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EXCLUSIVE

Revealed: how the Tax Commissioner was leant on to deliver high-end tax cuts

Peter Martin

When Treasurer Scott Morrison rose in Parliament in May to deliver a budget speech promising high-end tax cuts "from July 1", he knew he faced a powerful obstacle.

Bundles of emails released to Fairfax Media under the Freedom of Information Act reveal he had been told in April that Tax Commissioner Chris Jordan was reluctant to agree to the request, believing that in normal circumstances pay-as-you-earn tax scales could only be adjusted after legislation, passed by both houses of Parliament.

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The Treasurer has set a target for the first half of 2017 to get the budget back in the black as he continues to warn of economic challenges ahead.

Jordan, a former policeman who studied accounting at night and went on to work for both prime minister John Howard and treasurer Wayne Swan on tax matters, wanted to stick to the rules.

But Morrison and Prime Minister Malcolm Turnbull had run out of time. Parliament was due to finish sitting within days of the budget without time to legislate the change and it wouldn't resume until after the election, well into the new financial year.

Asked the morning after the budget whether the tax cuts would be delivered from July 1 as promised, Turnbull replied with more confidence than he might have felt, "that is exactly the goal". The cuts would be delivered "administratively".

Emails between the Tax Office and the Treasury ahead of the budget had all-but snuffed out that possibility, offering only a flicker of a hope that if the legislation was introduced into Parliament and supported by the opposition (the words "introduced" and "and" were underlined) a commissioner might be able to "turn their mind to the circumstances at the relevant time".

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To this end, on April 21, a fortnight before the budget, the Treasury told the Tax Office that the Treasurer's Office "was confident that the proposed personal tax changes would secure passage", even though they hadn't yet been announced.

But the opposition gave no such assurance, and Commissioner Jordan's position hardened. In the pre-election budget update released as part of the Charter of Budget Honesty, he inserted a paragraph saying he required "the relevant legislation to be passed" before he would amend the schedule.

The Tax Office went further in an email to West Australian journalist Shane Wright, raising the possibility that even a change in the law mightn't be enough. "If" a change was legislated by the incoming government, the ATO would "consider" the administrative approaches available to implementing new rates. It normally adjusted scales only once each year, and the date had passed.

After the election and after the Coalition was returned without delivering the promised tax cut, the Treasury wrote to the Tax Office pleading for "more specificity", saying: "As you would appreciate, when people actually receive the benefit of the tax cut will be a key sensitivity."

The office backed down just a bit, saying that because it took several weeks for employers to adjust their computer systems to implement new scales, it was prepared to announce them before the legislation had passed, so long as it had been introduced and it was "clear that the measure has sufficient support in Parliament".

But it couldn't find evidence for that support. It scoured newspapers and press releases and determined that Greens were opposed, the position of the new senators was "unclear" and there was "no reliable source indicating Labor's position on this matter since the election".

Then, unintentionally, Labor supplied it. In a press release headed "SloMo on the income tax cuts" on September 1, two months after the promised cuts, Labor's Chris Bowen and Andrew Leigh berated the Treasurer for being unable to prevail over the Tax Commissioner.

It included the words: "Labor immediately gave bipartisan support to these income tax cuts". Morrison's office immediately forwarded it to the Tax Office and asked for it to approve the new schedule straight away. If it could "let us know if possible by 2pm question time that would be great".

Some in the Tax Office weren't convinced. "There is no explicit statement of support here," complained one official. But in the middle of question time on September 1, deputy commissioner Matthew Bambrick relented, writing that he was satisfied the legislation would pass and that he would issue the new schedules.

The tax cut, for Australians earning between $80,000 and $87,000 would be delivered on October 1. Employers would be given four weeks to update their software. The commissioner had been worn down.

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