The Australian Taxation Office (ATO) is attempting to crack down on debtors and has suggested that the Abbott government could change the law to count tax debts in personal credit ratings.
Second commissioner Geoff Leeper expressed his agreement, in a parliamentary hearing, stating that such a change could be one way to stop collectable debt rising. Debt to the ATO has almost reached $18 billion, 60 per cent of which is owed by small businesses.
The Federal credit reporting changes began on the 12th March 2014 as part of reforms to the Privacy Act, which will provide lenders with access to records of how consumers pay back debt and what mortgages, loans and credit cards they have.
Mr Leeper said Tax Office debt was not disclosed to the markets because of privacy provisions.
"There are no credit reference consequences from being in debt to the tax office," he said. "You certainly would get failure to lodge or general interest charge consequences but being in debt to us does not affect your credit rating. This is a matter for government to consider at some point."
He said the government could change the law so that "the Commonwealth as an entity have the ability to advice a credit market, 'Geoff owes $41,000', without disclosing the nature of that debt".
Mr Leeper said typical payment terms are 52 days and 56 days for large businesses, "Most of our debt is small business activity statement debt, so you can well imagine that there is a kind of cash flow crunch going on here."
Coucil of Small Business of Australia executive director Peter Strong argues that small business owners in debt shouldn't be named and shamed because sometimes people just had a "bad year" and had arrangements to pay back the tax office. He also added that lenders already asked small businesses if they had debts to the tax office before giving them loans.
"The ATO needs to find the people who are fair dinkum tax dodgers," he said. "Naming and shaming small business people isn't going to help. It is just going to add to the individual's stress."
Mr Strong continued to explain that the Tax Office had recently been more heavy-handed in its approach to small business. "We've been hearing that the tax office is being much more aggressive, winding businesses up, whereas in the past it might have given them time to work through the situation."
Tony Greco, senior tax advisor from the Institute of Public Accountants, said the law needed to be changed to account for tax office debt in credit ratings. "It does appear to be an anomaly if they can't provide that information to organisations that provide the credit history."
Mr Leeper claims that many of the cash flow problems facing business resulted from the global financial crisis, during which the tax office took "a more accommodating stance on debt".
Tax debt has jumped 6.5 per cent from $16.6 billion to $17.7 billion between 2012 and 2013. The rise in debt is partially due to the rise in total tax collected.
Tax commissioner Chris Jordan said the ATO has a tool on its website that small businesses could use to determine "how much free cash flow, if any, there may be from the business". The tools purpose is to allow a business owner to know how much they need to live on and service other debts, before they pay back the Tax Office.
"We can say to people, 'this is what we use to look at your viability'." Mr Jordan said.
The ATO had also given further benchmarking data on various industries. Small businesses "sitting at the bottom", he said, would be able to take action to ensure the business stays afloat.