Assertions by staff at the Australian Tax Office that staff shortages and budget cuts are the cause of the Tax Office missing out of large amount of revenue from Australia’s very wealthy is only part of the story.
That assertion was taken up and agreed to by the Leader of the Opposition, Kim Beazley. To some extent both are self-serving.
The major cause of loss of revenue is the fact that the Keating Government trumpeted the closing of $800 million worth of tax-avoidance schemes during the election campaign. He did so for short-term political advantage so that he could magically fund election promises.
But his announcement put the dodgers on notice so they could rearrange their affairs and move their money.
The Canberra Times published on February 16 details of the avoidance schemes and the outrage by tax staff on February 16 that Mr Keating and then Treasurer Ralph Willis had blown their cover.
Sources in the tax office said that Mr Keating had abandoned the standard way of dealing with tax avoidance for political advantage. They likened it to announcing in February that you have found a warehouse full of stolen goods and that you would be raiding the warehouse sometime after March 2. Of course, the goods will be gone.
The sources said that the extent of avoidance had only become known late last year. The tax office had only just begun to get the fruits of new software called NetMap. An earlier version of the software was used in the Belanglo State Forest back-packer murder investigation. It is capable of examining a vast array of seemingly unconnected data to find connections and patterns. The tax-avoidance schemes involved extensive arrays of trusts, mostly based overseas. Each individual trust puts in a tax return which on its face seems legitimate and isolated. However, when the new software traced the links through the arrays of trusts, it found common sourcing to wealthy individuals. The trusts disguised income as capital and profits as loans. Tax sources say that the normal pattern for dealing with avoidance is to get to an advanced stage of uncovering it and then for the Government announce action in the form of legislation that would take effect from the date of the announcement. This was not done in this case because the Government was in a caretaker mode and could not make policy or legislative commitments. They suggest the proper course would have been to go to the Opposition and have a joint approach to close the loophole.
The sources said that from the moment of the announcement, the owners of the trusts would start unwinding them.
In the past week, tax staff have told the ABC’s Background Briefing that lack of funds, particularly for overseas investigations, had prevented the recouping of the tax.
There is some truth in that, but the greater damage had already been done.