or legislatively. TIMS consists of representatives of the major tax, law and accounting professional associations and officers of the Tax Office and Treasury.

1.33 Under the TIMS process external stakeholders (including other NTLG subcommittees) identify areas of the tax law where they consider the compliance regimes are unnecessarily difficult or where the tax legislation does not fully reflect the policy intent, and propose solutions to these issues. Where possible, the Tax Office attempts to deal with the issue by implementing an administrative solution or simpler compliance regime without the need for legislative amendment. If it is considered, in consultation with Treasury, that the issue identified is a result of the relevant legislation not fully reflecting the policy intent and the proposed solution is consistent with the policy intent, the NTLG refers the issue to government for consideration as a possible technical amendment to the law.

1.34 While minor policy changes are outside the TIMS charter, in practice issues raised often turn out to be proposals for minor policy changes rather than technical amendments. In the process of determining whether an issue would require a policy change or a technical amendment, issues are generally raised with the relevant policy area of the Treasury so that it becomes aware of the proposals (if it is not already). Should external stakeholders wish to pursue a minor policy change they are advised to raise the issue with the Government. If the Government agrees to the policy change, the measure will be subject to the normal consultation processes.

1.35 There are a number of other NTLG subcommittees on specific areas of tax which also provide a conduit for raising technical issues and, informally, minor policy issues. In appropriate cases, technical issues are referred to TIMS to be examined. Nevertheless, participants in the TIMS process have from time to time expressed frustration that TIMS does not provide a formal channel for progressing proposals for minor policy amendments.

1.36 All changes to tax legislation, including minor policy and technical amendments, are subject to approval by the Government. In the case of major policy changes, approval from the Cabinet is required. In the case of minor policy changes or technical amendments, approval may be obtained by correspondence between the relevant Minister (generally the Treasurer or the Minister for Revenue and Assistant Treasurer) and the Prime Minister. Technical corrections may be approved by the Minister for Revenue and Assistant Treasurer.

1.37 In 2005 some 276 technical corrections and amendments were enacted in Schedule 10 of Tax Laws Amendment (2004 Measures No. 7) Act 2005.

  1. Along with the UK Government’s Code of Practice and the International Council of Securities Association’s ‘Statement on Consultation Practices’: Regulation Taskforce, 2006, Rethinking Regulation: Report of the Taskforce on Reducing Regulatory Burdens on Business, Report to the Prime Minister and the Treasurer, Canberra, page 152.