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COMMONWEALTH OF AUSTRALIA

Official Committee Hansard

SENATEECONOMICS LEGISLATION COMMITTEE

Consideration of Additional Estimates

FRIDAY, 22 FEBRUARY 2002

CANBERRA

BY AUTHORITY OF THE SENATE

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Friday, 22 February 2002 SENATE—Legislation E 333

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SENATE

ECONOMICS LEGISLATION COMMITTEE

Friday, 22 February 2002

Members: Senators Brandis, Chapman, Collins, Murray, Schacht and Watson

Senators in attendance: Senators Brandis, Collins, Conroy, Lundy, Mason, Sherry andWatson

Committee met at 9.06 a.m.TREASURY PORTFOLIO

Consideration resumed from 21 February.

In AttendanceSenator Ian Campbell, Parliamentary Secretary to the Treasurer

Senator Coonan, Minister for Revenue and Assistant Treasurer

Department of the TreasuryDr Martin Parkinson, Executive Director, Economic GroupMr Greg Smith, Executive Director, Budget GroupMr John Jepsen, Executive Director, Markets GroupMr Nigel Ray, General Manager, Financial Markets DivisionMs Sue Vroombout, Manager, Product Disclosure Unit

Financial Markets DivisionMr Chris Legg, General manager, International Economy DivisionMr Steve Morling, Manager, International Economics Conditions & Outlook Unit,

International Economy DivisionMs Maryanne Mrakovcic, General Manager, International Finance DivisionMr Blair Comley, General Manager, Macroeconomic Policy DivisionDr Paul O’Mara, General Manager, Domestic Economy DivisionMr Colin Johnson, Specialist Adviser, Domestic Economy DivisionMr Nick Stoney, Manager, Forecasting UnitMs Lynne Curran, General Manager, Financial Institutions DivisionMr Godwin Grech, Special Adviser, Financial Institutions DivisionMs Amanda Goodban, Manager, General Insurance Unit, Financial Institutions DivisionMs Karen Whitham, Manager, Superannuation and Life Insurance Unit, Financial

Institutions DivisionMs Christine Archer, Manager, Banking and Prudential Unit, Financial Institutions

DivisionMr Mike Kooymans, Manager, Accounting Policy and Information Economy Unit,

Corporate Governance and Accounting Policy DivisionMr Phil Gallagher, Manager Specialist, Retirement and Income Modelling Unit, Tax

Analysis DivisionMr Gary HobournMr Rob Heferen, General Manager, Corporate Governance and Accounting Policy Division

E 334 SENATE—Legislation Friday, 22 February 2002

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Ms Jan Harris, General Manager, Consumer Affairs DivisionMr Bill Keown, HIH Royal Commission Task ForceMs Melissa Cranfield, HIH Royal Commission Task ForceMs Bernadette Welch, Manager, HIH Assistance Scheme ProjectMr Richard Murray, Chief Adviser, Corporate StrategyDr Ken Henry, Secretary to the Treasury

Domestic Economy DivisionDr Jim Hagan, General Manager, Foreign Investment Policy DivisionDr Paul Grimes, General Manager, Budget Policy DivisionMr Bruce Paine, General Manager, Commonwealth State Relations DivisionMr David Tune, General Manager, Business Income and Industry Policy DivisionMr Roger Brake, General Manager, Retirement & Personal Income DivisionMr Ron Foster, General Manager, Indirect Tax DivisionMr David Martine, General Manager, Business Entities & International Tax DivisionMr John Lonsdale, General Manager, Tax Analysis DivisionMr Graeme Davis, General Manager, Strategy & Coordination UnitMr Murray Edwards, General Manager, Board of TaxationMr Peter Martin, Australian Government ActuaryMr Steve French, General Manager, HIH Royal Commission Task Force

Australian Taxation OfficeMr Michael Carmody, CommissionerMs Jennie Granger, Deputy Commissioner, Individuals non-businessMs Donna Moody, Chief Finance OfficerMs Erin Holland, Deputy Commissioner, Client Account ManagementMr Neil Mann, Deputy Commissioner – Small BusinessMr Kevin Fitzpatrick, First Assistant Commissioner, Aggressive Tax PlanningMr Paul Duffus, Assistant Deputy Commissioner, GSTMr John Growder, First Assistant Commissioner, ATO TechnologyMr Michael Monaghan, Deputy Commissioner, ATO RelationsMe Bernadette Ryan, Assistant Commissioner, ATO RelationsMr Murray Crowe, Assistant Commissioner, Client & Account ManagementMr Marcus Markovic, Assistant CommissionerMr Rick Matthews, Deputy Commissioner, GSTMr Leo Bator, Deputy Commissioner, Superannuation

Australian Taxation OfficeCHAIR—I welcome to the table the Commissioner of Taxation, the minister and other

officers of the Australian Taxation Office for the resumption of consideration of theAustralian Taxation Office additional budget estimates. I remind witnesses to state their nameand the capacity in which they appear in response to the first question directed to them and Iremind them that these proceedings are subject to parliamentary privilege.

Senator SHERRY—Just before I get under way with the questions, I have just received anupdate from the committee secretariat last night on their response to answers to questions thatwere still outstanding. I just note that there are still 10 questions outstanding from Treasury


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and the tax office and two from APRA. Were there any further advances being made ontracking down the answers to those outstanding questions?

Mr Carmody—I am not across the detail, but I can assure you that my people have beenwell alerted to the commitments that I have given, so I will follow up on those.

Senator SHERRY—I just noted 11 of the 12 outstanding questions are in your area, MrCarmody.

Mr Carmody—Okay. I will have that followed up.Senator SHERRY—I have some questions about the process of appointments to the

Superannuation Complaints Tribunal. It is not an area I am going to spend a lot of time on,but is there anyone here who can provide me with some detail on the process?

Mr G. Smith—Superannuation, as you know, is both a financial product and a taxproduct—

Senator SHERRY—Yes.Mr G. Smith—and that is an area where it is a financial product and that would be a

markets program, unfortunately. So we do not have that information under program 2.

Senator SHERRY—Is it possible to get someone here later in the morning?Mr G. Smith—I will make inquiries.Senator SHERRY—I wanted to go to some issues relating to costings and the RIM task

force.

Mr G. Smith—We do have that.Senator SHERRY—Yes. I think we did let you know about the possibility of questions in

this area.

Mr G. Smith—Could I just also mention that the RIM task force does not exist as such as atask force. We have a retirement income modelling unit within Treasury, just for the record.

Senator SHERRY—Thank you. We actually started to touch on this area earlier in theweek when we were discussing the assumptions made for those non-residents under particularvisa classes who transfer moneys out when they depart Australia—I have actually seen thedraft legislation—and the tax that will apply when they voluntarily transfer their money out. Ihave a couple of questions in this area that you may be able to help me with. What is theassumption that is made about the number of people who would voluntarily transfer moneysout when they leave Australia in order to reach the revenue figures?

Mr Gallagher—My recollection—I have not found the page yet—is that we assumed an80 per cent take-up rate of people leaving the country who would wish to take their moneyout of the country were here as temporary residents.

Senator SHERRY—With the assumption of an 80 per cent take-up rate, a take-up rate ofwhat number of people? Thinking back to when the government actually prevented this fromhappening three or fours years ago, we had some evidence about various visa classes, andthere were some hundreds of thousands of people in the visa classes. I am wondering whatparticular visa classes we are talking about in terms of the total number, of which 80 per centis a part?

Mr Gallagher—We looked at a categorisation of 47 types of visas which were essentiallyfor different occupational categorisations and we looked at costings—48 categories I have in


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my notes. I do not have the exact numbers with me, but I can obtain those and take that onnotice.

Senator SHERRY—Yes. Was it the 80 per cent of all the people in the 48 visa types?Mr Gallagher—No, because the costing was done with an adjustment for coverage.

Clearly, not all people who come in are employees and will be subject to the superannuationguarantee, so we attempted to adjust each of the occupational classes according to what thelikelihood was that they would be self-employed or employees.

Senator SHERRY—So an assumption was made in terms of employees or self-employed?Mr Gallagher—Yes.Senator SHERRY—So you would have to make an assumption about those who would

also voluntarily make superannuation contributions if they are self-employed?

Mr Gallagher—I think we, effectively, made the assumption that if they were temporaryresidents they would not voluntarily make a contribution—that contribution was going to bepreserved.

Senator SHERRY—There is a figure in the draft bill—a couple of hundred thousand; Icannot remember the exact figure. Is that the figure across the 48 types of visas?

Mr Gallagher—It would be of that order of magnitude, yes. So we looked at the numberof people who would leave the country in any given year and we built up a timing model ofdepartures based on the length of stay.

Senator SHERRY—Could you take that on notice and give me the information about thenumbers in each type of visa and the types of visas that the bill will cover. Do you know withthe types of visas you considered whether the visas for what would be loosely termedbackpackers—

Mr Gallagher—Certainly with student visas, and others, we assumed a lower rate ofcoverage than we might for someone who was clearly here in specific occupationalcategorisation.

Senator SHERRY—In your use of the term ‘coverage’, do you mean in terms of paymentof SG, for example, on their behalf—I doubt if any of them make voluntary contributions? Doyou mean your assumption went to the length of time they would spend working? Did youmake assumptions about that during their time in Australia?

Mr Gallagher—That was part of our coverage assumption. It was both in terms of whetherthey would be subject to the SG and the length of the year that they would be subject to theSG for. Of course we did not have any hard information on this, but I felt that I needed toadjust the costing to get a more realistic profile.

Senator SHERRY—What about income levels in each area? Did you make assumptionsabout income levels?

Mr Gallagher—I attempted to adjust income levels. Given that I have 25 years experienceworking with income data from the Australian Bureau of Statistics income surveys, I took astab at what a typical income would be.

Senator SHERRY—In taking that stab at the typical income level, what conclusions didyou come to?

Mr Gallagher—It varied by the visa class—there are 48 answers to that question.


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Senator SHERRY—Reading the bill, it seems to me that it assumes that everyone is in thehighest income tax bracket, in terms of the concessionality of superannuation.

Mr Gallagher—I was not involved in the drafting of the bill, and that would not haveaffected an assessment of the level of superannuation contributions.

Senator SHERRY—It would not have affected the contributions, but it does, in terms ofthe effectiveness of the tax concessions, doesn’t it?

Mr Gallagher—It will certainly influence that. The costing did not touch on those issues.Senator SHERRY—I understand that you are concerned about the behavioural

assumptions and you would not be involved in decision making determining the effective taxrate that would apply when the money is taken out—that is not your role, is it?

Mr Gallagher—No.Senator SHERRY—Do you have any information you can give me on the assumptions

you made about income levels?

Mr Gallagher—It varied according to the occupation. Obviously, for someone who is hereon a medical visa or something which indicates a high professional categorisation, I wouldhave made an assumption about a significantly higher income.

Senator SHERRY—But certainly not everyone would have been earning more than$85,000 per year, would they?

Mr Gallagher—Certainly not, no.Senator SHERRY—I use the figure $85,000 because that is the rate at which the

surcharge cuts in, which is where the highest level of tax is in terms of superannuation. Doyou have any idea how many people or what proportion of people would have been earningless than $85,000 in your assumptions?

Mr Gallagher—The assumptions will vary. As I said, with 48 classes where I haveassumed 48 different levels of average income for the purposes of the costing, it is difficult tosummarise.

Senator SHERRY—I just looked at the EM, and in 1.9 it says that there are approximately275,000 individuals holding temporary resident visas—I assume that they are across all 48visa classes?

Mr Gallagher—Yes. That would be the right order of magnitude, but we cut it down to asmaller number than that for assessing superannuation—probably around 200,000.

Senator SHERRY—The EM gives the impression that we are dealing with a figure of275,000, not 200,000.

Mr Gallagher—I would have to look at my spreadsheet to get the exact numbers.Senator SHERRY—If you could. We have received a copy of the legislation and the EM,

and this is the sort of information we need when we consider our approach to the legislation. Iwould prefer not to have to refer it off to a committee for another hearing on this sort ofinformation, which is what we need, if we can avoid it. In regard to the issue of splittingsuperannuation contributions between couples, as announced by the government—what werethe behavioural assumptions that would occur in that area?

Mr Gallagher—We looked at the type of people who would gain. It was initially modelledas a policy issue using a hypothetical model—RIM hypo—so we could see which groups in


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the community we gained. Then we got a number. Because it was a prospective contribution,my recollection—and it will be stated in our charter of budget honesty costing—is that weapplied a take-up rate to that. The take-up rate uses a 20 per cent take-up assumption and thecharter of budget honesty costing notes that the take-up assumption is critical to the costing.

Senator SHERRY—That is right. You say the ‘type’ of people. What type of peoplewould take this up?

Mr Gallagher—You would think that if you were going to go to the effort of openinganother superannuation account you would probably be looking at people who felt that theywere going to exceed their post-1983 ETP taxation threshold and certainly people who wouldexceed their RBL.

Senator SHERRY—The current RBL is $1.5 million, approximately, isn’t it, combinedlump sum annuity?

Mr Gallagher—Yes. It might be higher than that.Senator SHERRY—I am not sure of the exact figure but it is around there somewhere.Mr Gallagher—It is a very high number. In actual fact the choice of number would have

been largely driven by the post-1983 threshold.

Senator SHERRY—You are right. It is a very high number. People overwhelmingly in thiscategory would have to be high income, surely.

Mr Gallagher—The analysis is based on high income married to lower income. It was twohigh incomes in a couple—equally high incomes. There is no particular advantage fromsplitting.

Senator SHERRY—Yes, but you would have to have a very high income to get anywhereclose to $1.5 million in RBL.

Mr Gallagher—Yes, but the costing is not driven by the RBL; it is driven by the post-1983threshold, which is in excess of $100,000.

Senator SHERRY—So in excess of $100,000. The assumption on the numbers of peoplewho would do this?

Mr Gallagher—The assumption on the rate? We looked at the ABS publication ‘Superan-nuation coverage and financial characteristics’, and that was the basis of us choosing a 20 percent take-up rate. One of the things we found in looking at that publication is that it is oftenthe case that if one partner has superannuation the other partner has superannuation as well.People who are employed tend to be married to each other.

Senator SHERRY—One of the interesting issues I find in the debate around this area isyou could effectively do the same thing on divorce, given the divorce legislation we passed.

Mr Gallagher—You could have assumed it on divorce, yes.Senator SHERRY—Effectively you can do the same thing on divorce. One of the ironies

of the legislation that was passed last year is that it does actually pay you, if you have anexcessive RBL, to get divorced—financially, anyway.

Mr Gallagher—In my acquaintance with people who have been through divorce it has notbeen particularly pleasant.

Senator COONAN—I think you need to take a holistic view of that.


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Senator SHERRY—I would take a holistic view, but it struck me that there is an incentiveto get divorced in what we approved last year—but that is not an area I wanted to go into, andI should not stray. What is the raw number of people in the take-up over the next three years?

Mr Gallagher—I do not have that document with me. I could take it on notice. It isrelatively small. The costings are relatively low and the costs arise because we assume thatpeople entering into the arrangement will effectively bear two sets of fees and that woulddecrease—

Senator SHERRY—The attractiveness of it.Mr Gallagher—It would decrease our contributions tax et cetera if they are taking two sets

of fees.

Senator SHERRY—When you said it is quite small, did you mean $10,000 or $100,000?Mr Gallagher—I would expect it to be in the tens of thousands.Senator SHERRY—Could you take that on notice, please. With respect to the super

contributions for children proposal, what type of people did you assume would take up that?

Mr Gallagher—We thought that people who had significant capital income may wish toavail themselves of this. Although the policy was about grandparents or parentscontributing—or it could be other people—we cannot get a handle on the relationshipbetween children and grandparents from available income survey data, so we got a handle onwhat the parents’ income was. That may reflect the assets of the grandparents as well. One ofthe things we did was to set an arbitrary cut-off where we looked at families with a capitalincome of $500 or more per annum. We did that because with a five per cent rate of return, ifthey had an investment income of that size, that would imply $10,000 of capital assets—sothat is a family that is already investing outside of superannuation and therefore they may beinterested in investing inside superannuation.

Senator SHERRY—And that capital income obviously would not include the familyhome.

Mr Gallagher—No. It is just financial return, so we are looking at income from interestand dividends in particular.

Senator SHERRY—What conclusions can be drawn about the level of income of thosepeople? Or what assumptions were made in that area?

Mr Gallagher—I do not know that we have a particular assumption in terms of level ofincome in this costing. We did not further restrict it that way.

Senator SHERRY—But higher income—in terms of interest et cetera?Mr Gallagher—We would imagine higher income. What you generally find is that people

with high levels of capital income are generally people on higher incomes, except when theyare retired—but because we have done it for families with children, they are not retired.

Senator SHERRY—If you take people on average weekly earnings who are paying off amortgage and contributing to super for themselves in an attempt to boost their retirementincomes, it is a reasonable assumption that they are not going to have a lot left over, if any, tocontribute for their kids, are they?

Mr Gallagher—I certainly know a number of people in that situation, Senator.


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Senator SHERRY—So do I. Thank you for that. What were the assumptions made aboutthe low income earners co-contribution? That would cover people who currently contribute,wouldn’t it?

Mr Gallagher—Yes. The costings assumption here was that the payment was areplacement for the low income rebate; the income tests had been redefined—such that it wasphased out between $20,000 and $32,500. We looked at the people who had existing rebatesand, in our case, we looked at the existing member contribution rebate. We used the 1998-99dataset, which had savings rebate data, because that would give us other information onpersonal contributions.

Senator SHERRY—The savings rebate no longer exists, does it? That is the savings re-bate we got in 1997.

Mr Gallagher—It was introduced for one year.Senator SHERRY—I remember it well. I doubt whether many others would, but I do

remember that one well. What were the numbers, approximately?

Mr Gallagher—We are looking at around 200,000 people.Senator SHERRY—Were you able to make any assumptions about the level of

contributions?

Mr Gallagher—We could infer the level of contributions in many cases from the rebatesreceived. In fact, in the 1998-99 data there is a variable which is actually the level of membercontributions used for the savings rebate.

Senator SHERRY—I think there is some data on this in the ABS stats that you referred toearlier, isn’t there?

Mr Gallagher—There is a small amount of data on this in the new survey of employmentarrangements and superannuation. Unfortunately, the table which varies by income also mixesup employees and the self-employed, and you are unable to isolate the relevant populationfrom that particular table. The data that we had from ABS that would enable us to do this wasold, unfortunately. The last time we had it from the ABS was, I think, 1993. In the 1995superannuation survey the ABS asked the member contributions questions for people over theage of 45, which made the data unsuitable for costings purposes because it was restricted inits population.

Senator SHERRY—That figure of 200,000—so that I am clear on this—is the take-up inthe first year, the second year or the third year?

Mr Gallagher—That would be a first year number. There is a five per cent growthassumption in the costing. There is a very strong incentive, so there is a growth assumption.

Senator SHERRY—If people at that income level have spare income to do it. Some areobviously doing it at the moment.

Mr Gallagher—Yes, some are doing it at the moment.Senator SHERRY—What is the number of people who are doing it at the present time?Mr Gallagher—The number we got from the Australian Taxation Office was of the order

of 200,000 claiming the existing rebate at the moment. We had to go by what data we had inthe tax data as the basis for costing it.


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Senator SHERRY—So you have used the current number—a five per cent increase innumbers—but presumably there would be an increase in level of contribution as well,wouldn’t there?

Mr Gallagher—I do not think that we made specific assumptions about how thepopulation and the average contribution would vary.

Senator SHERRY—What about compulsory employee contribution? Is that includedwithin this—

Mr Gallagher—In the sense that it is required by an employment arrangement, such as aperson who has to have an after-tax contribution. There will be a number of people who are inthat situation; so obviously when they are in the correct income range they will be reflected inthe data that we have.

Senator SHERRY—Are they included in the costing of the commitment?Mr Gallagher—Yes.Senator SHERRY—What assumptions were made regarding the payment of the first child

tax refund to be contributed to superannuation?

Mr Gallagher—For this costing we would have preferred to have had longitudinal data onincomes before and after childbirth, because that is the design of the policy. Unfortunately,such longitudinal data does not exist, so we looked at populations which were likely to havechildren, and then at those that had a child under five and under three. The first population welooked at was women under 35 with no children. We then looked at the income distribution ofwomen with one child under five. Because it can be paid for subsequent children, we lookedat the population of women with two children, at least one of whom was under five, to try toget an idea of the relativity in the income distributions. Then we tried to effectively say thatpeople from this part of the income distribution could move to about four different areas ofthe other cumulative income distributions, for the purpose of getting numbers on the way inwhich incomes varied after childbirth. We used the ABS publication Births, Australia 1999 inorder to get a total number of confinements. It was 245,000, of which 117,000 were firstconfinements. So we had what was at the time the most recent publication. In order toestimate the total number of populations we used the best data that we could in order to get ahandle on the income distributions involved.

Senator SHERRY—What were your conclusions about numbers?Mr Gallagher—We concluded—because we were constrained by the number of births—

that there would be 117,000 births. We kept that reasonably flat.

Senator SHERRY—I can understand that you were restrained by the number of births.But it is only voluntary, so not all are going to contribute.

Mr Gallagher—I am sorry. You are not talking about the first child tax refund; you aretalking about the first child tax refund into super.

Senator SHERRY—Yes, that is right. I am being super specific.Mr Gallagher—Greg had told me that the other one had been taken on notice.Senator SHERRY—Not birth specific, super contributions specific.Mr Gallagher—I will change my costings. For that costing we again looked at the number

of families with one child under one who had capital incomes $500 or more per annum—onthe basis that that implied $10,000 in capital assets with a rate of five per cent return and they


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were therefore in a financial position to make a voluntary contribution. We said—the costingappears in the Charter of Budget Honesty—that around 12 per cent of families with a childunder one had that level of capital income, and we used that as a basis for the population.

Senator SHERRY—So the figure is 12 per cent of 117,000?Mr Gallagher—We assumed that, although there were 12 per cent in that situation, only

half would do it. So we actually used six per cent.

Senator SHERRY—Thank you. Contributions beyond the age of 70—what numbers arewe looking at there?

Mr Gallagher—Again, in describing the costing I have not included the numbers. I wouldhave to take that on notice.

Senator SHERRY—Is the document you are reading from the document under the Charterof Budget Honesty you were referring to earlier?

Mr Gallagher—Yes. It is on the Treasury web site, so it is publicly available.Senator SHERRY—That will be a significant help, but there are some numbers in there

that are not included, I assume, given what you have said so far?

Mr Gallagher—You have been asking for numbers of people affected.Senator SHERRY—Yes. Do you have any information on the income levels of those

people who are working beyond the age of 70?

Mr Gallagher—We do have information on that but I do not have it here.Senator SHERRY—Are they high income people? They are obviously in good health. Do

you have any information on their income levels?

Mr Gallagher—The incomes vary. They are not necessarily high income people.Senator SHERRY—The continuing contributions beyond 70—that is, both contributions

to SG and voluntary contributions?

Mr Gallagher—For the costings, we looked at the people aged 65 to 69 and the rate atwhich they made undeducted contributions, by band of income. Then we applied that take-upin a population that would be beyond age pension age—up to the 71 to 75 age group. Therewere far fewer people in the 71 to 75 group who were actually working and that translatedinto a level of contribution.

Senator SHERRY—You assumed a much lower proportion of those who are workingbetween 65 and 70? There would have to be because a lot less people are living.

Mr Gallagher—Yes, we had data on that from the tax data we have access to, so weactually knew the age of people and whether they had salary and wage income.

Senator SHERRY—The reduction in the tax rate on excessive ETPs—what assumptionsdid you make there?

Mr Gallagher—That was actually costed by the Australian Taxation Office. Those withexcessive ETPs are a small population.

Senator SHERRY—Do you have a number there?Mr Gallagher—I do not think so.Senator SHERRY—Maybe Mr Carmody could help me.


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Mr Carmody—No, I am sorry, Senator. That level of detail I do not have in my mind and Ido not think I have anyone here who would. But we can take it on notice.

Senator SHERRY—These people would have to have an overwhelmingly high income,wouldn’t they, to have an excessive ETP?

Mr Carmody—You would expect that they would have a high income, but I do not havethe specific details here.

Senator SHERRY—Could you get me some data about that income?Mr Carmody—Certainly.Senator SHERRY—That just about concludes my questions. We know who is impacted

by the phased reduction in the super surcharge, because that is compulsory. It is very clearwho pays for that. I have not asked about the higher deduction limit for self-employed. Whatwere the assumptions there?

Mr Gallagher—That is another tax office costing—although I have some details here butnot many. It would appear to have been costed on the basis of the existing population ofpeople who qualify for deductions.

Senator SHERRY—No assumption was made about an increase in the number who wouldmake contributions?

Mr Gallagher—No. The policy is, effectively, an indexation of the 3,000 limit, which hasnot been indexed forward so, as incomes have been moving, it would probably be of the sameorder of magnitude.

Senator SHERRY—Mr Bator, do you have some information on this?Mr Bator—We have assumed no change in the population.Senator SHERRY—Because of that, it is effectively an indexation provision—I did not

realise that. Do you have a figure for the current usage of this provision?

Mr Gallagher—It varies, depending on whether you are counting what people do in agiven year. The overall superannuation coverage rate of the self-employed is about 50 percent. However, of the self-employed, 25 to 30 per cent contribute in any given year. So itvaries from year to year and it depends what view of coverage you take.

Senator SHERRY—Does that figure of 50 per cent include people who may have beenemployed and have a saving in a superannuation account that is on hold?

Mr Gallagher—That is possible, but what the Australian Bureau of Statistics data, or thatcomment, is based on does not look at previous history.

Senator SHERRY—So, of the 50 per cent, 25 per cent are actively contributing in any oneyear?

Mr Gallagher—Yes, that is my recollection. It is around 25 per cent to 30 per cent. Itvaries from year to year, of course.

Senator SHERRY—Mr Bator might be able to help us here.Mr Bator—No, I do not actually have a number on that here.Senator SHERRY—Do you have anything further to add, Mr Gallagher?Mr Gallagher—No.


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Senator SHERRY—Would you take that question on notice, and also provide any dataavailable on the income levels of people who contribute in this area? What assumptions, ifany, were made on behavioural change in relation to the quarterly superannuation guaranteepayment?

Mr Gallagher—There were assumptions. Again, because the tax office is far closer to theadministration than we are in Treasury, costings were done by the tax office.

Senator SHERRY—Mr Bator, can you help us with that?Mr Bator—We did quite a comprehensive survey about 18 months or two years ago which

found about 85 per cent of employers currently paying quarterly. We spoke about that theother day.

Senator SHERRY—Yes, we discussed that.Mr Bator—Obviously, there is that factor of about 15-odd per cent of employers who

would have to change behaviour in some way to fall within the requirements.

Senator SHERRY—You would expect that, if it were quarterly, you would haveemployers paying earlier. Given the concessionality of superannuation, there would be a slightreduction in revenue?

Mr Bator—There would be a reduction.Senator SHERRY—That is a reasonable assumption, isn’t it?Mr Bator—It sounds reasonable.Senator SHERRY—The figures reflect that. Thank you. I would appreciate the 30-day

requirement for responses being met.

Mr Gallagher—Noted, Senator.Senator SHERRY—Mr Smith, do you have any update on that earlier request I made.Mr G. Smith—Which one was that, Senator?Senator SHERRY—The one about the appointments to the Superannuation Complaints

Tribunal.

Mr G. Smith—There is no-one here at the moment. There is someone coming, though.Senator SHERRY—I have plenty of other questions to go on to in the meantime. What is

the estimated cost to revenue of GST avoidance and evasion?

Mr Matthews—Asked in that way, effectively you are asking a question about what is atax gap. The only way I would be able to answer it is to give you some indication of theresults of our compliance activities, but one should not generalise from those because theyare, by and large, selected cases. With respect to GST or other taxes, we do not generallyattempt to make estimates of the tax gap. We have discussed that in respect of other taxes herebefore. It is a problematic kind of analysis.

Senator SHERRY—You were going to give us some examples.Mr Matthews—I was going to suggest that I could at least give you some of the results of

our audit activity. For the first six months of this year, for example, the net results of our auditactivities amounted to approximately $117 million. But, as I said, those estimates are based onselected cases and therefore should not be generalised out as an indicator of a broad level ofcompliance or non-compliance in the community.


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Senator SHERRY—I am not clear. What does the $117 million represent?Mr Matthews—Those are the direct adjustments made as a result of our compliance

verification activities, checks of business activity statements and other taxpayer affairs in thefirst six months of this year.

Senator SHERRY—I did not quite hear you—the number of what?Mr Matthews—It is the direct net result of adjustments made to taxpayers’ reports of their

GST liabilities on business activity statements as a result of verification checks or othercompliance activities that we have undertaken. But, as I said, those are by and large on aselected basis where we have reason to believe that there is a compliance issue and thereforeit is not really a basis for extrapolating back to your original question.

Senator SHERRY—There could be more.Mr Matthews—For it to be more, I suggest that our basis for case selection would result in

less than the general level of compliance, and I do not believe that to be the case. We havequite sophisticated processes to select and identify cases where there appears to be somethingwrong. So my expectation would be that our results would indicate a higher level than youwould otherwise generalise to be the case.

Senator SHERRY—Are there any particular industry sectors that stand out or that you arefocusing on?

Mr Matthews—There are some. You cannot really disconnect the GST issues from thebroader issues of the cash economy which have been discussed many times in these forums.There are direct overlaps and connections between our compliance approaches to GST and thecash economy generally and other taxes. There are industries where the problems seem to begreater. They include areas like building and construction and the computer industries. Theyvary from time to time because in all cases where we find a problem we try to address it on abroad industry front as well as a case-by-case front and draw these matters to the attention oftax practitioners and the industry itself.

Senator SHERRY—Are there any others besides building and construction?Mr Matthews—Yes. Some of the issues that we identify are not necessarily industry

specific, they are perhaps issue specific within GST. One in particular that we find is the saleof business assets. There does seem to be a pretty unacceptable incidence of businesses whichhave sold an asset but failed to charge GST on it, so we are addressing that one in the waysthat I have outlined. There are examples of those. Another issue would be taking into accountthe relative proportions of private or business use of certain business inputs which businessesare required to account for. So there are issue based and industry based issues.

Senator SHERRY—You mentioned a couple of issues. What about industries? You men-tioned building and construction. Are there any others where problems can be identified at agreater level than in other industry sectors?

Mr Matthews—Again, others we have looked at in particular include smash repairers,road freight and some clothing and textile areas.

Senator SHERRY—What about hospitality?Mr Matthews—Hospitality is an area that we would look at as part of the cash economy,

but it would not be on my list of the ones that are in particular focus at the moment, althoughthey are obviously part of the scene and part of our cash economy and GST complianceapproaches.


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Senator SHERRY—What is on your list at the moment? You have mentionedconstruction; are there any others?

Mr Matthews—I have outlined the main ones there.Senator SHERRY—What you have outlined is on the list?Mr Matthews—Yes. I should add that, while I have highlighted those, we do have quite a

strong industry focus, but that does not mean to say that we are not looking right across thespectrum.

Senator SHERRY—Can you outline—you have done this partly—the prioritising by theATO in terms of its approach to GST avoidance and evasion in various industries and sectorsof the economy?

Mr Matthews—How we will prioritise?Senator SHERRY—Yes. How are you prioritising?Mr Matthews—There are a number of ways. As GST is a transaction based tax, we do

draw heavily on the need to try to identify issues very early in the piece, so a large part of ouractivity is drawn from reports of business activity statements and built into our processingsystems. A significant level of our activity is focused on refunds and where there is anyindication that those refund claims may be overstated. So there is that system based part. Wealso have a strategic risk management area which does what I would call statistically soundresearch projects based on particular areas that have been identified as risk potential, so thatwe can actually get a size and scale of the risks in perhaps a particular industry or issue. Wemight go out and do some pilot sample of verification checks or even audits to establish thescale of risks that we have identified in a particular sector.

So it is a combination of strategies, but a large part of our resource—and thoseadjustments—come from the former, which is actually checking refunds. We are still movingthrough that phase of verification checks and are yet really to move into what I would call thefull in-depth audit phase. That is starting now, as income tax returns that cover the first year ofGST are coming in. Most of our activity is still focused on the system based verificationchecks, refund checks and so on. We are still also doing a significant number of advisoryvisits on request.

Senator SHERRY—What sorts of resources, both in numbers of people and dollars, areinvolved in such an assessment?

Mr Matthews—In which part?Senator SHERRY—In the area of GST avoidance—by your outline and previous

discussions we have had, it would cross a number of areas.

Mr Matthews—The total number of resources devoted to GST compliance work? Wewould tend to look at this in a number of sectors. The main general compliance area has justover 2,000 staff, a proportion of which would be on the analysis and correction side. We alsohave a large enterprise area which is much smaller. We are building that up at the momenttowards 300.

Senator SHERRY—What is the current staff level in the enterprise area?Mr Matthews—On the figures that I have, I will combine under the heading of

compliance both those people who are engaged in providing advice—which we believe is part


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of the whole compliance activity—and those involved in more direct verification activities.The total of those two at present stands at around 760. I think that is correct.

Senator SHERRY—What is the cost of that 760?Mr Matthews—The cost of that area in particular?Senator SHERRY—Yes.Mr Matthews—I am just extrapolating from some six-monthly figures. It would be in the

region of $70 million.

Senator SHERRY—Is the ATO contacting ABN holders directly who have not lodged aBAS to ask them why they have not lodged a BAS?

Mr Carmody—Yes, we are currently undertaking a program of writing to all taxpayerswho, according to our records, we expected to lodge an activity statement where that has notoccurred.

Senator SHERRY—What are the numbers involved there, Mr Carmody?Mr Carmody—I do not know that I have the precise numbers, but we are going right back

through our records so it covers a number of quarters. I would have to—

Senator SHERRY—Are you dealing with tens of thousands or hundreds of thousands ofpeople?

Mr Carmody—No. It is much more than tens of thousands because we have issued over20 million activity statements. We are going back towards those who have not lodged.

Senator SHERRY—Twenty million activity statements?Mr Carmody—I am sorry. I am talking about activity statements. That includes instalment

activity statements and business activity statements.

Senator SHERRY—Okay.Mr Carmody—Remember, we have monthly remitters and quarterly remitters. I think we

have issued over 20 million. The difficulty is that we find there is a large churn, so a lot ofthose people will have gone out of business. While we are writing to a number of people, weexpect that a fair number of those will not have any particular responsibilities. I havesignalled that in the new financial year we are moving to a new phase of the bedding in of thesystem. While we have been very selective in late lodgment penalties during the transitionalperiod, we are expecting that the late lodgment penalties will apply on a broader basis afterthe second anniversary of the new tax system.

Senator SHERRY—It is a side issue, but just thinking about it in terms of ABN holders,do you cross reference to the births and deaths registers to automatically remove people whodie?

Mr Carmody—That is more likely to be on the tax file number. That has not been doneautomatically, but there is an exercise at the moment looking at our tax file number databaseto examine in what ways we can keep it more up to date. Typically, people do not write to usif they do not require a file number into the future. If they die, they particularly typically donot write to us.

Senator SHERRY—Just on that issue, though, I am a bit surprised at that. You do nothave some sort of electronic notification from the births and deaths registers?


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Mr Carmody—We do not have an electronic link at the moment. That is one of thestrategies that we are looking at.

Senator SHERRY—I am a bit surprised. Is that because it is state based? Is that aproblem?

Mr Carmody—Perhaps I had better get one of my experts up on this.Senator SHERRY—The reason I raise this is that sometimes I get complaints—and,

frankly, it applies to politicians as well when they send out letters—and quite irate calls fromthe relatives of people who have died.

Mr Carmody—I understand that issue.Senator SHERRY—They really do get pretty upset about it.Senator Coonan—People who die get very incensed!Senator SHERRY—Well, their relatives do.Mr Carmody—You are not the only person who gets those letters.Ms Granger—Senator, that is correct. We are working with a number of states in relation

to that. I must admit that my knowledge is a little out of date on this. There are several issues,one of which is to what extent those state registries are in electronic form. Then there is thequestion of being able to connect the two systems. But we are working with them on that andwe are looking at other ways of doing that matching with our own matching systems.

Senator SHERRY—There is obviously the emotional trauma to at least some relativeswho get upset about receiving correspondence for someone who is deceased. But there is alsothe resourcing issue that, from your perspective, would be important. I am surprised that youhave not had something done in the past on this issue.

Mr Carmody—The issue of cleaning up the tax file number database came before a par-liamentary committee. There are lots of issues about the requirements for that for the purposesof integrity as against other issues. There has been a parliamentary report on this and we havegiven quite a detailed hierarchy of approaches that we believe could be embarked on to ad-dress that issue.

Senator SHERRY—Just going back to what you were outlining earlier, about the contactto ABN holders who have not lodged a BAS, what resources are going into this?

Mr Carmody—I do not know whether I have the total resources. However, we have put330 additional resources into this exercise because we are moving to this new phase oftransition and we want to make sure that our details are as up-to-date as possible and that wegive people every opportunity to avoid penalties.

Senator SHERRY—I would never hold you to a number given the circumstances whereyou do not have the figure in front of you. It is an approximation; I accept that. What is theapproximate cost of the 330?

Mr Carmody—Nine million dollars, I am told.Senator SHERRY—Approximately $9 million, okay.Mr Carmody—This financial year.Senator SHERRY—What is the expected revenue benefit from that effort?Mr Carmody—I do not know that we have the detail here. It will vary according to how

many of them actually have an ultimate responsibility.


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Senator SHERRY—Do you have any estimate of the proportion that you expect wouldhave an ultimate responsibility?

Mr Carmody—I think the point I would make is that we would not see the results of thisincreasing the present estimates, because the estimates are based on a reasonable level ofcompliance. This activity is to make sure that we achieve that reasonable level of compliancethis year. So, while there will be a revenue impact, we do not see that as adding to the existingrevenue projections for this financial year.

Senator SHERRY—You stress for this financial year. What about future financial years?Mr Carmody—The exercise at the moment is directed at getting us to a level of

compliance that was essentially built into the estimates, so that would achieve that for thisyear and future financial years.

Senator SHERRY—Do you think there would be a greater revenue benefit of directingthose resources that you have just mentioned directly into GST avoidance and evasion in thecash and service industries that we were talking about earlier?

Mr Carmody—I think to the extent that people have simply not lodged an activitystatement and they have a liability then that is the ultimate avoidance to the extent that theyhave done it intentionally, so I would suggest that that is a high priority strategy for us.

Senator SHERRY—Is it intended that the penalties and interest charged for the latelodgment of business activity statements apply?

Mr Carmody—The general interest charge already applies, but we have not automaticallyapplied the penalties—which vary from $110 for each part of the 28-day late period forbusinesses with a turnover of under $1 million and then graduate up to $550 million forbusiness with turnovers of more than $20 million. We have applied them on a very selectivebasis during the transitional period.

Senator SHERRY—So that is the last two years of late lodgments.Mr Carmody—The last two years. Looking into the future, for statements due after the

start of the next financial year, we would expect that penalties would be applied much morebroadly. However, we would obviously recognise that, with the best intentions in the world,people can be a bit late for a variety of circumstances, so we would not put penalties on if it isa one-off isolated incident.

Senator SHERRY—But, if the penalties are to be applied much more broadly, that signalsa new approach to this issue of late lodgments, doesn’t it?

Mr Carmody—It signals that we have had two years of the transition. It signals that weare writing to everybody now who has an outstanding activity statement to ensure that theycan get their lodgment pattern into place. But certainly it signals that we are moving from theinitial two-year transitional period into a new phase of bedding in the tax system. And, ofcourse, it is important—we want an ongoing tax system with integrity.

Senator SHERRY—I was just going to get to that issue. Do you have a figure for theeffect of turning a blind eye to penalties and interest over the last two years?

Mr Carmody—First of all, interest has been applied, and we have not turned a blind eye.Indeed, what we have been clear in saying is that if we see people carrying over poor compli-ance or continually refusing to lodge or respond to notices then penalties have been applied.At the larger end of the market I understand we have been applying penalties also. So this was


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really directed at smaller businesses. I think we have to be reasonable here. It was a majornew tax system, and we wanted to be supportive of them in that.

Senator SHERRY—With the lodgment of business activity statements, how would youdefine a small business—what level of turnover or number of employees?

Mr Carmody—A figure of $10 million turnover is the general level we apply.Senator SHERRY—Let’s take less than $10 million then, the businesses in that category.

What proportion of those businesses are lodging electronically?

Mr Carmody—A very small percentage of business activity statements are lodgedelectronically, and they are mainly at the large end of the marketplace.

Mr Mann—About 70,000 people lodge activity statements electronically all up and, as thecommissioner said, most of those would be larger businesses. Of course, tax agents wouldhave a higher rate if they have been preparing the activity statements on their clients’ behalf.

Mr Matthews—The 70,000 I think would be those who are lodging electronically direct tothe ATO.

Mr Mann—That is correct.Mr Matthews—There would be a larger number that are lodging electronically via the

electronic lodgment system of tax agents.

Senator SHERRY—Indirectly through the tax agent. Do you have any idea what thenumber is on that? I am surprised it is that small.

Mr Matthews—I am sure we can get that for you.Mr Carmody—The issue with the non-electronic lodgment service was that obviously

there are security issues in transmitting information electronically, so we had to go through arigorous development process to meet the public key infrastructure requirements. That sort oftechnology is not widespread in the community at the moment. So I think that explains someof the slower take-up.

Senator SHERRY—Do you have a figure on the penalties waived?Mr Carmody—I don’t believe that we would have a figure on the penalties waived

because we did not apply them automatically and remit them. Rather, in this first period wespecifically looked to those people who we believed were particularly irresponsible in theirlodgment.

Senator SHERRY—So it is an opt in of application rather than opt out.Mr Carmody—I guess they opted in by their behaviour. That is the term that is occurring

from the new financial year.

Senator SHERRY—In regard to the earlier discussion we had about the treatment ofbusiness, particularly small business, has that treatment in any way contributed to an ongoingpattern of late lodgment on behalf of some taxpayers?

Mr Carmody—I don’t think I could discount that that might have been the impact, butoverall I took the view that, to ensure from the start the best compliance, a heavy-handedapproach would not be appropriate and that it was very appropriate—particularly with smallbusinesses, who are always short of time—that we adopt an approach that recognised thecircumstances they were facing. We believed that would be the best way of achieving the


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maximum level of compliance on the introduction of such a major change. We areprogressively now moving to a different approach.

Mr Matthews—I think I have a figure on the electronic lodgment. The quarterly andmonthly electronic lodgment figure is about 30 per cent of all business activity statements.

Senator SHERRY—Thirty per cent?Mr Matthews—I think that is the figure, but we can provide more detail.Senator SHERRY—That is greater in the larger business area, presumably?Mr Carmody—For larger businesses it is compulsory.Mr Matthews—For over $20 million, a monthly electronic lodgment is mandatory.Senator Coonan—Senator Sherry, we have someone available now to deal with the

Superannuation Complaints Tribunal, if it is a convenient time.

Proceedings suspended from 10.16 a.m. to 10.29 a.m.Superannuation Complaints Tribunal

Senator SHERRY—My understanding is that around April last year there were nationaladvertisements to appoint additional members to the Superannuation Complaints Tribunal. Isthat correct?

Mr Ray—Yes, that is correct.Senator SHERRY—And that follows on from legislation that the parliament had passed:

there had formerly been a cap of 10 members and that was removed.

Mr Ray—Yes.Senator SHERRY—As a result of those national advertisements to appoint additional

members, was a list kept of the people who expressed an interest?

Mr Ray—There would be such a list.Senator SHERRY—Subsequently, six appointments were made.Mr Ray—That is correct.Senator SHERRY—They were drawn from the response to the advertisements?Mr Ray—The six appointments were all made at the same time. The appointments were

drawn from the list of people who responded formally to the advertisement and from peoplewho responded in other ways, for example, perhaps directly to the minister. There may havebeen other people who were approached.

Senator SHERRY—Just concerning those six appointments that were made, can you tellme whether or not those six appointments that were made were names put forward by thedepartment?

Mr Ray—It is not really up to the department to put forward names in that way.Senator SHERRY—What did the department do?Mr Ray—The department would have handled the processing of the appointments.Senator SHERRY—The department advertised and then you got responses, which come

to the department, presumably.

Mr Ray—Correct. They were passed to the minister’s office.


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Senator SHERRY—So all of the responses were passed to the minister’s office?Mr Ray—At least the full list of names would have been passed.Senator SHERRY—Right, the expressions of interest resulting from the advertisement.Mr Ray—Yes.Senator SHERRY—In this case which minister’s office are we talking about?Mr Ray—The former Minister for Financial Services and Regulation, Mr Hockey.Senator SHERRY—He is the one who makes the appointment?Mr Ray—Correct.Senator SHERRY—And with those six, was a public announcement made, a press

release?

Mr Ray—My recollection is that the press release for those six was emphasising theincrease in the number of members and that the reason for that was to address the backlog ofcases that the tribunal had as a result of uncertainties about the constitutional position and theHigh Court decision.

Senator SHERRY—You have gone into an area that I was going to go into. Myunderstanding is—and we had this confirmed yesterday; Mr McDonald was here—that wepassed legislation because we needed extra members to clear the backlog. Mr McDonaldindicated that he had requested that and that that had happened. He had requested extraappointments and that request was met by the advertisements and the appointment of those sixby the minister.

Mr Ray—And I think, as Mr McDonald said yesterday, some of those six were names thathe had recommended to the minister. So, to go back to my earlier answer, the selection of thesix was from a range of sources.

Senator SHERRY—Yes. So, in terms of those six—ACTING CHAIR (Senator Watson)—Just to interrupt for a moment, some of the press

have suggested that they are having trouble hearing some of the responses, so they have beengiven permission to sit along the side of the room if they wish. If there are any other presspeople here who would like to take advantage of that offer—

Senator SHERRY—Some of the press? One of the press, isn’t it, Acting Chair?ACTING CHAIR—If you wish to move to the side of the room, that facility is available.

Hansard has also had some trouble with the sound recordings. It is a long way and thespeakers are facing in the opposite direction. Would you mind passing that on to yourcolleagues?

Senator SHERRY—Could I have a copy of the list that you handed to the minister’s officeof the people who had responded to the advertisement?

Mr Ray—I would have to take that on notice because, obviously, that includes people whoexpressed an interest in a position and then for one reason or another were not appointed. Infact, I will not take that on notice as I think that is probably rather difficult for me to give you.We would need to contact each individual.

Senator SHERRY—Take it on notice.Senator Coonan—It does involve some significant privacy issues, Senator Sherry.


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Senator SHERRY—Take it on notice. I am not necessarily agreeing with the argument,but I can understand it.

ACTING CHAIR—Order! The committee cannot really accept anything that isconfidential, so you will have to bear that in mind in terms of your response.

Senator CONROY—The committee can accept anything it wants.ACTING CHAIR—There are privacy issues.Senator Coonan—It is taken on notice, and the response no doubt will reflect the

requirement to consider it.

Mr Ray—We will consider it.Senator CONROY—What I am saying is that there is a vote.Senator SHERRY—We are not getting to the point where the committee has to consider

that, but I am aware of confidential documents we have got in the past at committee hearings.

ACTING CHAIR—But this concerns privacy issues rather than confidentiality issues.Senator SHERRY—Some of those confidentiality issues have involved privacy as well.ACTING CHAIR—I just ask you to put yourself in the position of an applicant.Senator SHERRY—Was Mr Baume, who was appointed, on that list? He was appointed,

so there is no issue of privacy in that question that I can see.

Mr Ray—My recollection is that his name was not on that list.Senator SHERRY—When was our Mr Baume appointed?Mr Ray—On 3 October 2001.Senator SHERRY—Did a press release go out publicly notifying that this appointment

had occurred?

Mr Ray—No, but that is not that unusual where—Senator SHERRY—Where they have been a former politician?Mr Ray—No. Please bear with me. The general case has been for there not to be a press

release for appointments to the Superannuation Complaints Tribunal. The exceptions were theappointments of the full-time members, the chairperson and the deputy chairperson, and thesix that you mentioned earlier.

Senator SHERRY—They were the six in response to the only request, as I understand it,from the chair?

Mr Ray—They were the six that were, as part of the exercise and as part of the response tothe legislative change, to enable the tribunal to address the backlog. So that was a differentcase. In the other cases of appointments of part-time members, I do not think there have beenany press releases.

Senator SHERRY—You have correctly pointed out the six—which the Labor Partysupported. We supported the change to the legislation to address the backlog issue. What wasthe appointment of Mr Baume supposed to address?

Mr Ray—I think that it was part of addressing the workload of the tribunal. There havebeen press reports lately that it has been increasing.


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Senator SHERRY—That is not what the chair indicated to me yesterday. He did not makeany further requests for additional appointments as a result of the backlog.

Mr Ray—I did not say the chair made a request.Senator SHERRY—So who made the request?Mr Ray—The minister made the appointment.Senator SHERRY—So the minister made the request?Mr Ray—The minister made the appointment.Senator SHERRY—I think it is very clear that the minister made the appointment. So this

was an appointment from the minister’s office. He was not on the list—

Mr Ray—All appointments are made by the minister.Senator SHERRY—Yes. The appointment was initiated from the minister’s office.ACTING CHAIR—The appointment was made by the—Senator SHERRY—Chair, it is the witnesses who give the evidence, not the chair.ACTING CHAIR—I thought the answer was quite clear.Mr Ray—I am not privy to where the appointment was initiated.Senator SHERRY—It did not come from Treasury but from within the department.Mr Ray—The department processed the appointment in the normal way.Senator SHERRY—Yes; you processed it but you were not involved and he was not on

the short list. It came from the minister’s office—the minister’s office said, ‘We will appointMr Baume.’ It was his call.

Mr Ray—Correct.Senator SHERRY—In your consideration of the names on the list or whatever you do

with that request, do you know the number of people on the list who initially responded to theadvertisements, and then the number who were on the list that subsequently went to theminister’s office? You do not know that now, do you?

Mr Ray—I do not have that information with me.Senator SHERRY—Do you know whether there was any consultation with consumer

organisations about the appointment of the six, or about the subsequent appointment of theone later in the year?

Senator Coonan—Do you mean consultation about the need or consultation about thepeople?

Senator SHERRY—Both the need and the people.Senator Coonan—The need would have been self-evident, and you have supported that.Senator SHERRY—Yes, for the six.Senator Coonan—For the backlog.Senator SHERRY—In terms of the six who were appointed, I do not disagree with that—

the appointments were made at the request of the chair. The quest for those six was certainlysupported by us because there was a need to clear the backlog.

Senator Coonan—The need was there because there was a backlog.


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Senator SHERRY—The need for the six—certainly there was.Mr Ray—I am not aware of who the minister may or may not have consulted with.Senator SHERRY—So Treasury did not consult with any organisations as such?Mr Ray—No.Senator SHERRY—So this is a matter in the minister’s office—consultations are in the

minister’s office?

Mr Ray—It would be a matter for the minister.Senator SHERRY—In August 1997, I understand that a benchmark procedure was

announced with regard to appointments to the SCT. It says:Representatives of consumer interests on the overseeing entity are capable of reflecting the viewpointsand concerns of consumers and persons in whom consumers and consumer organisations haveconfidence.

Do you know if that criterion, or that benchmark, has been met?

Mr Ray—I am not aware of what you are referring to.Senator SHERRY—I have a note that there was a benchmark outlined in August 1997.Mr Ray—By whom?Senator SHERRY—I do not know. I am assuming that it was the minister, but it was to

apply to the SCT.

Mr Ray—I would have to take that on notice.Senator CONROY—Another benchmark overboard.Senator SHERRY—On the appointment of Mr Baume, that one position, was there any

advertisement?

Mr Ray—No.ACTING CHAIR—Thank you, Mr Ray.

[10.44 a.m.]

Australian Taxation OfficeSenator CONROY—Mr Carmody, have staff been moved from the GST business line to

general debt collection areas?

Mr Carmody—Throughout the normal operations of my office we move people to dealwith particular issues on a number of occasions. In fact, we were discussing just before thatfor the balance of this year we have put an extra 300-320 people into debt and lodgment work,and some of those would have come from GST.

Senator CONROY—Are they still being treated as GST staff for accounting purposes andfor the sake of the intergovernmental agreement with the states?

Mr Carmody—To the extent that their work involves lodgment of business activitystatements that relate to the GST, there is an accounting basis to record that.

Senator CONROY—So it is pro rata?Mr Carmody—There is a formula. We got in some external expertise to give us a solid

basis on which to apportion—because a lot of the work we do in the organisation is partly forGST, partly for other, and we have set procedures to account for that.


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Senator CONROY—Who provided you with the formula?Mr Matthews—PricewaterhouseCoopers some time ago were brought in to do a specific

cost attribution consultancy to advise us on that.

Senator CONROY—Okay. If I could use the phrase ‘pro rata’ for whatever they do on theGST—

Mr Carmody—It is a little bit more sophisticated than that, I think, but there is anapportionment.

Mr Matthews—It is much more sophisticated than that.Senator CONROY—I am using ‘pro rata’ as an apportionment. I am happy to use that

word. So you can give us an absolute guarantee that staff are not just being allocated into thisarea and that they are fully accounted for under the GST agreement with the states?

Mr Carmody—We went to the trouble of getting independent advice to ensure that we hadproper accounting means to attribute the work of staff to GST and non-GST.

Senator CONROY—A formula is one thing. What happens with the person? Are theyadvised that they are allowed to spend only four hours doing GST and if they receive a GSTcall they have got to refer it to someone else? How do you police it?

Mr Matthews—It really does not work like that. If I could give the example of pursuing adebt or responding to a call in connection with a debt that has arisen on a BAS, a businessactivity statement: they are actually pursuing an integrated amount that might be made up ofGST and other taxes. So that is one example where the consultants came in and looked at thatsituation and arrived at an appropriate apportionment arrangement.

Senator CONROY—But it is an arbitrary figure, at the end of the day.Mr Matthews—No, it is certainly not an arbitrary figure—that is what I am trying to

convey to you. It is quite a sophisticated analysis based on the amount of work that is done.The formulas, as you call them, vary from work area to work area, and all of those formulashave been made available to, and have been discussed and agreed with, the states andterritories as part of our liaison arrangements with them. That was done some time ago. So itis a very up-front basis for attributing and accounting for the expenditure of GST funding inthose areas of the office, as the commissioner has said, that actually perform what I would callintegrated processing or integrated activities. It is automatically built into our cost attributionsystems and all our cost centres now.

Senator CONROY—You do not require a time sheet to be kept by the staff?Mr Matthews—No, we do not—not for that purpose.Senator CONROY—No, I would have thought it would be difficult. They would end up

like lawyers: one phone call, bill $2 million.

Mr Carmody—They would probably have to put 50 per cent of their time on filling intheir time form.

Senator CONROY—That could have been possible. It is conceivable that if someone justhappens to have a ‘run’ in one area they could be outside the guidelines, but what you aresaying is that on average that will balance out according to that apportionment formula.

Mr Matthews—In these areas we go back in on a relatively frequent basis—Senator CONROY—That is what I wanted to ask. It is an ongoing review.


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Mr Matthews—to check whether the workloads and the formulas are operating to give usa correct attribution.

Senator CONROY—Thanks.Senator SHERRY—Just to complete the questions on this BAS lodgment area—we are

talking about the treatment of late lodgers. I think you said there has been no cost of thistreatment of noncompliance to budget that you are aware of.

Mr Carmody—As I have said, the general interest charges apply, but I am not aware thatwe have done an accounting of where the late lodgment penalty was not applied. However,what I would say is that during this period we have exercised a discretion that is in the law notto apply the late lodgment penalty because we believe it is appropriate in the circumstances.

Senator SHERRY—Do you expect additional revenue to flow as a consequence of thechanged approach?

Mr Carmody—Let me give you my ideal. My ideal would be that we would not have toapply late lodgment penalties because people lodge their statements on time. That is what allour activities at the moment are directed towards. But, to the extent that late lodgmentpenalties apply more broadly, there would be some impact. I could not estimate that.

Senator SHERRY—How many taxpayers have been lodging their BAS late or not at all?Mr Carmody—In 2000-01, which was the full year of it, lodgments were about 93 per

cent of what we had expected.

Senator SHERRY—So what does seven per cent equate to in terms of numbers?Mr Carmody—I do not have the specific numbers; I would have to get those for you. The

caution I would make is that you have to work out what is expected, and there is a high churnin these. That is why we are writing out to everybody now, and we would expect to find that asubstantial number of them did not in fact have to lodge an activity statement. That is thefigure overall for activity statements. My people closely related to it would say that is as goodas or even better than the experience we had with the previous system.

ACTING CHAIR—People who lodge, say, a week later than they should: do you checkthe postmark to make sure that there is not a delay in the post?

Mr Carmody—We do take account of postal delays.Senator SHERRY—Are there any industry by industry data on late lodgment and non-

lodgment?

Mr Carmody—I certainly do not have it here. I would have to examine whether we haveit.

Senator SHERRY—Do any examples stand out at all that you can think of?Mr Carmody—I cannot think of them at the moment, but if there is anything we will let

you know. I guess I would foreshadow that the more reliable information would be once weget the response from those we have written to.

Senator SHERRY—Earlier when we were talking about this we were talking about staffnumbers involved in this enforcement activity. What is happening to the staffing involved inthe education function?


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Mr Carmody—Our education programs remain, and they will continue into the future tomeet the demand for those. I do not have on me the specific numbers. I think it is fair to saythat there has been a shift in the balance over this two-year period.

Senator SHERRY—That is what I was getting at. The number of staff in the educationarea is going down. Is that correct?

Mr Carmody—If you look at the overall balance and the percentages, you will see that thevast majority were on direct assistance and now that has turned to where the majority wouldbe more on verification.

Senator SHERRY—Effectively, they are moving from book to sledgehammer.Mr Carmody—‘Sledgehammer’ is a very emotive term. Can I say that I believe that the

tax office and my staff have learned a lot through this exercise. We had a lot of people outthere working with small businesses and it is not a matter of a sledgehammer; it is a matter ofapplying appropriate responses to what we find.

Senator SHERRY—Thank you for that. I am not sure whether we dealt with this issueearlier, Mr Smith. You may recall. The cost to revenue historically, in the current financialyear and the projections over the next three years of the small business rollover into superan-nuation: did we discuss that? I cannot recall whether I mentioned it or not.

Mr G. Smith—I do not recall that either, Senator.Senator SHERRY—Do you or one of your officers have the cost to revenue of the small

business rollover into superannuation provision?

Mr G. Smith—I do not have it with me for the minute. We will try to get the right officer.Senator SHERRY—I will come back to that in a few minutes. One of the difficulties is

that we do not get the Hansard until quite late.

Mr Mann—I do not think we have had it during these hearings.Senator SHERRY—For understandable reasons. I am not complaining about the Hansard

reporting service.

Mr Gallagher—It seems to me that the small business rollover into superannuation is anold measure, it is not one for the current budget papers, and we do not have information on itavailable at the moment. The costing would have been done some years ago.

Senator SHERRY—Can you help us with this, Mr Carmody?Mr Carmody—We may be able to, but I cannot help you here. We would certainly

examine whether we can.

Senator SHERRY—You could take that on notice. Obviously, there would have beenfigures when the measure was introduced. There would also be the projections for the nextthree years and, likewise, the capital gains tax concessions for assets owed by asuperannuation fund for more than one year.

Mr G. Smith—That may be in the tax expenditure statement.Mr Gallagher—The tax expenditure statement gives you an idea of the tax expenditure

involved but not of the revenue. In table B1of the tax expenditure statement at page 104, thetax expenditure—and not the revenue—for the frozen indexation of CGT discounts for fundsis shown at $200 million in 2000-01, $370 million in the next year and $460 million in theyear after that.


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Senator SHERRY—Can you explain why the figure increases so significantly?Mr Gallagher—One of the reasons would be the growing assets of superannuation funds.

Superannuation funds have shown very strong growth, except for one quarter last year.

Senator SHERRY—Yes, I am sure a few people have noticed that.Mr Gallagher—I imagine more assets are coming under the coverage of the measure.Senator SHERRY—I am sorry, I have not looked at that page in the document. Are there

other superannuation concession revenue expenditures listed there as well?

Mr Gallagher—Yes. That page gives the breakdown of tax expenditure for contributionsand for earnings.

Senator SHERRY—Yes, we had a discussion about that.Mr Gallagher—I must caution that, where on the first part of that table it is shown as a tax

expenditure, it is not a revenue estimate.

Senator SHERRY—Thank you, Mr Gallagher. I can assure you we will not call you backagain.

Senator CONROY—Can you confirm that provision of public liability insurance is ataxable supply?

Mr Carmody—My experts are considering that; perhaps we will take it on notice.Senator CONROY—The GST is payable on premiums for public liability insurance.Mr Matthews—The question would need to be considered in the context of section 9 of

the GST as to whether it satisfied all the requirements for a taxable supply, including somethat have been mentioned earlier in these discussions, whether it was in the furtherance of anenterprise where the parties were registered, whether it was connected to Australia andwhether there was consideration and so on.

Senator CONROY—I am not talking about anything to do with any of the other issues wehave talked about.

Mr Matthews—No, I know that, but it is in the same area of the legislation that wouldneed to be considered. I cannot simply respond in absolute terms as to whether provision ofpublic liability insurance is a taxable supply without knowing the other circumstances. Iwould need some more facts.

Senator CONROY—I am just trying to find out about the rates of GST payable on publicliability insurance and confirm that, as public liability insurance premiums rise, the amount ofGST payable also rises. That is really what I am looking to get—not any individualised ac-count. I presume that, as premiums go up, the GST goes up and tax collection goes up.

Mr Matthews—Could I try to get back to you on that one later in the day during thesession so that I can check that?

Senator CONROY—Yes. I will just finish this so you have the full picture. If the totalgeneral insurance premium revenue for the year to June 2001 was $14.115 billion—and that isthe figure according to the APRA statistics—what would be the total GST that was paid onthat amount?

Mr Matthews—Because of the variations, where in some cases it would be a taxablesupply and in others it would not, I am not sure we would be able to give you that apportion.

Senator CONROY—If that is the case, I am happy with that.


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Mr Matthews—I do not think that at that macro level we will be able to establish that. Iwill come back to you as soon as I can on that other point.

Senator CONROY—I want to talk about the first child tax rebate.Mr G. Smith—That is not for the Australian Taxation Office.Senator CONROY—Last night I was told to ask the tax office.Mr G. Smith—No, the tax division of the Treasury. The first child tax rebate is not as yet

administered by the tax office. This is a policy proposal of the government; it is not a matterthat is administered yet by the—

Senator CONROY—I asked some questions of Dr Parkinson—maybe he meant taxdivision rather than tax office, or maybe I misheard what he said.

Mr G. Smith—Under the requirements of your committee, we are sitting here jointly.Senator CONROY—I am very happy with that.Mr G. Smith—I am happy not to.Senator CONROY—Not as happy as Mr Gallagher, but I am happy that is the case. When

did discussions first commence on the rebate?

Mr G. Smith—What discussions do you mean?Senator CONROY—The discussions in Treasury.Mr G. Smith—I am not quite sure what you mean.Senator CONROY—When did it germinate; when did Treasury start kicking it around?Mr G. Smith—This is a policy proposal of the government, Senator.Senator CONROY—When did Treasury start work on it? Presumably, they made an

announcement and you guys then kicked into gear. That is all I am asking: when did you kickinto gear?

Mr G. Smith—You are asking when we started working on the proposal after it wasannounced? Probably the first thing we needed to do was the costings.

Senator CONROY—I am happy for you to draw that line, Mr Smith. I am also happy tohave an answer to the question: how long were you working on it before the announcement?Does that make it easier in your head to answer?

Mr G. Smith—All I am trying to do, Senator, is to clarify what you are asking me—I amstruggling with that. If that is what you are asking, I can say that the Treasury has beenproviding advice on this issue. I do not know when that commenced. I do not have thatinformation with me.

Senator CONROY—Could you take that on notice?Mr G. Smith—Yes.Senator CONROY—Was Family and Community Services consulted in the design of the

rebate?

Mr G. Smith—The situation with this rebate, and I stand to be corrected, is that it was anelection commitment. It is now still under consideration for implementation and introduction.That is the process that is still in front of us.

Senator CONROY—Are you in a position to answer questions about the methodology?


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Mr G. Smith—The methodology of what?Senator CONROY—As an example: how have you calculated the number of persons

commencing each year?

Mr G. Smith—These are the costing questions, and we have had some of these.Mr Gallagher—As shown in the Charter of Budget Honesty costing, which is on the web

site, we looked at the 1999 ABS publication, Births, Australia and that gave us an estimate offirst births of 117,000 per year and total confinement of 245,000 per year. We used that inestimating the relevant populations. In developing the timing model, it is the first child bornafter the policy is introduced. Therefore, that could be a second child rather than only a firstchild, or a third child for that matter.

Senator SHERRY—On that operative date, is it from the date the legislation is passed ordo you already have an announced date and we are just waiting for the legislation?

Mr Carmody—There is an announced date.Mr G. Smith—If the baby is born after 1 July 2001.Senator CONROY—Thank you. What is the number of persons who subsequently receive

paid employment each year after utilising the rebate?

Mr Gallagher—I cannot answer that question exactly. We looked at the income surveydata to get income distributions and to see how many of them would have wage income. TheCharter of Budget Honesty costing is done on the basis of personal exertion income. So wehave looked at those who had wage and salary income at various levels for the purposes of thecosting. I have already described how we mapped the income distributions, so we do not needto go through that again

Senator CONROY—No. It is all down on the record. I will happily not go through itagain. What is the cumulative number of persons who are expected to be eligible in each yearof the forward estimates?

Mr Gallagher—I do not have that information here. I can take it on notice.Senator CONROY—What is the distribution of incomes in the base year for persons

expected to take up the rebate?

Mr Gallagher—The distribution of incomes—and of course you need a before and afterincome—was based on the ABS incomes survey, as projected in the model STINMOD outyears. We looked at how the incomes varied between women under 35 without a child andthose who have a child under one, or a young child, in order to determine the relativities in theincome distributions.

Senator CONROY—And did you come up with the numbers against these?Mr Gallagher—We did a comparison against many points in the income distribution in

order to do the costing, because obviously you could move from a high income to nothing, orto somewhere intermediate, so we had to allow for that.

Senator CONROY—Are those figures available?Mr Gallagher—Those figures are only briefly discussed in the description of the costing

methodology. I do not know that they would be of great use, except for the purposes of thecosting.


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Senator CONROY—Hopefully they were of some use to someone, given that they seemto have formed part of the basis of it.

Senator SHERRY—Mr Gallagher, you provide; we will decide.Senator CONROY—What are the mean and median incomes for persons expected to take

up the rebate?

Mr Gallagher—I would have to take that on notice. As I said, we have done a fulldistribution. We did not do the costing at the mean because we had to take into account a fulldistribution.

Mr G. Smith—What we can provide is the basis of the costing. That may or may not beequal to the expected outcome of the policy.

Senator CONROY—We are just looking to get at the methodology.Mr G. Smith—They are just the costing assumptions. I just wanted to clarify that.Senator CONROY—They can move around because they are just estimates. We

appreciate that. We are just trying to understand how it was derived. What is the mean incomeof persons who have returned to work within the first five-year eligibility for the rebate. Willyou take that on notice?

Mr Gallagher—Yes.Senator CONROY—What is the source for all of the above information? You mentioned

in the first couple of answers that it was the ABS. Could you outline where it was from andwhat the basis was.

Mr Gallagher—Okay.Senator CONROY—Mr Smith, has the legislation been drafted for the rebate?Mr G. Smith—I do not believe so. That is apparently a work in progress. It has not yet

been introduced.

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