CANBERRA: While all eyes focus on the spectacular systems failure at the Commonwealth Bank, in fact the catastrophic failures of the Australian Taxation Office systems will do more harm to the nation. Both system failures highlight just how big and growing a threat the cash economy (and the often associated drug trade) has become to the nation. In the ATO’s case the system failures hit two fronts—- the interface with accountants has become unreliable but more importantly the so called “Bunnings” affair has hit at the core of the nation’s efforts to curb the ballooning cash economy. There was extensive publicity when the ATO introduced a system whereby building contractors would be required to attach their Australian Business Number (ABN) to every commercial contract they invoiced. The system did not apply to retail transactions so small cash economy repair jobs on the residential house were untouched. Nevertheless, by tackling the commercial sector, the ATO had taken a big step. The idea was that, just as in credit cards, if contractors put down the wrong ABN number or no ABN number in a commercial transaction they would be pinged. Very quickly their exposure to the cash economy would be picked up because the ABN would be linked to their bank accounts.
None of this was particularly new technology—credit cards are far more advanced—- but correctly the ATO received praise because, as we have seen in Greece, Italy and South American countries, once the cash economy becomes a way of life it can bring down a nation. For a while the ATO claimed big gains and set out to extend the scheme to other industries. But like the CBA’s ATMs, the system was flawed. The ATO system does not appear to have been checking every number so people could insert Bunnings’ ABN and the alarm did not go off. Imagine if you used Bunnings’ ABN as a credit-card number. (I emphasise that Bunnings was an innocent bystander and was not involved in any way). Clearly some of the building contractors used Bunnings’ ABN when undertaking residential work and, as explained above, the system was not designed to pick that up. But some 40 per cent of Northern Territory transactions use the Bunnings number so a large number was commercial. There appears to be no check on the NT cash economy whatsoever and it must be dominating the territory, Greece-style. If unchecked that will spread through the nation. What usually happens in big organisations (private or public) is that a way is found to camouflage errors.
The ATO started focusing on honest Australians who had told them all the information and relied on the clear directions of former tax commissioner Michael Carmody that the current ATO did not like. As my readers know they attacked those using export grants and legitimate mum and dad partnership distributions and so on. And the cash economy kept growing. Michael Andrew, Treasury’s black economy taskforce chairman, is blunt: “The system is not working”. Andrew is one of Australia’s great accountants but he is also showing signs of being snowed. We are moving towards a society where a far greater proportion of people will need ABNs because entrepreneurship rather than large organisations are going to create the jobs. Just because a bad system was installed we must not make the availability of ABNs a deterrent to entrepreneurship and employment creating. If we do that, we will force the new entrepreneurs and the booming independent contractors into the cash economy. ABNs should be easy to get because then if the computer system works (and again it’s not new technology) they can be monitored. We can limit the cash economy. There is a problem in industries like cleaning but all that is required is for those receiving ABNs to report regularly in the first 12 months and be required to submit a tax return within, say, 12 months. No tax return, no number.
The Australian Taxation Office wants to make it harder to get an ABN. It’s a camouflage strategy. If the ATO systems are right, once you get an ABN you are in the loop and it’s possible to see what is going on. Maybe we have to outsource the whole ATO computer systems operation. I fully understand the dangers of such an action but what we have now is a broken system and, given the Michael Andrew revelations, I don’t think the ATO knows how to fix it. Michael Andrew could really help by making recommendations as to how credit-card style technology, which has been around a long time, can be introduced into the ATO. And it also needs technology that relates to accountants that is more reliable. In the private sector breakdowns are tolerated but if they continue the company goes out of business. We need the ATO.