Source: New places to play in Gungahlin
Rob Heferen, Commissioner of Taxation
Address at the UNSW 16th ATAX International Conference on Tax Administration
Sydney, 8 April 2025
(Check against delivery)
Introduction
Thank you for the introduction.
I’d like to acknowledge the Traditional Owners of the land on which we meet, the Gadigal people, and pay respects to Elders past and present, and extend that to First Nations people present today.
I would also like to say thank you to Michael Walpole and Jennie Granger for inviting me to speak today.
It is indeed a privilege to be invited, and I hope I can get a recurring invite.
The theme of this year’s ATAX conference is ‘Tax Administration: Getting it right’.
Before I get underway, some of my own housekeeping is important to note. Given the House of Representatives has been dissolved, we have a caretaker government, and so public servants, even we statutory officers, need to exercise appropriate discretion about what we say, and what we comment on.
Which I will, of course, do.
So, while I might be a little bland, I hope that doesn’t rule me out for the future.
But returning to the topic at hand, what ought we mean by ‘getting tax administration right’.
Before I step through my perspective on this issue, which some of you will have heard before (I do apologise for that, but I think they are messages worth repeating) I’d like to reflect a bit on the crucial role tax has in the social contract – Australian style.
As the famous American Supreme Court Judge Oliver Wendell Holmes Jr said, ‘tax is the price we pay for a civilised society’.
I’d like to expand on that to posit that the tax we pay is a vital element of our social contract; the citizenry pay tax and in return the government provides the services the community, collectively, demands.
This notion recognises that as individuals there is little we can deliver on our own, but collectively our ‘contribution rules’ set out our obligations for how we can mutually contribute to fund things the country needs and the community demands.
Thomas Hobbes, one of the founders of modern political philosophy, had his memorable take on the social contract. Writing during the English civil war, he noted in the Leviathan that, without any ruler, our ‘state of nature’ would result in…
such condition, there is no place for industry; because the fruit thereof is uncertain: and consequently no culture of the earth; no navigation, nor the use of commodities that may be imported by sea; no commodious buildings; no instruments of moving, and removing, such things as require much force; no knowledge of the face of the earth; no account of time; no arts; no letters; no society; and which is worst of all; continual fear, and danger of violent death; and the life of man, solitary, poor, nasty, brutish and short.
He may well have been over-influenced by England’s challenges at the time, but I think a moderated application can be seen to ring true today. Hence his view that to correct for this, society needs a strong powerful ruler – in Hobbes’ time, perhaps a sovereign, in our time and our place, a government. Perhaps not necessarily ‘strong and powerful’ as Hobbes’ may have imagined it, but definitely one with authority.
Without a government, there will be little peace, prosperity or freedom.
And without tax, at least in the Australian context, very hard to imagine a government.
But digging a fraction deeper, does Australia’s tax system reflect Australia’s social contract and does the Australian Taxation Office’s (ATO’s) administration reflect this?
I think there’s a strong argument to be made that a country’s tax system, provided there are strong democratic foundations and processes, reflects its aspirations, its underpinnings and how the country has chosen its ‘rules of contribution’.
The Australian tax system, or at least the policy to be implemented, has at least 2 elements:
- First, as a federation, do we have the right balance between taxes levied by the Commonwealth as compared to that by the states?
- Second, do we have the right ‘tax mix’. That is, the right balance between direct taxes (such as income tax) and indirect taxes (such as the GST and excise)?
Of course, both of these are core policy questions not appropriate for me to comment on.
But then the question of whether we get the tax administration right can be assessed by whether, given the first 2 elements, do we have the right administrative machinery and people in place to deliver the desired revenue for the government to deliver the services the community demands – that is, to deliver on the social contract?
The ‘right’ administration of taxes
The ATO is governed by legislation, passed by those who represent the broader community.
Much responsibility is vested in the Commissioner, and the parliament has provided me with significant authority, but has carefully constrained the Commissioner’s discretion to depart from the job at hand.
To deliver on our purpose, successive governments have ensured we are appropriately resourced, with both technology and people, and from this resourcing expect us to deliver on our role.
So what’s our role?
To collect the right amount of tax, in accordance with the law, in the most efficient way for the government and the taxpayer. And in doing this, treat taxpayers with courtesy and respect.
The law, of course, changes over time, both through explicit parliamentary action, and also through the court’s interpretation of the ‘hard cases’ that come before it.
The administrator then needs to ensure that their administration of the law is kept contemporary and is seen as fair and reasonable.
Does the ATO meet these benchmarks?
As I hope you would expect, we strive to, but of course, given none of us are perfect, in specific instances we may well fall short.
So, what are some useful metrics we can look to, to assess whether we are getting our administration right? That demonstrate we are meeting our Public Governance, Performance and Accountability Act 2013 (the ‘bible’ that governs the way we in the APS act) requirements to be effective, efficient, economical and ethical?
Let’s start with the most important one – are we effective at our job?
Our purpose, or the reason we exist, is clear: We collect tax so that government can deliver services for the Australian community.
Being the nation’s principal tax collector is not always an easy job, but it’s an important one. One that’s fundamental to Australia’s strong economy and society.
Without the ATO doing its role, the rest of the government suffers (both Commonwealth and state), and accordingly, as does our broader society.
The ATO makes up a bit under 10% of the APS, but the more than 190,000 other federal public servants rely on us to do our job, so they can do theirs, that is so that the government has the money it needs to provide the services the community demands.
And given Australia’s vertical fiscal imbalance, a significant proportion of revenue the states and territories use to fund their public services is collected by us as well.
If our purpose is our guiding light, then our roadmap is our vision as an agency.
Our vision is an Australia where every taxpayer meets their obligations because:
- complying is easy
- help is tailored
- deliberate non-compliance has consequences.
We are confident that where these conditions are met, voluntary compliance will be optimised.
But our purpose drives what we do, day in and day out. It reinforces that our role is fundamental to making government work. At the end of the day, being that part of the government that collects tax revenue, so that other parts of government can deliver services for citizens, is our most fundamental function.
We definitely collect a lot of tax – in this year’s budget papersExternal Link our Treasury colleagues estimate that we will collect $676.1 billion in the current financial year.
But how does that compare with what we should collect?
It’s tricky to get a firm handle on this, but our best estimates stem from our ATO Tax Gap measurement.
Tax gap
The tax gap is an estimate of the difference between the estimate of what we expect to collect, and what would have been collected if every taxpayer was fully compliant with the law.
For the most recent tax gap data available, 2021–22, we estimate that we will collect $545.8 billion of the total $590.3 billion tax due.
That is, the amount of tax not collected, the net tax gap, is $44.5 billion, or 7.5% of the total amount of the tax.
The $545.8 billion, the amount we have or will collect, is made up of 2 parts:
- $531.4 billion that is reported correctly when taxpayers lodge their tax statements, and
- $14.3 billion which represents any difference between that first return and the final corrected return.
So, the $14.3 billion collected following a revised tax return is influenced by ATO action – typically our post lodgment compliance action like reviews and audits.
In the context of the performance of our tax system, the tax gap data indicates that we have 90.1% voluntary performance. This adjusts to 92.5% when we factor in our compliance action.
Tax gap components
But not all taxes are created equal, and the overall gap is made up of varying gaps or components across different taxation types. Based on the most recent verified data:
- The gap for personal income taxes (both salary and business income) account for $25.8 billion of the $44.5 billion tax gap.
- Given the size of the population for collections, it’s not surprising that this is the biggest. This group has a net tax gap of 8.5%.
- Company income taxes (large, medium and small companies) account for $8.7 billion of the $44.5 billion tax gap. This group has a net tax gap of 6.3%.
- GST – $4.4 billion and a net gap of 5.5%.
- Excise and all other gaps – $5.6 billion or a net tax gap of 8.1%.
Comparisons to other jurisdictions
So how does this compare to other countries?
This is a tricky question to answer mainly because of the countries who attempt to calculate their tax gap, each have their own unique features of measurement. The variation between jurisdictions means we can find ourselves comparing apples to oranges in many cases.
But if we look at the trends in our respective data, perhaps there is something to glean.
In Australia, since 2016–17, the net gap has decreased from 7.8% to 7.5%. Over the same period, the UK’s net gap decreased from 5.4% to 5.2% (noting the parameters of their gap calculations vary slightly from Australia’s).
In both instances, the overall net gap decreased. And it’s important to remember, that this represents an estimate of what we are not collecting and what is not being reported. Being an estimate, they are often revised over time as more information becomes available.
Suffice to say, in our international engagement, we are confident that our methodology is good practice, and our measured gaps are amongst the smallest.
So, I think we are quite effective.
Then, do we do this in the most efficient way for the government and the taxpayer?
Our costs of collection are, in the main, very low. For the 2023–24 year the cost to collect $100 of tax was 56 cents.
Unfortunately, good, robust information on compliance costs for all taxpayers is not collected and produced.
Do we treat taxpayers with courtesy and respect?
Our Charter outlines our commitments to the community in their interactions with us and includes a number of stated commitments around the behaviours expected from ATO officers when they engage with the community.
We have a range of metrics that provide valuable insights into how this is working in practice:
- For service commitments: The ATO has 12 publicly stated service commitments that are reported every month on the ATO website. The last published results were for March 2025, and show all 12 were met.
- Highlights included that
- 97% of electronic taxpayer requests were finalised in 15 days, against a target of 90%
- 99% of electronic tax returns and activity statements were finalised in 12 business days, against a target of 94%, and
- 100% of employee referrals for unpaid super were escalated with employers within 28 days, against a target of 90%.
- Regarding complaints, they continue to represent a very small portion of our interactions with taxpayers, around 0.1%.
- Our service commitment is that we will resolve 85% of complaints within 15 days or within a date negotiated with the taxpayer. And, pleasingly, our March 2025 (YTD) result showed we have finalised 99% of complaints within our service commitment.
To further ensure confidence in our administration, the ATO is fortunate to have fairly comprehensive scrutiny from a broad set of scrutineers.
Like any Commonwealth government funded agency or department we are subject to the thrice-yearly scrutiny on our appropriation by the relevant senate legislation committee – commonly known as our Senate Estimates process.
Again, like any other similarly funded agency we are subject to both financial audits and performance audits by the Australian National Audit Office.
And we have our own dedicated scrutineer – the Tax Ombudsman, Ruth Owen, who is speaking this afternoon.
Each of these processes provide us food for thought and often specific recommendations to improve our administration to which we attempt to respond to in a timely way.
A further step this year was the Australian Public Service Commission initiating a capability reviewExternal Link to seek some external assurance that we are well placed for the future. And it showed that we are.
Importantly, and as far as I am aware – all of our scrutineers are broadly happy that we are collecting the right amount of tax.
But often the biggest critics of an organisation sit within it.
And one of our shortcomings brought to my attention by my staff early on was the size of the debt book.
The broader debt book – that is, stock of the tax debt that is owed to the Commonwealth Government at the current point in time – is currently over $105 billion (compared to the 2024-25 total revenue of around $650 billion). It’s the largest it’s ever been, and it is money that could be benefitting all Australians.
We estimate that just under half of that $105.1 billion is made up of collectable debt. That $46.4 billion is almost double the $26.5 billion of collectable debt owed in 2019.
I’ll have more to say on this shortly.
Our vision
We have recently spent time on sharpening our focus for the future by committing to a very clear vision for tax administration.
Our vision is an Australia where every taxpayer meets their obligations because:
- complying is easy
- help is tailored
- deliberate non-compliance has consequences.
I think there’s value in stepping this through in more detail today.
Firstly, every taxpayer meets their obligations because complying is easy.
- As an administrator, part of our role is to take the complexity of the system and do what we can to make it as easy to use as we can. That is, be a ‘complexity broker’.
- In all aspects of life we need complexity brokers. Some of us know how to fix our cars and are happy to rely on our own expertise. Others are content to know how to put in the petrol and steer the wheel and are happy to rely on those with the expertise.
- The ATO’s role as a complexity broker is complemented by the role of the tax profession in our system – those who help Australians to meet and understand their tax obligations.
- Focusing on the tax profession, strengthening that relationship continues to be one of our core priorities.
- It is vital that we work closely with the tax profession to ensure they are properly equipped to be complexity brokers for their clients.
Secondly, every taxpayer meets their obligations because help is tailored.
- While it’s important that all taxpayers have a clear digital pathway to resolve their interactions with the ATO, there will always be members of the community who need direct assistance from an ATO officer. While digital systems can enable a fast and seamless experience in some instances, it cannot be a substitute for human judgment.
- Only human intervention can determine what constitutes fairness and reasonableness in those taxpayer circumstances where complex communication, compassion or empathy are needed to make decisions with the taxpayer.
- We are currently developing our Future Interactions Strategy, which will further refine the how and when of our tailored approaches.
- And within this strategy, our objectives will be laid out
- to provide unassisted digital options to resolve tax matters where possible
- to provide efficient human-assisted channels to assist in resolving more complex matters, or where the circumstances of the taxpayer require it
- to provide secure, integrated digital platforms.
- Alongside this is our focus on helping those experiencing vulnerability to meet their obligations.
- To support this, the ATO is implementing a Vulnerability Capability that will strengthen and coordinate the way the ATO supports those who need it most. And in doing this we are grateful to the Tax Ombudsman for her recent reportExternal Link on this issue, particularly regarding financial abuse.
- This program of work will include the development of a framework, together with specific actions and activities to support people experiencing vulnerability, including financial abuse.
And finally, every taxpayer meets their obligations because deliberate non-compliance has consequences.
- In the tax system, we think about non-compliance against a wide set of obligations, including failure to lodge, false registration and deliberate incorrect reporting. And of course, it also considers not paying the appropriate amount of tax.
- While all tax owed to the government is a priority – from individuals, and from small and large business – we are conscious of our duty to collect priority debt such as unpaid superannuation guarantee, PAYGW – that is, tax that is withheld from employees’ pay but not passed on to the government – and GST that is collected from customers but not passed on to the government, and from the small group of taxpayers who exhibit the most non-compliant behaviour in avoiding their obligations.
- It is important to note that only 22,000 taxpayers are responsible for $11 billion of the total tax collectable debt value. In context, that’s about 1% of the total debtors responsible for 20% of what’s owed.
- To be clear, I’m not talking about just the largest taxpayers – this 1% are taxpayers of varying sizes. And it is this group where our focus lies.
- This approach we are taking to collect the tax owed to the government is deliberate and targeted, with action being taken for those who repeatedly refuse to engage with us and continue to ignore our reminders.
- For these taxpayers, we are moving more urgently to deploy the full powers available to us and we are beginning to see some positive impacts of this work, through reduction in the amount of debt owed to the government.
Conclusion
So, are we getting tax administration right? We, of course, have a few critics.
But we all need to keep reminding ourselves that the tax system is not an end in itself; it’s only ever an instrument for the government to get the money it needs to deliver the services the community desires.
Many of us, both internally and externally, can get caught up in the intricacies of various seemingly contradictory tax policies, the finer points of a court outcome, and the time it takes for us to finalise a complex ruling. Missing the reality of our tax system’s overall performance.
But total taxes largely meet society’s spending demands. Our tax gap is low and our service commitments largely met.
So, the conditions of tax administration doing its bit to deliver on our social contract are largely, or mainly, met.
Is our tax administration perfect? Of course not.
Is it about right? I am obviously biased, but I would say definitely.
Can we improve? Of course.
We’ve got work to do to achieve this. But that’s our aim.
Thank you.
