The Taxman Cometh

While the 2002/03 Federal Budget was in the main a bland affair, it is likely to give many businesses real grief.

The budget funds for a new army of tax collectors, arms them with new tools of extraction and orders them to go earn their keep.

The Budget gives the Australian Tax Office (ATO) an addition $1.5 billion over four years.  The money is to be used to hire around 2,200 extra staff (on top of the ATO's existing 18,000 employees) and to arm them with new computers and other support facilities.

For this "investment" the Government assumes that it will receive at least $1.5 billion in higher tax receipts.  That is the ATO has been told that it has to at least match each additional dollar received with an additional dollar of tax raised.  The target for big business is higher with $11 in higher taxes for each $1 of new resources.

While the bulk of the new resources will be used for to improve the overall tax collection effort, income and fringe benefit taxes have been specifically targeted.  GST collections (which is not consider as tax in the Budget papers) is also forecast to rise by $140 from better compliance and collection efforts with $45 million to be extracted from small businesses.

To assist in their efforts, the ATO is shifting from "education" to "enforcement" mode.  Their rationale is that the new tax system is up and running, and therefor the ATO can shift its resources away from being Mr. Nice to collecting the money.  The truth is that the new tax system is riddle with uncertainty, ad hoc rulings and other compliance problems.  And many businesses, particularly smaller one, are still struggling to recover from the hit the GST did to their cash flows.  But the election is over and revenue is now king and the ATO knows it.  They have assisted their cause by giving the government a new "independent" report which argues that there are untold riches to be gained by letting the ATO loose on business.

The budget includes a couple of other innovations designed to raise more revenue.  First the government plans to advance some aspects of the business tax agenda.  These "reforms" are expected to raise an additional $560 million over the next four years.  Obviously the revenue neutral principles upon which tax reform was supposedly based has been jettisoned in the post election environment.  On the positive side, the government appears to have assigned Treasury's beloved "tax value method tax system" to the too hard basket and for a good reason, it is a compliancy nightmare.

The other innovation is the decision to combine the BAS and the ASIC registration numbers.  This make sense.  It will eliminate duplication and make compliance easier.  However, it will also make the tax collectors efforts more efficient and effective and assist greatly in meeting revenue raising targets.

We all recognise that governments needs money and that their demands will grow with the ageing of the population.  However, there has to be a better way than fleecing businesses with complex tax laws administered by an army of bounty hunters.

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