Tax office: crisis of mind and body

The Australian Taxation Office is in crisis; it just doesn't realise it, yet. This is a crisis of both the mind and the body, of the people in the organisation and the way they think.

It was the former head of the Department of Prime Minister and Cabinet, Peter Shergold, who famously said that an organisation obsessed with process is moribund. The ATO is obsessed with process both in dealing with taxpayers and in dealing with staff.

Surely senior leaders of the ATO have more important thing to do than stress about minor details?

Unfortunately the office is structured in such a way as to give prominence to essentially menial managerial functions. The end result is that much of the ATO's leadership devote themselves to pushing their workers harder and harder. They use the mantra of working smarter but this is just code for doing more and more with less and less.

For the ATO leadership work/life balance is all well and good until life balance gets in the way of work and outputs. No wonder the ATO's Comcare costs skyrocketed in the last decade. There are also funding pressures. The Commissioner, Michael D'Ascenzo, himself highlighted, in my opinion, the stupidity of the ''efficiency'' dividend in Senate Estimates recently. His words were to the effect that any loss of ATO funding would result in a loss of revenue ten times greater.

Couple that with the non-supplementation of wages and the cost cuts (before taking into account specific funding for extra compliance activity) could well be in the order of more than 7 per cent.

Attracting quality staff is becoming more and more difficult. The ATO remuneration levels are trapped within public service boundaries. For sought-after graduates the pay is a pittance compared with accounting and law firms. The discrepancy is only likely to increase as a shortage of lawyers and accountants sees private firms bid more and more for quality staff.

If the work for graduates was interesting and exciting this might be some recompense. But until recently many graduates were forced into call centres for months to relieve operational shortfalls there, or for ''experience''. The rate of turnover of graduates and younger staff is, unsurprisingly, high.

Three months' paid maternity leave and a superficial commitment to the work/life balance aren't enough to keep or attract good staff. A new way of thinking is needed: perhaps 12 months maternity leave, increased pay, proper job structuring and clearer prospects and rapid promotion are some solutions. There will be more but essentially the ATO must break out of the public service remuneration mould and start thinking to ensure its long term survival as an organisation.

The ATO also faces a demographic time bomb. Public servants in the now closed Commonwealth Superannuation Scheme are often better off resigning at 54 and 11 months than retiring at 55 or later. For one of my staff the difference was about $20,000 a year in pension. As she said, the scheme forced her to resign.

There are a large number of ATO officers in the 50- to 54-year-old age bracket. If they were to leave, the ATO would lose experience and expertise on a grand scale. However, its succession planning is poor and the skills of this group are not being passed on to newer staff. Couple the impending departure of wise heads with the inability, to some extent, to recruit and retain younger staff and I fear for the future leadership capability of the ATO.

On leadership, the Office, like most other public service organisations, promotes people on the basis of their technical ability, whether it be in law, accountancy, human resources or the like. Technical ability is not leadership.

Some can make the leadership transition; many cannot and keep repeating the thinking of the past to address present and future challenges. Generals who do that, lose the war. To misquote Oscar Wilde, ''We are all in the gutter; no one in the ATO is looking at the stars.''

A related issue is what I call the detail fetish. Now this is no bad thing in areas administering complex law. But when it pervades an organisation to the exclusion of vision and strategic thinking (as it does in the ATO) then the organisation is in trouble, at least in the long term.

Apart from the Commissioner and a couple of senior leaders, there are few visionaries or strategic thinkers in the ATO. Those who do exist are often ground down by the minutiae, process or detail, or sidelined. Much of the present leadership has thinking more appropriate for the 1980s, the era most of them come out of. They can become obsessed with protecting the revenue and miss the bigger picture of creating a more productive and globally competitive tax system.

For example, some in the ATO see the international tax reforms of the past six years as the devil's spawn and talk about rescuing the system and saving the Government's revenue flows. But as someone who helped develop these reforms and prepare the ATO for their implementation I would merely make the point that the Australian economy is a very different creature now to what it was at the tail end of prime minister Malcolm Fraser's rule and the beginning of the Hawke ascendancy.

Australia is now closely integrated into the world economy. The tax system, especially the international tax system, had to change as a consequence. The ATO and its thinking about international tax is lagging far behind these developments and has to change.

On the theme of international tax, let me raise capability concerns in the ATO. For reasons I don't understand, and at a time of increasing integration of the Australian economy into the world economy, the ATO has halved the number of people in its international area.

If the logic was to transfer much of those functions to the hands-on compliance areas then the results are a failure. The level of international capability in the ATO is abysmal. The rest of the organisation has not risen to the challenge.

The morale in the international area is now very low. They have been forced to concentrate on “risk” assessment which in the ATO is more often gut feel than anything else. Given that few in other areas of the ATO can appropriately recognise complex international issues, the adequacy of the flow of information to enable adequate risk analysis must be in doubt.

Public information about Operation Wickenby for example suggests that it was not the result of clever risk analysis but a lucky accident.

An attempt to develop market specific questionnaires to replace the present pathetic international tax schedule (Schedule 25A) floundered through lack of senior support. An opportunity for better international information and analysis was lost.

How can the ATO seriously proclaim international tax as one of its key areas and then destroy international in the Office? I use international as an example because it is the area I am most familiar with but I believe this is not an isolated example.

Decision making is becoming more and more concentrated in the hands of very senior officers. Decisions that were some years ago made by EL 2s are now made by SES Band 2s. This lack of trust in staff has led to backlogs and delays as senior officers become bogged down with more and more work.

In addition, the decision making process in the ATO is very much top down, with little involvement from the majority of staff in decisions that have an impact on them. As a consequence they feel disempowered and are disillusioned.

Let me make one suggestion to the Commissioner to begin the process of addressing these issues. Trust your staff. Involve them in the decision making process. Democratise the ATO. A flow of ideas from the bottom up has the potential to empower and invigorate staff and produce much better results than the top down approach.

To quote a murdering Stalinist butcher who occasionally got things correct, at least verbally, “Commissioner, let a hundred flowers bloom; let a hundred schools of thought contend.” Do that, and the problems I have identified will become challenges with solutions. Commissioner, you'll be surprised by the creativity of your staff, all your staff. Give them the chance to design a new ATO.