Chapter 4: Improving Australia's Tax Consultation System

4.1 The previous chapters of this report outline the existing tax consultation arrangements in Australia, identify key components of tax consultation practices in other countries and summarise the views of stakeholders in the Australian system.

4.2 This chapter makes recommendations for improving the Australian tax consultation system, in the context of a model for sustainable community consultation.

4.3 Consultation processes have improved significantly since the Board’s report in 2002 and in general are operating consistently with the in-principle positions outlined in the Treasurer’s press release of May 2002. Box 4.1 provides an example of a consultation process that was considered by all parties to the process to have been an effective one.

4.4 The model and the recommendations outlined in this chapter are evolutionary and are consistent with and build on the in-principle positions. As they are taken forward, regard will need to be had to the whole-of-government policy on consultation requirements that has been developed in response to recommendation 7.5 of the Banks Taskforce and included in the recently released Best Practice Regulation Handbook.1

4.5 The possible improvements identified take account of the factors that make consultation challenging in Australia, but also take advantage of opportunities that exist or are emerging.

4.6 Several factors make consultation more challenging in Australia than in some other countries. These include a large number of peak bodies representing the tax profession, industry and community generally, at both federal and state levels. External stakeholders are resourced to different degrees — some are well resourced and well connected to the consultation process. Other stakeholders have little or no effective representation. Most senior officials advising government in the legislative design area are located away from major business centres, and there is not a culture of interchange of personnel between the public and private sector or of external ‘think tanks’ focusing on tax matters. In addition, there is significant media focus on tax and financial issues, and some stakeholders tend to focus on differences of view rather than areas of agreement. These factors are unlikely to change materially, at least in the short term, but some of them can be influenced over time.

4.7 There are opportunities to develop incrementally the existing consultation approach, environment and systems to use resources more efficiently and effectively and to build a trusted and high-quality tax system. As noted, the existing consultation system is generally performing well, and provides a strong basis for improvement. The existing arrangements are also still evolving in a desirable direction. Tax professional and industry peak bodies have clearly indicated to the review a commitment to cooperate and commit resources to better consultation arrangements. Furthermore, there appears to be an emerging community consensus that appropriate consultation can improve outcomes, for example by avoiding unnecessary compliance costs.2

4.8 While a model for sustainable community consultation is important, it is first necessary to be clear about the objectives of consultation and the scope and possible processes for consultation, and to have a community commitment to the tax system.

Box 4.1: Consultation process for the Review of Aspects of Income Tax Self Assessment

The Review of Aspects of Income Tax Self Assessment involved extensive public consultation during policy development and consultation continued throughout implementation.

The review, announced by the Treasurer in November 2003, was asked to examine aspects of Australia’s self assessment system for income tax to determine whether the right balance had been struck between protecting the rights of individual taxpayers and protecting the revenue for the benefit of the whole Australian community.

The review was conducted in a number of stages, with consultation being a key feature of each:

  • To assist in developing a discussion paper, Treasury initially examined published material, held preliminary discussions with representatives of taxpayers and professional associations and sought the views of government agencies with an oversight role in the tax system (such as the Office of the Ombudsman, the Inspector-General of Taxation and the Australian National Audit Office).
  • A discussion paper was released by the Treasurer in March 2004. It covered a range of issues and possible options and invited submissions from the public.
    • Over 30 comprehensive and detailed submissions were received from individuals, professional associations, companies and taxpayer representatives during the eight-week consultation period.
    • All submissions other than those provided in confidence were published on the review website, allowing for a high degree of transparency and debate.
    • All submissions were acknowledged upon receipt and submitters were informed of developments and announcements by email as they occurred.
  • The final report of the review, presented to the Government in August 2004, discussed the key issues raised in the submissions and made a number of recommendations for changes to both administrative practices and legislative framework intended to reduce uncertainty and compliance costs for taxpayers, while preserving the Tax Office’s capacity to collect legitimate tax liabilities.

In December 2004, the Government adopted the legislative recommendations and announced that the Commissioner of Taxation had indicated he would implement the administrative recommendations.

Legislation to implement a number of these measures has been enacted and again consultation has been a key element of the legislative development process.

  • Taxation Laws Amendment (Improvements to Self Assessment No. 1) Act 2005 included measures to abolish the separate penalty for failing to follow a Tax Office private ruling, to improve the transparency of the process of imposing penalties on taxpayers who understate a tax liability and to introduce new interest arrangements to apply where taxpayers under-assess their income tax. As these issues were uncontroversial and relatively simple in technical terms and the timing was critical (to give taxpayers the benefit of the change at the earliest opportunity), consultation was conducted in a targeted way.
  • Taxation Laws Amendment (Improvements to Self Assessment No. 2) Act 2005 included measures to reduce the periods allowed for the amendment of income tax assessments and to improve the reliability, accessibility, timeliness and accuracy of the framework for the provision of Tax Office advice. As these measures were relatively more complex to implement, and timing was less critical, consultation was conducted publicly through the release of exposure draft legislation.
  • An exposure draft of Regulations to exclude high-risk categories of taxpayers from the two-year amendment period for income tax assessments was also released for public comment.

A number of further reviews of specific features of the self assessment system recommended by the review are being conducted at present. These reviews generally involve open public consultation at the policy development stage.

The extensive consultation process for the review, characterised by a high degree of transparency and feedback through the use of open public consultation channels, contributed substantially to its success. The consultation process and the consequent results have received favourable feedback in several forums since.

Consultation objectives, scope and processes

4.9 The high-level objective of the tax consultation system is to ensure that government makes decisions on taxation matters fully informed about the range of options and the benefits, costs and risks associated with those options. This information should lead to better decisions and improve the outcomes of the tax system. However, consultation takes place in an environment where the government is responsible for policy decisions and there is not always unanimity of view among stakeholders.

4.10 It is also important to use the very significant public and private sector resources currently devoted to consultation effectively and efficiently.

4.11 Consultation may occur at all or only some stages in the development of a particular tax measure. As noted in Chapter 1, the key points at which consultation may occur are in developing the policy position, in fleshing out the detail of the policy intent and in developing the legislation.

4.12 Some areas of tax policy are clearly not suitable for consultation prior to the policy decision, or in some cases even in developing detail in relation to the policy, and these are universally recognised to include anti-avoidance measures that require immediate action and have a financial impact. Furthermore, governments take at least some other policy decisions with little or no consultation, particularly in budget and election contexts.

4.13 Although consultation may not take place prior to the policy decision (including for the reasons outlined above), it can provide valuable input on how to implement the Government’s policy intent most effectively, for example by minimising compliance and administration costs and avoiding unintended consequences. Consultation after the announcement of the policy decision can be particularly useful if the policy intent has been expressed at a relatively high level. Consultation at the implementation stage can be most relevant if complex legislative design issues are involved.

4.14 Consultations can be in public and/or on a confidential basis; and can be held with a wide range of stakeholders and/or with selected experts or representatives of external stakeholders. The consultation process should involve early engagement between officials and relevant external stakeholders and/or experts, rather than necessarily having all stakeholders involved on every issue.

4.15 Consultations can seek views and information on issues put to the community (a two-way process) and/or can actively engage the community in developing options (a shared process), with government being responsible for the final decisions.

Commitment to the tax system

4.16 Whatever the consultation processes, a commitment from all stakeholders to achieving good tax system outcomes is highly desirable.

4.17 In New Zealand, there is widespread community consensus on most tax matters, and particularly that implementation issues, and minor policy and technical issues, should be resolved in the best interests of New Zealand. Political debate and media coverage are more positive on a range of tax issues. There are many factors that help explain the New Zealand tax system outcomes, and their arrangements cannot be transferred to Australia completely. However, the outcomes in New Zealand point to the potential benefits for Australia if the key stakeholders in Australia commit to seek good tax system outcomes for Australia when engaging in consultation.

4.18 A similar commitment in Australia would encourage excellence by all participants, engender trust as the participants become more familiar with each other and with the consultation process, and enable greater sharing of expertise for the common good.

4.19 To gain such a commitment it is necessary for all to agree on the purpose of consultation. Currently, external stakeholder bodies in Australia can have several roles, including engaging in consultation, lobbying government and representing members’ interests. Lobbying and advocacy are not inappropriate; however they can be incompatible with effective consultation.

4.20 It is important for external stakeholders to recognise there may be tension between their roles in representing member interests, being ‘advocates for change’, and participating in consultation. Consideration should be given to appropriate arrangements (for example, separate arrangements for consultation) to allow bodies to carry out their other roles as well as being trusted participants in the consultation process. This distinction has been achieved in other areas of public policy, including in relation to the development of accounting standards.

4.21 During the review key external stakeholder representative bodies indicated, without exception, that they are committed to efficient and effective consultation on how to implement government policy intent, and to clearly distinguishing this from any other activities.

Role of the Board of Taxation

4.22 The Board’s 2002 Report proposed that the Board’s main contribution to facilitating consultation would be by ensuring that suitable processes are used to deliver the outcomes sought from consultation, and to engender trust among all parties. This is consistent with the Board’s Charter and functions.

4.23 Experience since 2002 and during this review indicates the Board can facilitate improvements to consultation arrangements, without impinging on the role of Treasury and the Tax Office. Board monitoring of the consultation process since 2002 (with the assistance of information from Treasury) has often focused more on the extent of consultation than the effectiveness and efficiency of the consultation system.

4.24 Overall, the recommendations of the review seek to improve further the effectiveness and efficiency of the consultation arrangements, and improve the environment for consultation and therefore trust in the system. Given the Board’s role and membership and experience during this review, the Board considers that it should continue to strengthen its monitoring processes and also take a more proactive approach to facilitating improvements to consultation arrangements consistent with the Government’s consultation system (for example, by encouraging stakeholder leaders to strive for excellence in their contributions to the consultation system).

Recommendation 1

External stakeholders should develop an environment, structures and processes for consultation that support tax system outcomes that are in the best interests of Australia.

The Board of Taxation should take a proactive approach to encouraging continuous improvement in the tax consultation system by liaising with stakeholders about possible improvements to consultation arrangements consistent with the Government’s framework.

A model for sustainable community consultation

4.25 Four foundations for community consultation have emerged from the international evidence and domestic stakeholder input:

  • clearly defined and stated scope and objectives of the consultation;
  • identifying stakeholders;
  • transparency of information and process; and
  • open and timely feedback of results.

4.26 Four supporting elements that are important to the effectiveness and efficiency of the consultation process are also evident:

  • maintaining confidentiality where required;
  • early access and input;
  • appropriate resources; and
  • sufficient time.

4.27 The supporting elements build from the four foundations to form a sustainable system of community consultation.

Clear scope and objectives

4.28 Clearly outlining the scope and objectives of a consultation provides the foundation for identifying the right stakeholders, outlining the boundaries of their task, setting their objectives, and managing the resources of internal and external stakeholders. The last issue can be particularly important for under-resourced stakeholders.

4.29 Government clearly describing the policy intent in initial consultation documents greatly assists consultation processes, as well as design of the tax law and administration processes. Clearly defining the intent assists the consultation process to develop further detail, for government consideration, that will best meet the policy intent in practice.

4.30 Consultation allows government to consider information on how its policy may be received and implemented, before it decides lower level policy and implementation issues. That opportunity, and the role of earlier input from external stakeholders, are reduced if the initial policy announcement reduces the scope for policy fine-tuning following consultations. Outlining the policy intent at a high level wherever possible allows for consultation on a broader range of implementation options.

4.31 There can be advantages in involving external stakeholders in identifying the scope and objectives for the consultations as they may have other perspectives, including regarding the commercial impact of implementation options.

Recommendation 2

Government should continue to ensure that policy intent is clearly described in initial consultation documents.

Government should continue to specify the policy intent at a high level wherever possible in order to enable consideration of a broad range of implementation options.

When appropriate, external stakeholders should be used to assist with clarifying how they might be best able to input into the consultation.

Identifying stakeholders

Selecting stakeholders

4.32 Treasury officials currently meet with a significant number of stakeholders, identified from a range of databases and the Tax Office. There is an understandable tendency to focus on stakeholders who have an existing relationship with officials, who are familiar with the processes, have proven reliable (for example, in terms of expertise and protecting confidential information), and who value the relationship. However, it can mean that the appropriate breadth and quality of external stakeholders to meet the objectives of the consultation is not always accessed and can leave other groups feeling disengaged from the process.

4.33 It is important to identify strategically the stakeholders that should be in the group and that can be expected to make the best contribution. This may require early discussions with some trusted external advisers to identify the best mix of stakeholders.

4.34 Stakeholder selection should seek a balance between obtaining the best expertise, representing the community groups most affected and a mix of skills, experience and commercial application most likely to provide all relevant perspectives. It is also important to involve officials with appropriate experience and authority so they can engage with confidence and assurance with external experts and community representatives.

Recommendation 3

Government, officials and external stakeholders should place more emphasis on ensuring that relevant skills and experience are available in consultation processes by identifying the:

  • expertise, including any paid external advisers, commercial experience and officials, required for a successful consultation; and
  • external stakeholders who are best able to contribute to the consultation process. Expert external advice can be sought on who should be consulted.

Number of stakeholder groups

4.35 New Zealand has a very small number of key stakeholder groups for the purpose of taxation consultation compared to Australia. The number of groups creates challenges in Australia.

4.36 Where there are many stakeholders, it can be extremely resource-intensive and difficult for government and officials to engage on a regular basis with stakeholders and to form trusting ongoing relationships. There can be a lack of cooperation or competition between organisations, and officials can be required to assess and advise government on more submissions than may be necessary. Organisations can feel they need to attend a large number of consultations and/or make many submissions (although there is a trend to more joint submissions).

4.37 The tax professional bodies have indicated that they see considerable merit, both for themselves and for the tax system more broadly, in joining forces in tax consultation processes, and are well advanced in discussing ways in which this might occur.

Recommendation 4

External stakeholders should continue to work towards forming into a single group or at least fewer groups for the purposes of responding to consultation proposals, to make the consultation process less resource-intensive and to improve the opportunity to build long-standing relationships and trust between stakeholders.

Stakeholders who are currently under-represented

4.38 Governments, both internationally and in Australia, have found it difficult to involve some stakeholders in consultation processes, including SMEs and not-for-profit organisations.

4.39 It is difficult to involve SMEs in consultation processes due to their limited resources and the lack of a cohesive industry body to represent their views. In part, this is as a result of the diversity within the sector. However, SMEs are numerous and are disproportionately affected by the fixed element of compliance costs (that could in turn be influenced by how policy decisions are implemented).

4.40 Not-for-profit organisations cover a very wide range of activities and are becoming increasingly important to the Australian economy as a result of: increased outsourcing of services previously provided by government; the growth in commercial operations as they have sought to diversify and increase their revenue to build sustainability (over half of the income of the not-for-profit sector now comes from commercial activities); and new government initiatives to encourage philanthropy. The rapid growth and restructuring in the sector is drawing out a range of taxation issues that are challenging the sector. At present the Tax Office and Treasury have a liaison process with a representative forum, the Charities Consultative Committee, although this does not cover the entire not-for-profit sector.

4.41 Both SMEs and the not-for-profit sector may not have the resources (both time and financial) to engage in consultation processes and may need encouragement and assistance to participate.

4.42 In New Zealand SMEs seem to be represented, in practice, by the (single) peak tax practitioner body, and the Inland Revenue Department recently employed a high-level person as a full-time bridge to SMEs in order to understand better their specific issues.

4.43 In some countries, there is a stronger culture than in Australia of ‘think tanks’ contributing to consideration of tax matters. A business-funded body, associated with a university, is being established in the UK. There may also be opportunities for similar bodies in Australia, as is the case in some other areas of research. In particular, such a body could have a mandate to consider taxation issues from the perspective of the not-for-profit and/or SME sectors.

4.44 If consultation processes could be run more efficiently in Australia, for example with fewer external stakeholder representatives in some consultations, existing resources may be able to be refocused towards representing bodies that have been difficult to engage.

4.45 The Board of Taxation should work with government, academia and the not-for-profit sector to explore whether there is sufficient research capacity in relation to not-for-profit taxation issues or whether an additional research resource similar to those used internationally could assist the sector in participating in tax consultation processes.

4.46 In addition, the Government is broadening the scope of the website to add a business consultation sub-site which will include new and upcoming changes to regulation and links to current and past consultation processes and enable registration of relevant stakeholders and information on the Government’s public consultation objectives and processes. This will be particularly useful for enabling SMEs to become aware of consultation processes in areas of interest to them.3

Recommendation 5

Government, officials and external stakeholders should seek improved engagement with sectors currently under-represented in consultations, including considering mechanisms for assistance with resourcing issues wherever possible.

Transparency of information and process

4.47 Transparency ensures that all the necessary information is available to stakeholders in the most efficient and timely manner possible.

4.48 Transparency improves the efficiency and effectiveness of the consultation by ensuring that information is available at the appropriate time and ensuring there are no unexplained gaps in the provision of information. Transparent processes also assist dialogue between stakeholders, avoid frustrating stakeholders and reduce inefficient practices (such as incorrect assumptions and second-guessing). Stakeholders are then better motivated and trust can be built.

4.49 A transparent process can also act as an incentive to maintain confidentiality where required. Participants who can be relied on to maintain confidentiality are more likely to be included in a process and provided with information. If confidentiality is not maintained they may be excluded from the process. In addition, the willingness to be transparent can be quickly undermined if information is misused, including if information provided in a consultation is used for any other purpose.

4.50 Transparency also assists with providing sufficient time for good-quality consultation.

4.51 The confidential website is a good start and consideration could be given to the potential use of web-based techniques for transmitting information and facilitating real-time dialogue such as scheduled web meetings and question and answer forums.

Recommendation 6

Treasury should as far as possible use technology-based tools to improve the provision of information and facilitate dialogue, thereby assisting transparency and efficiency.

Open and timely feedback

4.52 Open and timely feedback has the potential to improve relationships and cooperation. New Zealand has significant open feedback both formally and informally which, when combined with other aspects of its arrangements and situation, has encouraged sectional interests to raise the standard of their input and put the national interest to the fore.

4.53 Feedback also encourages external stakeholders to take a greater interest in the consultation process, as they have a better view of how their input was treated and how their submission influenced government decisions.

4.54 As Treasury conducts community consultation on behalf of government, there are some inherent limitations on the feedback it can provide. Treasury’s advice to government, including advice on issues raised during consultations, is provided in confidence. It is not generally possible for Treasury to give participants feedback on issues that have not been decided by government. Further, while infrequent, any misuse of feedback obviously discourages further feedback.

4.55 However, stakeholders can generally be informed of progress on a regular basis thus improving the quality of advice and the inclusiveness of the process. Furthermore, having a project management philosophy that establishes stages and benchmarks for a consultation and makes public (or at least transparent to the participating stakeholders) the progress of agreed actions and why any delays are occurring improves feedback and trust in the process.

4.56 As consultations often involve multiple stakeholders over a considerable period, officials should continue to improve their use of project management techniques (for example, techniques to establish and communicate objectives, milestones and time lines, and to ensure and communicate progress).

Recommendation 7

Treasury should where possible provide appropriate feedback more consistently to participants in consultation processes by:

  • acknowledging contributions as they are received;
  • providing written summaries of points raised in discussions to participants so they can check they have been heard correctly;
  • keeping participants in consultations informed of developments relating to the process of consultation; and
  • advising participants when decisions are announced or legislation is introduced. On some occasions, this may also provide an opportunity to give additional feedback that could not be given earlier.

Supporting elements

4.57 The elements outlined below are important to support a sustainable system of community consultation.

Maintaining confidentiality where required

4.58 Maintaining confidentiality of information, including feedback, provided on a confidential basis is critical to building trust between stakeholders.

4.59 In recent years a significant proportion of consultations have been conducted as targeted confidential consultations, as distinct from public consultations. While this is appropriate in some cases, there are substantial advantages in public consultations wherever possible. Public consultation ensures that everyone in the community has the maximum opportunity to provide information for government consideration. This potentially improves the quality of the information available to government.

4.60 Where confidential consultations are used, all parties need to respect the confidentiality of the process. If a breach of confidentiality occurs, it can severely undermine trust and lead to government and officials being cautious about whom they consult with and how much information they provide.

4.61 The use of confidentiality deeds is clearly warranted in some cases, for example, where information is commercially or otherwise sensitive. In such cases, confidentiality deeds can facilitate more consultation than would otherwise occur.

Recommendation 8

Government should use public consultation processes for significant measures wherever appropriate to ensure that the community has maximum opportunity to participate in consultation processes.

Where consultations are confidential, all participants should respect that confidentiality. Where appropriate, confidentiality deeds should continue to be used.

The ground rules for consultations should be established clearly at the start of each consultation indicating the behaviour expected of all stakeholders and the implications of any departure from the rules.

Earlier access and input

4.62 While in many cases, access and input prior to the taking of a high-level policy decision by government may not be appropriate, there may still be opportunities to consult in the further development of a policy position. There will be certain policy decisions where consultation may still be limited at this stage (for example, certain anti-avoidance measures) or usually does not occur (for example, election announcements).

4.63 Aside from these situations, while government is the ultimate decision maker, a predisposition towards access and input into policy development following policy decisions (with appropriate confidentiality conditions if necessary) can reduce the likelihood of developing inappropriate implementation options and increase acceptance of the policy. It can also improve the ease of application of the legislation, and build support for the consultation process, by allowing key stakeholders (or representatives of key stakeholder groups) to put their view at an earlier stage.

4.64 This is consistent with the finding of the Banks Taskforce that there needs to be effective consultation at all stages of the regulatory cycle, at the early stage when policy options and approaches are being considered and later when the detailed design features are being bedded down.4

4.65 Early access and input has to be matched with a commitment from external stakeholders to shared objectives (at least as far as the scope of the consultation extends), an acceptance that government will decide issues and then the process must move on in an efficient manner, and an absolute commitment to confidentiality. If these behaviours are absent, earlier consultation is unlikely to occur.

Recommendation 9

Government should provide external stakeholders with access and input to the consultation process in developing detail in relation to policy decisions, unless there are compelling reasons for not doing so (including for anti-avoidance measures). Government should also consider whether consultation may be appropriate prior to the policy decision.

Appropriate resources

4.66 Consultation processes should draw on the appropriate resources (for example, from internal and external stakeholders, hired experts, and any independent sources of information) in order to inform the consultation as much as possible.

4.67 Treasury leads consultations on announced tax measures. It is important to ensure there is an appropriate mix of internal and external expertise involved in the consultation and that more information is exchanged at earlier stages in the process.

4.68 In New Zealand and certain other countries there is a culture of personnel moving between the private and public sectors. This is facilitated by the seat of federal government being in a major commercial centre. The position is rather different in Australia. Further secondments between the public and private sectors and additional use of contracted external expertise are options that may improve consultation outcomes by improving access to information and commercial experience.

4.69 As noted, in some other countries ‘think tanks’ contribute to the consideration of tax matters. The involvement of such bodies in Australia has the potential to improve consultation outcomes.

4.70 The Treasury and the Tax Office work very closely together. However, the relationship is not well understood by all external stakeholders due to confusion about the differing roles of the organisations. It is not always clear to external stakeholders which organisation they should approach on a particular issue.

4.71 Furthermore, the Tax Office consults widely and meets groups who are not well represented through industry organisations, reflecting its role as the tax administrator and the need to have close relationships with end users. Further use of information gained through these Tax Office processes could enhance the consultation processes undertaken by Treasury.

4.72 As a central policy agency Treasury is expected to bring a broad economic perspective to its policy and implementation advice to government, including in relation to taxation matters. This enables it to ensure that its advice is framed in the broader economic context and that relevant linkages, interconnections and impacts are identified. Equally, particularly in implementing complex policy decisions, Treasury needs to bring a depth of knowledge to specific areas of policy and law. Without this depth, policy decisions may not be implemented in a practical and workable way and unintended consequences may emerge.

4.73 The management challenge for Treasury is to achieve the appropriate mix of staff at any one time to strike the right balance between breadth and depth of knowledge and experience in providing policy and implementation advice. There will be occasions where achieving this balance will result in staff being moved within the department, while on other occasions it will involve maintaining or building up particular knowledge or expertise. There is no hard and fast rule, with much depending on the policy priorities of government and the existing staff profile.

4.74 Where staff do move within the organisation it is important to ensure that as far as possible sufficient continuity is maintained on particular projects. Maintaining continuity for the life of a project is equally important for external stakeholders. Where staff move or an external stakeholder joins the consultation process it can take time to build trusted relationships which are very important for an effective consultation process. It can also take time to achieve sufficient common skills and experience between external stakeholders and officials. Where officials are new to an area, external stakeholders can feel they have initially to educate officers before moving onto the substance of the issue.

Recommendation 10

Government, officials and external participants should ensure that consultation processes are appropriately resourced by involving resources and expertise from both the public and private sector. All stakeholders should also be aware of the value of input in consultation processes from those with commercial experience. Examples of how this could be developed include through secondments between the public and private sector and hiring in such expertise for specific projects. It will be important to ensure that there is appropriate funding for any such arrangements.

Treasury and the Tax Office should ensure their respective roles are clear to external stakeholders during community consultation to minimise demands on the resources of external stakeholders.

Treasury, the Tax Office and external stakeholders should as far as possible ensure that there is continuity of key staff in particular consultation processes.

Sufficient time

4.75 Sufficient time for consultation increases trust in the process (by avoiding a feeling of ‘ticking the box’) and provides the opportunity for broader stakeholder coverage, higher quality responses from external stakeholders, and fuller analysis of the issues before advice is provided to government.

4.76 The time available will be influenced by the complexity of the issue, the stakeholders involved and the priorities of government. Sometimes, government priorities and/or resource limitations may limit the period for consultation.

Recommendation 11

Government should allow at least a six-week period for external stakeholders to provide input into consultations on significant measures to ensure the community has maximum opportunity to participate, unless government considers the resulting delay in introducing legislation would outweigh the benefits of allowing this time.

Trust in the consultation system

4.77 Improving trust is seen by all stakeholders as important to improving the operation of the tax consultation system. Higher levels of trust would have significant benefits for the consultation process, including by encouraging sharing of information, feedback, cooperation and effective and efficient use of resources. However, trust cannot be imposed, but rather is an outcome of applying the foundations and supporting elements of a sustainable consultation system wherever possible.

4.78 It also requires all stakeholders to enhance their contribution to consultation processes and to seek tax system outcomes that will improve the wellbeing of Australia when engaging in the consultation process.

4.79 There is a view from government that the current system of advocacy and sectional focus of some industry bodies and professional organisations are detrimental to achieving the best tax system outcome for all Australians. The Board agrees with this view and it is acknowledged by some external stakeholders.

4.80 Where advocacy spills over into point scoring or the airing of complaints or dissatisfaction in an inappropriate manner, particularly if it uses information from consultations, it can be extremely damaging to building the trust and relationship between external stakeholders and government and officials needed for a sustainable consultation system.

Minor policy and technical amendments

4.81 That minor policy and technical issues arise is not surprising given the complexity of tax and other law, the economy, and society generally. Issues can and do arise that were not, and in some cases could not be, anticipated when the policy was developed and the legislation drafted. This is not a reflection on the capabilities of the stakeholders in the system — it mainly reflects complexity built up over decades.

4.82 However, while such issues will arise, if they are not addressed in an effective manner, unintended expenses, complexity and compliance and/or difficult tax administration issues can arise. This can reduce community support for the tax system. That said, it is not realistic or appropriate to expect that all of these issues can be addressed. Ultimately it is a question of priorities and weighing the costs (including opportunity costs) and benefits of making particular changes.

4.83 As noted in Chapter 3, several external stakeholders suggested an annual technical corrections Bill as a way of providing impetus for addressing minor issues concerning the operation of the tax system.

4.84 Internationally there are a variety of approaches adopted to address similar issues. The US uses an annual Bill entitled ‘Tax Technical Corrections Act of 200#’, although it is also common for technical corrections to be included with other tax Bills that are moving through the legislative process. New Zealand has a well-developed practice of including at the end of most revenue Bills provisions under the general heading ‘Remedial Measures’. This legislative outcome is supported by a process in which the changes are identified, prioritised and subject to feedback to those raising the issue.

4.85 Which is the most appropriate legislative mechanism depends upon the complex balance of resources, priorities and space within the parliamentary calendar. In the US, responsibility for the annual Bill rests with the independent office of the Joint Committee on Taxation.5 This body is heavily resourced and has an extensive public hearing committee system available to it. This review believes that this process, together with the considerable resources that support it, would be extremely difficult to replicate in the Australian context. In contrast, in the New Zealand process issues are prioritised within the existing structures of government and external stakeholders.

4.86 The review believes that the key issue is not the parliamentary process for legislative changes, but the adoption of a structural framework in which consultation plays a primary role in achieving the objective of reaching a shared view on the need for change and the prioritisation of issues. That is, the process needs to create a pathway for issues to be identified, analysed and prioritised and for feedback and transparency to be provided to those who identified the issue.

4.87 The review considers that in the Australian legislative context much could be gained by establishing a clearer pathway in each of these respects in relation to minor tax system issues requiring administrative change or legislative amendment.

4.88 A pilot of a new ‘Tax Issues Entry System’ (TIES) is proposed to provide a transparent and accessible process aimed at improving each of these elements. It is expected that TIES would replace the Technical Issues Management Subcommittee (TIMS) of the Commissioner’s National Tax Liaison Group.

4.89 TIES will differ from TIMS in a number of important respects:

  • TIES will be jointly supported by Treasury and the Tax Office to enable a single entry point for issues, including minor issues involving legislative amendment and requiring consideration by government; this will avoid the need for those raising issues to determine which organisation deals with a particular issue;
  • it will be more accessible with issues able to be raised directly via phone or email; and
  • it will involve an increased focus on providing feedback on the progress and final outcome of issues raised.

4.90 The review believes that this will create a clearer pathway for identifying and providing feedback on issues in particular.

4.91 One of the objectives of recommendation 4 is to improve the opportunity to build long-standing relationships and trust between stakeholders and government by bringing external stakeholders together. In the context of TIES this should assist the process by consolidating analysis of the key issues of concern and facilitating dialogue on the prioritisation of them. In addition, there will be improved channels to provide feedback on the progress of issues.

4.92 The review also believes that TIES should result in there being less controversy regarding minor amendments to existing legislation.

4.93 The review considers that the current approach of attaching minor amendments to Bills that already have parliamentary priority is preferable to an annual technical corrections Bill. There is a greater risk that an annual technical corrections Bill would not get sufficient priority in the parliamentary process to ensure timely passage of the amendments.

Recommendation 12

Treasury and the Tax Office should proceed with the proposed pilot of the Tax Issues Entry System for identifying/analysing/prioritising/providing feedback on minor tax system issues requiring administrative change or legislative amendment, recognising that the resources to address these issues have to be considered in conjunction with other legislative and administrative priorities. The Board should review the operation of the system after 12 months.

  1. Regulation Taskforce, page 154. 
  2. See for example Regulation Taskforce, pages 150-154. 
  3. The development of the sub-site follows the Government’s response to recommendation 7.7 of the Banks Taskforce, Regulation Taskforce, page 154. 
  4. Regulation Taskforce, page 147. 
  5. The Joint Committee was established under the Revenue Act of 1926 and is composed of five Members of the House Committee on Ways and Means and five Members of the Senate Committee on Finance. These two Committees have Federal jurisdiction over tax matters.