The Rudd government has announced a root and branch review of Australia’s tax system under the leadership of the head of the Treasury, Ken Henry. Henry will report back to government in February 2009. Nothing so far indicates that this bastardized version of neo-liberalism is under challenge.

For many years the tax policy and legislation function resided in the Australian Tax Office (ATO). The Treasury had ultimate responsibility for tax policy but was heavily influenced by the ATO. The drafting of tax law was the prerogative of the Office of Parliamentary Counsel (OPC), but again the ATO had immense power in determining the final product.

The dominant role of the ATO was not surprising. Its expertise covered (and still covers) tax interpretation, and a concomitant of that was (and is) expertise in the development of tax policy and legislation. However, having the ATO develop policy and design laws it then administers, especially in the context of a perceived tax office culture of revenue protection, created problems for business and advisers.

As a consequence the conservative Howard government, six years ago, transferred the tax law design function from the ATO to the Treasury. The ATO would advise Treasury on administration matters and revenue and other costings. Peter Costello was Treasurer at the time. He said the reasons for the transfer were to “bring the accountability for tax policy and legislative design more directly under direct Ministerial control” and to “reinforce the need for whole of Government perspectives to be taken into account in tax law design processes”. The then Treasurer also said that there would be consultation on all substantive tax legislation initiatives, including early expert input into the development of tax policy and law.

Six years on, and what judgements can we make about the success of the move, and of the wider consultative process? Is the new tax law any better since Treasury took on the tax law development function? Not really, if the recent Better Tax Design and Implementation Report is any guide.

Shortly after coming to office, the new Rudd Labor government commissioned a group of tax experts from advisory firms, the ATO, OPC and Treasury and other areas to examine options to reduce delays in developing tax laws, to improve quality through enhanced consultation, and to increase community input into the prioritization of tax law changes. The Tax Design Review Panel’s Report recommended more consultation at every stage of the tax design process. In the light of the then Treasurer’s comments six years ago about greater consultation, the question needs to be asked. What has been going on for the last six years?

The Report goes further and wants consultation to occur before policy is settled, in other words while it being developed. I think the Panel actually wants not just private sector consultation (of which the last six years provide ample examples) but private sector domination of the whole process of tax policy and tax law development.

How? Through tripartite teams (i.e. the Treasury, ATO and the private sector) that will develop tax policy and law from go to whoa. This means the private sector, which may be the object of the changed tax laws, will be involved from the very beginning; involved in policy development, law development and ATO implementation.

This menage a trois will be at the conception as well as the birth of new tax laws. In my opinion these tripartite groups will be the stalking horse for the private sector to dominate tax policy. Six years ago it was vale ATO, now it is goodbye Treasury.

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