Michael Andrew AO

Chair

Black Economy Taskforce

14 August, 2017

Dear Sir

Black Economy Taskforce: call for submissions

Thank you for the opportunity to comment upon the above matter.

The below comments are mine and mine alone, and do not reflect the views of my employer or the various bodies that I serve.

I am ready willing and able to provide research evidence of the assertions made herein.

Yours faithfully

 

David Morrison

[Queensland Barrister and Academic]

 

[Related TT Article on the Black Economy Taskforce’s Discussion Paper with 54 ideas for discussion]

 

SUBMISSION TO THE TREASURY, AUSTRALIAN GOVERNMENT: BLACK ECONOMY TASKFORCE

(1) Reference to paragraphs herein are drawn from the document “Black Economy Taskforce: additional policy ideas”.

(2) The so-called “black economy” will always exist, including in a barter society. This is so because “work arounds” are found for transactions where stakeholders have a myriad of incentives, including attitudes towards authority. It is therefore apposite to address the social norms/education issues raised by the taskforce commencing at paragraph [43].

(3) The most likely reason transactions are often made for cash is to avoid tax obligations, either because the money being used to pay for the goods has not been taxed, or because the price charged by the contractor is one that assumes that no invoice will be issued. No doubt, there are other reasons for cash payments, including issues of identity for activities such as trafficking and terrorism.

(4) It is folly to assume that dealing with cash transactions alone will adequately address the issues raised by this taskforce. That is because of the existence, inter alia, of the shadow banking system; the disruption to financial services and concomitant proliferation of alternative suppliers of same; block-chain mechanisms; and, the use of barter.

(5) It is therefore entirely appropriate that the taskforce cast a wide blanket in the kinds of transactions and the type of activity it seeks feedback upon.

(6) The comments herein are primarily directed towards the area of interest of the writer, however, it is suggested that there is a lot of benefit in getting current Government mechanisms, including the enforcement of regulations and legislation, working properly before resorting to more concerning human rights and privacy suggestions such as those raised by paragraph [1] that suggests personal identification for citizens, (note (10) below).

(7) Perhaps one way forward is for all Australian citizens to be issued a tax file number, rather than to introduce another form of identification that will not only require an administration system but will also be another mechanism open to attack by those already evading/corrupting the system. Each tax file number holder will lodge a tax return each year, whether or not they have earned assessable income. There might also be required certain declarations by the taxpayer around cash payments and receipts for example.

(8) The suggestion around reversing the onus of proof at paragraph [11] for small offences is similarly objected to. It is essential that the government look to ensure that its current strategies are properly followed, and where necessary enforced, before reverting to strategies such as these.

(9) Much of the comment by the Taskforce around issues of privacy, for example whether the balance between taxpayer privacy and sharing of ATO information with other departments as set out in paragraph [10], are misdirected if there is not a proper accounting for the operations of existing government function, including whether or not the laws around taxation and related activity are being sufficiently investigated and enforced.

(10) By this I mean that in order to enforce a set of rules around an activity, it is necessary for there to be sufficient funding to ensure compliance. There is plenty of evidence, anecdotal and empirical, that suggests that in the areas of Commonwealth taxation law and corporate laws, there is inadequate funding by the Commonwealth to ensure that the relevant agencies enforce the complex and myriad laws within their purview. Of course, the agencies are not in a position to complain about their funding, lest they incur the ire of the relevant minister. It is unfortunately evident, however, that Australia as a small country, hits well above its weight in unnecessarily complex legislation that, as a result and axiomatically, it is unable to adequately enforce.

(11) The judgment in Commissioner of Taxation v Warner [2015] FCA 659, gives some insight into the processes and delays regarding aspects associated with the collection of revenue by the Australian Taxation Office. It is difficult to understand from an efficiency point of view. The administration and collection of revenue has much room for improvement within Australia, but that improvement must come with the full financial support of the Commonwealth.

(12) One key example of our seeming inability to enforce laws in a timely manner, is the phoenix company issue. It is much commented upon and not necessarily in a useful way. Some commentators seem to push for more legislation or rules thereby making the issue more complex than it needs be. The idea of ABN reform (at paragraphs [3] and [4]) is a good starting point with respect to existing laws. Why can’t the GST be immediately remitted by the recipient upon payment of an invoice they have issued for example? Alternatively, why not report to the ATO all GST charged on both cash and accruals based invoices, (perhaps via a special reportal), at the time of the transaction and then reconcile against the monthly, quarterly or annual BAS? Indeed, why not require monthly BAS statements for any late lodgement offenders?

(13) We live in a world of immediate ability in terms of electronic information, yet the ATO apparently does not have sufficient resources to either know its revenue precision in real time, (in much the same way as financial institutions can), or the ATO has this ability, but not the means to resource implementation of timely collection procedures. There is no reason, solvency assumed, that a business cannot, for example report and remit PAYG instalments simultaneously with the payment of salaries and wages to employees; (paragraph [21] applies here as does the suggestion that wages, salaries and contractor payments be paid to bank accounts associated with the provider and not via cash or other similar means).

(14) The ideal of transparency and open reporting, including making available already-held data and statistics by all Commonwealth government agencies is critical to ensuring that we move forward on the issues raised by the Taskforce. ASIC for example, render most of the data they collect inaccessible by effectively (and legally) requiring search fees for information requests. Apart from the nonsense around charging for information provided already by fee payers and taxpayers and kept and compiled by an agency funded by taxpayers, it is incomprehensible that there is a reason, other than so called cost recovery in the form of a further “tax” that this prevails. It goes a long way to ensuring that analysis and research by stakeholders that contributes to the work of this Taskforce and debate generally that contributes to an open and accountable society is delayed or in many cases thwarted.

(15) No doubt many of the proposals contained in this report are genuine attempts to solve a cross disciplinary problem, but before we “name and shame” for example, (per paragraph [19]), a far more productive exercise is to get our existing house in order. From that point we will properly know and be able to identify the then fewer instances of errant behaviour that follow from a more rigorous regulatory regime and then to target that behaviour with more meaningful and less complex means.

(16) Related to this are the recent concerns of the Productivity Commission Inquiry (Business Set-up, Transfer and Closure), and Commonwealth Government Treasury, (Treasury Laws Amendment (2017 Enterprise Incentives No 2) Bill 2017), around the necessity for Australia to promote, rather than hinder (via complex regulations and processes), entrepreneurial activity in order to compete in a global market. Suffice to say that this requires a lessening of legal complexity and a reduction in the number of laws that will in turn allow for more effective enforcement of law and hopefully prompt attention to errant behaviour.

[August 2017]

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