14 April 2014: Taxation Ombudsman’s perspectives on Australian tax administration

Taxation Ombudsman’s perspectives on Australian tax administration

ATAX 11th International Tax Administration Conference - Sheraton on the Park, Sydney April 2014

Colin Neave, Commonwealth Ombudsman

Introduction 

Thank you, Michael [Prof Michael Walpole]. 

Sir Anthony [Mason], Chris Jordan, Naomi Ferguson [NZ Inland Revenue Department], Jennie Granger [Her Majesty’s Revenue and Customs], Ali Noroozi, Paul Drum (CPA Australia), ladies and gentlemen, I’m delighted to be here this afternoon and to have the opportunity to speak to such an eminent group from the international tax community. 

The theme of my talk today is my perspectives, as the Taxation Ombudsman, on Australian tax administration. 

I’m now almost two years into my tenure as the Taxation Ombudsman and was previously, among other appointments, the Chief Ombudsman of the Financial Ombudsman Service in Victoria and the Australian Banking Industry Ombudsman. Also, in the distant past, Company Secretary of the then listed company AMI Toyota Ltd. 

So I feel well qualified to be commenting on how the Australian Tax Office is performing from a complaints perspective, and where our two organisations should be working together to continue to improve services. 

Background on the OCO

In Australia, people expect to be treated fairly by government. We value concepts such as accountability, transparency and integrity, and we strive to protect these principles. 

We have a right to complain when we are dissatisfied or things go wrong, and to have our complaints resolved on merit, without hindrance or fear of reprisal. 

This process is part of the fabric of our modern, engaged, democratic society. 

The concept of an ombudsman as an independent person who can investigate and resolve disputes between citizens and government has been around for more than 200 years and has spread to more than 120 countries.

An ombudsman is now considered an essential accountability mechanism in democratic societies.

In Australia, the Office of the Commonwealth Ombudsman exists to safeguard the community in its dealings with Australian Government agencies, and to ensure that administrative actions by those agencies are fair and accountable. 

The Ombudsman Act confers six specialist roles on the Ombudsman, including the Taxation Ombudsman, whose role is to investigate actions taken by the ATO. 

Handling complaints and conducting own motion investigations (that is, investigations conducted on my own initiative) are traditional ombudsman activities, and they account for most of the work done in the tax area.

The purpose of an investigation is to examine whether an administrative action is unlawful, unreasonable, unjust, improperly discriminatory, factually deficient or otherwise wrong. 

At the conclusion of an investigation, I may recommend that corrective action be taken by an agency, either specifically in an individual case or more generally by a change to relevant legislation, administrative policies or procedures.

It has been said that while the office of the Ombudsman was “not very well equipped for hunting lions….it [could] certainly swat a lot of flies”. 

In other words, our role in the early days was to resolve complaints (or swat the flies), rather than tackle the systemic issues within an agency which led to the complaints in the first place (hunt the lions). 

As time has passed, so has our focus. We now set out to hunt more lions, with the belief that if we remove the things that attract flies (the complaints), the flies will disappear of their own accord. 

So over the past 10 or so years we have moved from being simply focused on individual grievances to working more with agencies to equip them to both 2 deal with immediate complaints and help them to create systems that enable them to learn from the experience.

We know well that there are no perfect administrative systems or policies and things will invariably go wrong. 

We listen to what complainants tell us and fairly and objectively analyse this information to bring to an agency’s attention gaps in policy and weaknesses in its complaint handling.

Our ability to do this is our strength and it is what sets us apart. 

The Tax Office

The well-known financial services firm Morgan Stanley, once ran an advert which read You must pay taxes. But there's no law that says you gotta leave a tip.

It will come as no surprise to any of you that the ATO is one of the most scrutinised agencies in Australia. There are a number of people and organisations offering tips of another sort to the ATO.

The Inspector-General of Taxation, the Australian National Audit Office, and the House of Representatives Standing Committee on Tax and Revenue all have oversight roles in relation to the ATO.

And we’ve just heard from Ali about the work of the Inspector-General of Taxation. 

The ANAO’s activities are directed towards giving an audit opinion on the presentation of the ATO’s annual financial statements, as well as producing performance audits related to the efficiency and effectiveness of its administration. 

The Inspector-General of Taxation, the ANAO and the Ombudsman collaborate and share work programs in order to get the best outcomes based on our respective areas of expertise. 

But of all the scrutinisers the Tax Office has to deal with, the greater of these is the taxpaying public. 

The last ATO annual report shows that it had over 22 million interactions with taxpayers last year but only 26,431 complaints, so on the whole the interaction worked for most taxpayers.

It’s only when things don’t go so well that taxpayers contact us.

I can assure you that taxpayers don’t call us to say how well the Tax Office is doing so you need to understand that our opinion about tax administration essentially stems from complaints; that is the dispute that remains between the ATO and the taxpayer at the conclusion of the ATO’s attempts to resolve the matter through the complaints process.

One of the Ombudsman’s strengths is the ability to gather intelligence from those individual complaints and objectively analyse it to form a cohesive message about deficiencies in an agency’s administration. 

Our position and role means we can help agencies learn from the experiences of all agencies in our jurisdiction. For example, lessons learnt in relation to the complaint handling practices of ASIC and the Tax Practitioners Board can be applied to other agencies, such as the ATO. 

At the moment my office is finalising an own motion investigation into complaint handling in Commonwealth agencies. 

From that we will be able to take lessons from other agencies to improve government administration generally. 

We have already taken the first steps by bringing together many agencies in the first Commonwealth Agencies Complaint forum, a roundtable discussion where agencies can share learnings, strategy, innovation and best practice, in the complaint handling process. 

Because of our position we are well placed – and I believe uniquely placed– to deal with cross-agency issues. 

Sometimes it’s not just about tax. Because the ATO has a tax, transfers, superannuation and business-register role, there can be flow-on effects when problems occur in the ATO space. 

For example, serial non-lodgers of income tax returns may be avoiding child support assessments, and this could also have Family Tax Benefit consequences for ex-partners who are powerless to rectify the problem. 

Because these impacts can be obscured by the cross-agency interactions, the Ombudsman has an important role bringing these issues to light, especially because complainants often tell us that they feel like they bounce between agencies with neither willing to take responsibility for their complaint. 

We encourage agencies to see complaints as “a river of gold”; that is, to see the value in complaints, so that they inform the development of future products and services to clients. 

In this way, we also encourage agencies to stop wasting energy “swatting flies” but to make meaningful improvements to their products and services to avoid future complaints. 

This is especially relevant in light of the ANAO’s report which indicates that it costs of average of $611 every time someone makes a complaint to the ATO. 

In the past couple of years, the Tax Office has made a number of improvements to its complaint handling, and we have seen a reduction in the number of complaints we receive as a result.

In 2012-13, the number of complaints decreased by more than 34 per cent from the previous year.

But we believe there is still more work to be done. 

The landscape is changing quickly for Australian Government agencies. Citizens have become more actively and directly involved in monitoring public authorities, and in demanding better policies and practices. 

This is aided by the expansion of information and communication technologies. People increasingly want to be able to communicate electronically with government agencies and want immediate answers to their questions. 

Against this background we are seeing a “reinvention” of the ATO – “changing the culture of the ATO”, “putting the client first”, and “providing more contemporary products and services”. 

Key changes include: 

• moving from a high-touch to a low- or no-touch service to reduce the complexity of compliance 
• utilising the mygov website as a single entry point for key government services 
• releasing apps, publishing Digi-Mags and launching interactive online tools. 

These changes have been well received by large groups in the population. However, what is a welcome change for some can be challenging for others. 

For example, the ATO’s decision to no longer provide paper forms through newsagents in an attempt to encourage more electronic lodgement has led to complaints to my office about accessibility.

Some people do not have access to a computer or the internet, or believe they have been left out in the cold or discriminated against due to their lack of computer literacy or accessibility. 

Let me give you two recent examples. 

• Case 1: Mr B did not have internet access. He was dissatisfied with the ATO’s response to his complaint about paper forms no longer being available at newsagencies as, although it also provided him with options to contact the ATO by phone or at an ATO shopfront, it directed him to use e-tax (which requires internet access) or to obtain the paper products online (which again requires internet access).
  He believed he was being discriminated against for not having access to the internet. 
• Case 2: Mr H complained that he experienced “extreme difficulty” lodging his tax return because he had cognitive problems and was computer-illiterate.
  He experienced difficulty ordering paper forms when he tried to do so both online and over the phone, and was eventually sent the incorrect forms.
  
  It took about three months longer for him to complete his tax return than it did when he could get the paper form from a newsagent.

This issue is not unique to the ATO. As more agencies take up the Government’s digital initiative, my office is also seeing complaints of this nature for several other agencies. 

For example, some small business owners like gardening or home-maintenance services still use paper invoicing and receipting. 

With the introduction of the national business name register, which is centred around online renewal and payment, these small businesses find themselves in a dilemma. 

We are mindful of the saying “Change is not a four-letter word, but often the reaction to it is” so it is not our aim to unwind or undo the whole-ofGovernment digital initiative.

But it is our role to take the information gathered from complaints and feed it back to the Tax Office and others to give voice to individuals obscured in the shadow of a big service change. 

This gets to the crux of our purpose: To influence agencies to treat people fairly through our investigations of their administration. 

An essential part of this is trust and there are three aspects to this: 

• The general public’s trust in the Ombudsman (so decisions are respected) 
• The ATO’s trust in the Ombudsman (so recommendations are respected and we work collaboratively)
• Assisting the ATO to build the general public’s trust in it (to avoid complaints). 

I’ll cover each of those points in turn. 

The public’s trust in the Ombudsman 

It is essential that the public trusts the Ombudsman for two main reasons: 

• So they approach us with their complaint when they are dissatisfied with the actions of an agency. 
• So they respect our decision in relation to their complaint. 

My office’s credibility is built largely on its reputation as an independent statutory authority that fairly and objectively investigates complaints made by individual citizens about Australian Government departments and agencies. 

A large part of this is communicating and setting expectations about what our role is from the very beginning of the complaint process. 

The public also expects us to get results; to bring about real change for citizens and to incrementally build public trust in public administration. 

As I said before, we concentrate on the dispute between the taxpayer and the Tax Office. Disputes are often resolved when the Tax Office takes another look.

For example:

Mr W lodged his income tax return and was expecting a large return. He advised that he was homeless and was waiting on the refund to enable him to resolve this issue. 

His income tax return was delayed and efforts to expedite the processing of the return under hardship arrangements were unsuccessful. 

Following contact with my office, ATO Complaints ensured that Mr W’s claim was finalised and the payment was processed manually. 

And another: 

Mr AA, a tax agent, lodged an income tax return for his client. After two months, the ATO wrote to the client to advise the return was subject to audit checks, and also asked him to provide receipts to substantiate some deductions claimed. 

The client provided the requested documents within the agreed timeframe. After not hearing anything for four months, Mr AA wrote to the ATO and asked for an update. He did not receive a reply. 

One month later he wrote again and the ATO responded with a letter advising of the outcome of the audit. Some deductions were disallowed and the client was issued with a notice of assessment, which included penalties. 

Mr AA complained to the Tax Office about the delays and the adjustments, but he was not satisfied with the response, and then complained to us. 

Following our contact, the ATO provided a full explanation of the adjustments and acknowledged some errors as well as the delay.

The ATO apologised to Mr AA and his client, and also offered support to correct the errors through the objection process. 

ATO’s trust in the Ombudsman 

It is essential that the ATO trusts us so that we can work collaboratively. This goes to the core of our purpose, which is to influence agencies to treat people fairly through our investigations of their administration. 

But as I said earlier, there are no perfect administrative systems or policies and things will invariably go wrong. 

My office is changing its focus to working more with agencies – to influence them to treat people fairly through our investigations of their administration. 

This approach allows us to demonstrate more of a leadership role in public administration. 

Looking at issues systemically rather than as individual problems is part of the answer. 

We now spend much more time analysing reports and complaint trends to identify emerging issues, helping agencies to develop resolution and prevention strategies at an early stage. 

For example, a number of recent ATO system errors associated with income tax returns led to complaints to our office about errors and subsequent delays in getting the problem resolved. 

In cases such as this, we work with the ATO to ensure they have:

• established the number of taxpayers who are affected by the error 
• developed and implemented appropriate remediation plans to correct the error 
• provided meaningful information to the affected taxpayers in relation to the error and its resolution 
• importantly, applied the lessons learned from complaints in future system and service design, to avoid similar issues in the future. 

In order to fulfil our purpose, we need to have strong and respectful relationships with agencies. 

The Ombudsman has no power to force an agency to change a decision or provide a service and must rely on agencies to cooperate to resolve problems. 

Our collaboration must be built on trust and developed on a “no surprises” basis with agencies and complainants. 

For example, a recent complaint brought to our attention a gap in the ATO’s policy regarding the application of the Commissioner’s general powers of administration to self-managed super funds that paid an allocated pension, rather than an account-based pension. 

A meeting with the ATO confirmed that the gap did exist and, as a result, it took action to fill the gap by extending the general powers of administration to also apply to the small number of self-managed superfunds that pay allocated pensions.

Although a large part of our work will always be assessing and investigating individual complaints, I believe our future relevance depends on our ability to intelligently use the information gained through that work to build the capacity of agencies like the ATO to effectively manage complaints themselves. 

Assisting the ATO to build the public’s trust in it

When people contact the Ombudsman with a complaint about a government agency, it is fair to say that their trust in that agency has been damaged. 

They are no longer confident the agency can resolve their complaint. So part of our role is to assist agencies build the general public’s trust. 

The independent investigation of complaints motivates governments and government agencies to perform better – to improve the quality of decision making and the delivery of services. 

I believe we have a very good working relationship with the ATO. It has recently made a number of improvements to its complaint handling framework and how it communicates to its clients and, as I said earlier, the result is an impressive decline in complaint numbers. 

Further, the recent ANAO report on the ATO’s complaint handling concluded that its complaint handling framework is well designed and its management arrangements are generally sound. 

The ANAO used our Better Practice Guide to Complaint Handling as the benchmark when reviewing many aspects of the ATO’s complaint management, and made some suggestions about how the ATO could improve the application of these principles.

The report made three recommendations: 

• Improve transparency in reporting performance against the ATO’s timeliness resolution target. 
• Better monitor the quality of complaints handling by implementing an agency-wide quality assurance framework for complaints. 
• Better address the privacy risks associated with named officer complaints. 

Our main focus now with the ATO will be continuing to improve its communication with taxpayers, and to further embed an “early advice” principle to further reduce complaint numbers. 

Such improvements should result in less fly-swatting and a greater sense of trust in tax administration in Australia. 

Conclusion 

What does the future look like?

Last month in a speech to the Tax Institute of Australia, Chris [Jordan] said the ATO was now in a phase of “reinvention”, with the appointment of a new leadership team and a new mission and vision to the year 2020. 

Chris said “We believe we can realise the vision and foster willing participation if we are externally focused and improve the client experience”. 

He also said that one of the ways the ATO will realise that vision is by “working more cooperatively and effectively with the community and stakeholders to identify problems and tax design solutions – by putting ourselves in the shoes of others and working with them”. 

I share that vision, but let me ask this: Why do people need to complain in order to get what they need? 

If we can identify and remove the things that cause people to feel they have to complain to get what they need, we can spend more time in providing the services they want. 

Thank you for your time.