Commissioner of Taxation Annual Report 2007-08

1.1 Commissioner's review

I am pleased to report that in 2007-08 the ATO delivered to the government and the community, both in terms of revenue collections and benefits provided, and in the quality and professionalism of our work. For example, net cash collections of $270.9 billion were $9.8 billion above Budget forecasts. While the better than planned revenue outcome was mainly attributable to stronger than expected economic conditions, it also reflected generally high levels of voluntary compliance. The $20.9 billion increase in revenue collections in 2007-08 from the previous year is the highest ever absolute annual increase in revenue collections.

We also made very substantial payments to taxpayers of almost $75.5 billion. These payments include income tax refunds, GST input tax credits and $9.3 billion in fuel schemes and social benefits.

These positive outcomes took place in a challenging year, given the difficult stage we are at in our transformational change program, the need to implement a range of new legislative measures following the transition to a new government, higher overall workloads and budget constraints including an increased efficiency dividend. For example we coped with some 2 million registrations, over 12 million telephone calls, over 3 million items of correspondence, 14.5 million tax returns, and 18 million activity statements. While our service standard index was lower this year, partly as a result of our major system changes, we were nevertheless able to maintain the positive trend in our independently conducted surveys of tax agent, business and community perceptions.

Thank you

Our independent integrity advisor rated our performance on our integrity indicators as generally positive. Add to this the PricewaterhouseCoopers' finding that we have a strong culture of security consciousness about taxpayer information, and the positive feedback from taxpayers and tax agents about our performance, and one can confidently conclude that our people did well on both the 'what' and the 'how' aspects of our administration in 2007-08. I would like to thank my officers for their efforts.

I would also like to thank the vast majority of people and their agents who have contributed to the high level of voluntary compliance that supports Australia's tax and superannuation systems.

Living our values

Our organisational values are aligned with the Taxpayers' Charter, which marked its 10th anniversary on 4 July 2007. Ten years on, we continue to commit to living the charter in all our dealings with the community, particularly in being fair and professional. Our professionalism surveys continue to show improvements across a range of measures, including respect, courtesy and fairness.

This year we celebrated another anniversary with Tax Help now in its 20th year. We are indebted to the 1,380 volunteers representing 47 ethnic backgrounds who offer help to low-income people in 57 languages.

We also launched our reconciliation action plan in 2007-08.

Importantly, our corporate values are providing the impetus for leadership in the way we think and innovate. We are increasing our emphasis on 'prevention is better than cure', putting out more flags, so to speak, and on providing practical guidance. Examples of this include more early warning in the form of alerts; the openness in publications such as Wealthy and wise, Tax havens and tax administration, and our annual Compliance program; industry benchmarks for cash economy industries; initiatives to provide more certainty such as annual compliance arrangements and streamlined private rulings; and strategies to promote good governance and sound business practices.

Our small business assistance program exemplifies our corporate value of helping those who are trying to do the right thing. The program provided practical assistance to more than 70,000 businesses in 2007-08.

In a similar vein we continued to make it easier for taxpayers through a range of initiatives. We outlined these in our publication Making it easier to comply. The initiatives included e-tax, used by around 1.9 million people to lodge their 2007 tax returns. We also broadened the range of information that can now be pre-filled to returns, contributing to our goal of minimising compliance costs. This goal is also the main driver for our online channels such as the Tax Agent Portal and our website; for our support of standard business reporting; and our stewardship of the Australian Business Register

We also have a stronger focus on effectiveness, and have improved our data matching, analytics and profiling capabilities. Together these initiatives lead to more informed risk management and better differentiation.

Meeting the challenges

In a difficult year we met all of our corporate priorities except for our change program, where we experienced delays. The priorities that we met included:

• work on more than 150 new or proposed legislative measures
• meeting 20 of our 24 service standards, and almost meeting the remaining four service standards, achieving overall an index of 1.34 on a benchmark of 1.0
• continuing to reduce the rate of growth in collectable debt
• delivering on our 2007-08 compliance challenges and compliance program - we met 172 of 180 commitments, including those relating to highly wealthy individuals, large business risks, the cash economy, and international risks such as restructure, merger and acquisition activity, and the misuse of tax havens
• meeting our commitments to states and territories on GST
• progress on our integrated skilling curriculum and the development of a workforce plan.

We continued with a 'community first' approach to debt, seeking to balance the taxpayer's individual circumstances with equity for others.

Against a backdrop of a growing revenue base, we were able to reduce the annual growth rate in our stock of collectable debt from 5.4% in the previous year to 1.0%. There was a real reduction in the base of income tax collectable debt by 5.4% and of superannuation guarantee charge collectable debt by 13.4%. The rate of growth of activity statement collectable debt was nearly halved to 6%. Collectable debt as a percentage of total collections was reduced from 4.31% last year to 4.02%. These are excellent results in a generally tightened economic and financial environment; conditions that will make the task more difficult next year.

Project Wickenby, a joint taskforce of Australian Government agencies investigating suspected tax evasion and revenue fraud, made encouraging progress. Results achieved by the taskforce so far send the message that the Australian Government is prepared to bring the collective power of its agencies to bear on abusive activity, and that such activity carries significant consequences. Recent media coverage suggests that this message is building positive community attitudes to voluntary compliance.

In addition we developed strong collaborative arrangements with overseas revenue authorities to better respond to the challenges of a more global economy.

On the downside, despite some progress and the significant efforts of all involved, we fell behind in the implementation of our largely self-funded change program. We are now developing a comprehensive re-plan. In it we will apply the lessons learnt so far, including the need for an earlier lockdown of design and longer lead times to provide for more robust testing.

The deferral of benefits expected from the change program - and the cost of running parallel systems while we make the transition - has affected both our capacity to do more and our financial position. However, the effect on the community has been mitigated by our use of contingencies.

Our financial performance

Our final full-year operating expenditure budget for 2007-08 was $2,873.9 million and our operating expenditure for 2007-08 totalled $3,000.8 million. The final operating loss was $127.0 million (before income tax) which represents a 4.4% overspend against our operating budget.

Midway through 2007-08 we forecast that we would have some difficulty in operating within our expenditure budget for 2007-08. As a result we sought and gained approval from the Minister for Finance and Deregulation for an operating loss of up to $60 million.

Two key factors influenced our final 2007-08 operating loss above that estimate. Labour costs were higher than budgeted, mainly as a result of the staffing levels we maintained over 2007-08 to manage higher overall workloads across the office and the financial impacts of our change program.

The other factor was a number of asset-related financial adjustments associated with our change program. To ensure compliance with relevant accounting standards, we have made adjustments in our financial statements in 2007-08 which included a reduction in the carrying value of assets on our balance sheet as well as the reclassification of some asset-related expenditure. These adjustments do not affect our cash position.

The year ahead

To support delivery of our Strategic statement 2006-10, and to give the government and the community the very best tax and superannuation administration, our areas of strategic focus for 2008-09 are:

• delivering the government's agenda in terms of our outcome, outputs and effectiveness
• differentiating our strategies to encourage higher levels of voluntary compliance and to reduce compliance costs
• tailoring business processes to make the community's experience timely, easier and more personalised
• promoting and assisting a capable and well-regulated tax profession
• maximising opportunities for productivity improvements to ensure an efficient, effective and adaptive organisation.

Our Corporate plan 2008-09 provides the pathway for delivering on these objectives. It emphasises the development of necessary capabilities and infrastructure, guided always by our corporate values.

We are seeing some growing uncertainties on the horizon. For example, globalisation, demographic and structural shifts, resource issues, increasing demands and a dampening of economic growth all present significant challenges. As well, new measures may flow from the government's review of Australia's tax system which may also test our agility and capability.

Our priorities are to invest, to the extent that we can, in people, technology, and the re-engineering of our business processes. Additional government funding relating to income tax will help us progress along this path. However, it also brings substantial commitments and is subject to a range of underlying assumptions, including the ability to recruit and develop people with relevant skills. We are also refreshing our infrastructure, particularly our managed network services, end-user computing and centralised computing; but we would like to do more so as to be responsive to future challenges and opportunities.

Our compliance program 2008-09 exemplifies an open and accountable administration that seeks community input. The program contains both help and deterrence strategies to manage risks, consistent with our Compliance model

We are also updating the public commitments outlined in our 'easier, cheaper and more personalised' program to take into account delays in the change program. We apologise for the inconvenience this may cause as we build for the future. The challenge for us will be to increase productivity in order to fund the wide canvas of our administration. At the same time we must leverage off our new systems and new thinking in ways that optimise the value we add to our nation.

What is most pleasing

It is pleasing that the recent Joint Committee of Public Accounts and Audit Report 410 on tax administration endorsed our Compliance model and risk-based approach to compliance. The Committee found that the ATO has been reasonably successful in balancing fairness and efficiency. It noted improved performance and considered that the ATO is responsive to the challenges of its important but difficult work.

The Committee noted my belief that the most important task for the ATO is to maintain and enhance the generally high levels of voluntary compliance we enjoy in this country. This positive culture of compliance is dependent on community attitudes, including perceptions about the fairness and integrity of the laws we administer; on a capable tax profession; and on trust and confidence in our administration.

So it is most pleasing that 80% of those in our latest community survey rated the ATO as doing a good job.

Michael D'Ascenzo
Commissioner of Taxation

Snapshot: Awards

In 2007-08, the ATO received a number of awards and recognition, including:

• SAI Global, Australian Business Excellence Award for governance, recognising the ATO integrity framework
• Australasian legal business law awards, government in house legal team of the year
• the Corruption Prevention Network, Commonwealth public sector category, first prize for the tools and techniques we use to detect and prevent corruption
• the Australasian Reporting Awards, silver award for distinguished achievement in reporting
• the Safety, Rehabilitation and Compensation Commission Safety Awards, highly commended for best solution to an identified workplace health and safety issue category, for our psychological wellbeing initiative
• the Hitwise Australian Online Performance Awards 2007, business and finance category, most popular website in accountancy (Tax Agents Portal) and business information (www.ato.gov.au)
• Avant Card of the Month, June 2008, winner for our set of four postcards raising community awareness of lost superannuation
• the 2008 Contact Center World (Asia Pacific) Awards for best technology and innovation, finalist for an internal solution
• Australian Teleservices Association, Queensland winner for client contact centre
• Helpdesk Association of Australasia Award recognising the IT service desk.

In addition, a number of individual tax officers received awards:

• Chief internal auditor Bruce Turner received the 2008 Bob McDonald Award from The Institute of Internal Auditors - Australia
• Amy Leiper received the Commissioner of Taxation Prize for best performance, Bachelor of Taxation, Australian School of Taxation, University of New South Wales
• Kathy McDonald, Australian Teleservices Association, Team Leader (NSW)
• Lucy Barratt, Australian Teleservices Association, Teleprofessional (SA)
• Gai Tumeth, Australian Teleservices Association, Teleprofessional (QLD)
• Mereoni Vuki, Australian Teleservices Association, Teleprofessional (VIC).

Sections within Part 1 - Overview

• 1.1 Commissioner's review
• 1.2 ATO overview