(Image via @madmonktony)

The Turnbull Government firing 20% of ATO staff and outsourcing much of its work overseas is likely to cut revenue collections and aid tax avoidance, says former ATO assistant commissioner John Passant.

THE TURNBULL is outsourcing, or planning to outsource, public service jobs offshore. 

Noel Towell in an article in the Canberra Times in January, entitled ‘Manila calling: Public Service’s Philippines frolic revealed', wrote that

‘... the Commonwealth [was] openly canvassing the idea of following the lead of the NSW government and sending some of its work to India.'

In the same report, Towell details via an Australian Tax Office spokeswoman what the ATO has been up to:

The spokeswoman told Fairfax that the present arrangement, where Accenture is helping to develop new IT capabilities for the office, was temporary and had been in place for several months.

“Earlier this financial year the ATO commenced a short-term arrangement with Accenture to use their Philippines Delivery Centre to increase our IT capability in application development for new policy implementation,” she said.

“This additional capability is being used at peak times to temporarily support the ATO’s workforce and existing onshore arrangement with Accenture.

“The offshore development is being conducted in a secure facility that has been inspected by ATO staff and conforms to government physical and data security requirements.

“There is no taxpayer data going offshore and only anonymised development data being is being used via secure channels.

“The arrangement is expected to continue to December 2016.”

So, technically, the ATO isn’t outsourcing jobs to the Philippines. It is allowing Accenture to do that. My guess is the contract price is less for the ATO than if Accenture had used Australian workers. The Tax Office will save money by doing this.

Of course, cutting costs has been a big driver in other "initiatives" of the ATO. It has got rid of 3,000 workers with another 1,700 gone by the end of next year.

That is about 20% of the ATO workforce, and much of it is experienced middle level workers. Despite glib assurances from ATO management that dumping one fifth of their workforce will make no difference to revenue collections, it seems logical to me to conclude that the loss of a layer of experienced and competent workers might not only slow down decision making (and hence slow down revenue collection) it has also result in less than optimal revenue outcomes.

The figures, with some major caveats, tend to back this up. Revenue collections have fallen since the sackings (sorry, voluntary redundancies) began. Now of course there are a whole range of external factors such as the end of the mining boom which help explain this. And the figures might be too early to judge in relation to the direct impact of the staff cuts. So how can we know?

Instead of having the silver tongued, ex-partner in an accountancy tax avoidance advising firm, leadership sprouting banalities, ATO staff should be able to talk to the public about the impact of the swingeing cuts on them. The Senate Economics Committee could consider calling staff still in the Office to testify about the cuts and revenue collections. I am sure too that it is not beyond the wit of journalists, union officials and tax officers to organise a bit of whistleblowing about the impact of the staff cuts on revenue, based on the experience of those at the coalface.

The recently released Corporate Tax Transparency Report (2013-14) showed that 38% of big business public companies paid no income tax. Many more had effective tax rates well below the statutory rate of 30%. Now I know there are a whole range of reasons for this, including poor trading conditions, the existence of special exemptions and deductions, various credits (for example, for research and development and for foreign tax paid) but surely there must be a suspicion that the tax avoidance component of the tax shortfall in 2013-14 will only worsen in 2014-2015 and later years as the ATO staff cuts kick in.

Maybe the staff cuts and adverse impact on revenue collection are part of the strategy of the ATO leadership to make the organisation more "business friendly"?

There is a symbiosis here between the staff cuts and tax avoidance that goes beyond the suspicion that big business doesn’t pay its fair share of tax and won’t into the future, given the ATO’s staff numbers. The logic of the cuts, driven by a former tax partner in KPMG, a big tax advising firm to big business, and now the Commissioner of Taxation, is to create a leaner ATO.

Yet this is the same logic of big business in avoiding tax. Business sees tax as a cost of business and, like all costs, competition drives them to find ways to reduce their tax bill and hence improve their profits. This leaves more over for reinvestment or to pay to shareholders. If the particular company is the only one in its industry using the particular lurk or scheme, then it also gains a competitive advantage over its competitors.

As Google Chair Eric Schmidt said about his company’s tax avoidance activities around the globe, activities which have seen it funnel almost $10 billion into Bermuda, saving $2 billion in taxes:

“I am very proud of the structure that we set up. We did it based on the incentives that the governments offered us to operate.”

The company isn’t about to turn down big savings in taxes, he said:

“It’s called capitalism. We are proudly capitalistic. I’m not confused about this.”

Saving money, the driver for cutting the ATO staff by 20%, is also the driver of big business tax avoidance. Business tax avoidance is systemic. It requires a systemic response, not Tax Office staff cuts.

This story was originally published on John Passant's website en Passant on 7 February 2016 under the heading 'Memo to the Australian Tax Office: You offshoring jobs is the same as business offshoring profits' and has been republished with permission.

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