ATO governance needs reform: IPA-Deakin SME Research Centre

Back in 2009, Dr Ken Henry’s tax review recommended the foundation of an Australian Tax Advisory Board. Its main objective would be to improve oversight and accountability of the Australian Taxation Office (ATO). Similar advisory boards already existed in the USA, UK, Japan, Singapore, Finland, Canada and elsewhere.

This was far from a new idea for Australia either. In 1999, the Ralph Review of Business Taxation had suggested a similar body to oversee business taxation in Australia – part of a suite of recommendations aimed at increasing the business taxation system’s resilience and fairness.

Following the 2009 Henry recommendation, in 2010 the Federal Government announced it would establish a Tax System Advisory Board to advise the Tax Commissioner on strategy, culture, management, IT and more. However, with a change of government, those plans were scuppered.

Since then, the ATO has suffered the shock of Operation Protego, a social media-led GST scam worth a reported $2 billion and involving 150 ATO staff. The Richard Boyle whistleblower affair revealed alleged abuse of power within the ranks of the ATO. And the department’s inability to manage what would eventually become an international scandal as PwC allegedly shared confidential tax policy information with multinationals to help them avoid taxes, became very public news indeed.

The Institute of Public Accountants believes an essential ingredient of urgently required tax reform in Australia is the establishment of this long-awaited advisory board to the ATO. 

Such a body wouldn’t necessarily prevent all of these problems from occurring, says Professor George Tanewski from the IPA-Deakin SME Research Centre. But it would minimise the governance issues the ATO is experiencing, he says. It would also offer the organisation a powerful level of insight and understanding in its mission to conduct tax business fairly, on behalf of all Australians.

The argument for a tax advisory board

“The Australian tax system can be significantly improved by the ATO adopting an executive advisory body that provides input into the ATO’s strategic direction,” according to researchers at the IPA-Deakin SME Research Centre, published in Proposal to Enhance the Governance of the Australian Taxation Office (ATO): A Review of the Literature and International Evidence.

“Creation of such an executive advisory body within the ATO would not only improve the oversight and strategic functioning of the ATO, but it would significantly improve the transparency and adherence to the Taxpayer Charter (recently renamed ‘Our Charter’) and make the operations of the ATO more accountable. Moreover, such an advisory board might prevent or mitigate in the future such problems as cybersecurity issues, the modernisation of the business register, small business debt book, etc.”

Tanewski, one of the report’s authors, says the ATO has a very good reputation globally.

“It’s one of the best-functioning tax departments in the world,” he says. “Given that, and given the fact that Australia is a democratic country, it just makes sense that the ATO is advised by a cross-section of experts.”

The concept of a ‘cross-section’ is important, Tanewski says. Diversity in the make-up of the advisory board would ensure sector-specific issues are avoided, such as the perception today that the ATO is being heavy handed with small businesses.

“It’s important that diverse views come through,” he says. “The ATO is meant to be representing taxpayers. We fund it and it is responsible to the taxpayer.”

[h2] How a tax advisory board should work

The primary purpose of such a board, Tanewski says, is to draw upon the individual expertise of its hand-picked members to gain deep insight and advice. It should also help shape the organisation, resolving structural, cultural and reputational issues along the way.

Board members should not be involved in issues concerning tax affairs of individuals. In fact, they should not be in a micro-management or decision-making position at all, Tanewski says. They are simply there to advise.

The Tax Commissioner already consults widely, the report says, including via “more than 50 advisory panels and committees that include external representation … however, while the key function of the above-mentioned bodies is to scrutinise and provide accountability, there is no specific executive advisory body within the ATO that is drawn from the wider Australian community providing input into the ATO’s strategic direction and ensuring the organisation is following its own charter.”

The report suggests the advisory board should be made up of nine to 11 members appointed for a specific term, such as three years, and able to be appointed for a second term. It should hold regular meetings – evidence from other territories suggests six times per year.

Other recommendations in the report include:

• Roles and responsibilities do not include interpretation and implementation of day-to-day administration and tax laws.
• The board should provide high-level strategic advice and apply private sector experience. 
• The board should remain completely independent of the ATO, containing no employees of the organisation.
• The board itself must be transparent in its relationships, actions and advice, including having its own performance regularly reviewed against its obligations and objectives.
• The advisory board should be responsible for monitoring the performance of the ATO, holding the Tax Commissioner accountable for the organisation’s performance.
• Diversity of expertise, experience and skills is essential across members of the advisory board.

This diversity includes “areas such as information technology, human resources, finance and communication”, the report says.

“It is important that the advisory board has the right combination of people [and] is reflective of Australia’s diverse communities, and that all members have the requisite skills and experience to deal with complex organisational and socio-economic issues.”

Success, Tanewski says, will come down to how the advisory board is structured.

“It will come down to structure, to accountability and to who is involved,” he says. 

“Importantly, it will also come down to how clearly the advisory board’s role is spelled out. If the roles and responsibilities are unclear, it can muddy the waters and damage the board’s ability to perform.”