If there’s a connection between the Australian Taxation Office and COVID-19, it can be described in one word:‘dictatorship.
For freedom lovers, Covid demonstrated the wafer–thin line between freedom and overbearing government authoritarianism. In Victoria, for example, many have been shocked by the speed with which the checks and balances on government were dissolved and replaced by a form of dictatorship.
This was done, of course, in the name of the greater good—to save people from disease and death. Putting aside the rights or wrongs of the health argument, what has this to do with the ATO?
To call the ATO a ‘dictatorship’ is not some flippant, stupid remark. It’s an accurate description of the statutory powers through which the ATO administers tax collection. Under statute, the powers of the ATO are vested exclusively in the Tax Commissioner. This has been so since 1936 when the ATO was formed.
The dictatorial nature of the Tax Commissioner’s powers is a result of the sweeping capacity to do almost anything to collect tax.
For example, when the ATO audits a taxpayer and raises a tax debt, that debt is not an ‘alleged’ debt but immediately becomes a debt at law, due and payable. The ATO can and does collect on the debt by ‘garnishing’ (forcibly removing) money from a person’s bank account or their employer or business client. The ATO does this even when the debt is in dispute before the courts. The taxpayer must ‘un-prove’ the ATO’s opinion of the debt and ‘prove’ what tax is actually owed. There are only cursory checks and balances on the ATO in administering these powers.
And there’s overwhelming evidence that the ATO abuses these powers, particularly in relation to small business people. Common sense and fairness do not apply.
Take one example. A ‘debt’ of one self-employed person is currently headed to the High Court. The ‘grand’ issue at law is whether the person’s LinkedIn postings constitute ‘advertising’ for the purposes of the Tax Act. The original claimed debt is not big, but the case has been going on for six years.
This is just one of many examples where the ATO can and does act as a bully. It intimidates and grinds people into the ground. It picks on people because it can and because it is not accountable.
This demonstrates why the highly respected tax lawyer, Mark Leibler AC, stated in 2018 “for all intents and practical purposes, it’s effectively the [Tax)]Commissioner who lays down the law… the Commissioner effectively continues to act as lawmaker.” In other words, the ATO’s powers are so unrestrained that it effectively writes the law on its whim.
This used to be the situation in the USA. The Internal Revenue Service (IRS) operated as a dictatorship, just as the ATO does now. However, in 1998 this changed.
For all the chaos that is US politics, when Congress comes together on an issue it acts powerfully and impressively. This is what happened with the IRS. Its powers were forcibly refocused under legislation that put a Taxpayer Rights Code at the centre of how the IRS can deal with US taxpayers.
A suite of check and balances were introduced, including oversight by a Taxpayer Advocate and Treasury powers to clean out corrupt IRS officers. The checks and balances were (and are) highly practical in nature. For example, the IRS must have a separate internal appeals process. By statute, an appeals officer must be totally different to, and not communicate with, the IRS officer who conducted the original audit. With the ATO, it’s not unusual for an appeals officer to be the person who did the original audit.
In all, there are some 76 practical administrative requirements imposed on the IRS that secure checks and balances. Several other reforms and reviews occurred in 2006 and 2010.
And in mid–2019, Congress moved again in a united way bypassing the Taxpayers First Act. This updated the rights of US taxpayers to fair and equitable treatment by the IRS. At the core of this is a focus on the collection of the ‘correct’ tax. This is what a tax system ought to do.
While the US has focused on fairness in the administration of its tax system, Australia has blundered on with dictatorial tax administration.
The emergency powers triggered in Australia under coronavirus have targeted the protection of community health. Freedoms have been assaulted but only on a temporary basis. When the emergency passes, the community expects (and presumably our parliaments will restore) our freedoms.
In 1936 Hitler was bombing the Spanish Basque province. Mussolini signed a pact with Hitler. The worst horrors of dictatorships were on the rise. Yet, quite strangely, in Australia in that year we created a dictatorship of taxation hidden within our democracy. It is a source of abuse and oppression which we have ignored and allowed to operate on a permanent basis ever since.
In addressing its own tax dictatorship, the USA has, over some 20 years, created and consolidated a superior tax administration system. Its focus is fairness and the collection of the correct amount of tax. The US provides a template for ATO administrative reform that can lead Australia towards fairness.
To retain the current tax dictatorship is a blight on our freedoms and ought to be an embarrassment to lovers of liberty everywhere.
Ken Phillips is Executive Director of Self Employed Australia. He has published a detailed report comparing the US and Australian tax administration systems. Here is the report. A 20-minute explanatory video is here.
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