Introduction

The shadow economy

1.1 The shadow economy refers to the range of economic activities that take place outside the tax and regulatory systems.⁷ The Organisation for Economic Co-operation and Development’s (OECD’s) definition of the shadow economy focusses on economic activities that are unreported or dishonest (see Box 1).⁸

1.2 The OECD estimates shadow economies globally range from one per cent of gross domestic product (GDP) to 20 per cent, and that shadow economies are a significant part of the tax gap in most countries.⁹ For 2019–20, the Australian Taxation Office (ATO) estimates that the shadow economy in Australia accounted for $12.4 billion (30.6 per cent) of the gross tax gap.¹⁰ The ATO reported that the increase in the 2019–20 tax gap is largely driven by increases in shadow economy estimates for small business income tax and tobacco excise for that year.

• The ATO reported that the shadow economy accounted for 62 per cent ($8 billion) of the tax gap for the small business market in 2019–20.
• The ATO reported that the tobacco excise gross tax gap increased from $655 million in 2015–16 to $2.1 billion in 2019–20. The ATO attributes all of the tobacco excise tax gap to the shadow economy.

1.3 According to the OECD, the shadow economy is a long-standing problem which is constantly changing and adapting. There are several trends impacting the shadow economy including: changes in ways of working and business models; the growth of the digital economy; and wider social changes and globalisation. These are causing new shadow activities to emerge and some existing ones to expand in scale and scope.¹¹

1.4 Activities within the shadow economy include: not reporting, or under reporting income; underpayment of wages (like paying for work cash-in-hand); sham contracting; identity fraud; Australian Business Number fraud; illicit tobacco and duty evasion; money laundering; unregulated gambling; motor vehicle fraud; and illegal drugs. In 2017, the Black Economy Taskforce (discussed below) identified ‘not reporting or under reporting income’ as the most common shadow economy activity in Australia.¹²

1.5 Box 2 outlines potential economic and social impacts of the shadow economy.

Source: OECD, Shining Light on the Shadow Economy — Opportunities and Threats, 29 September 2017, p. 8.

Black Economy Taskforce

1.6 In 2016, the Board of Taxation found that effort was needed to address the growth of the shadow economy in Australia.¹³ In response, in 2016, the Department of the Treasury (Treasury) received $1.6 million over two years from 2016–17 to establish the Black Economy Taskforce (the Taskforce, see Appendix 3 for membership).¹⁴ The Taskforce was to develop a whole-of-government strategy and policy agenda to address the shadow economy. The Government noted that shadow economy activities ‘disadvantage honest taxpayers, undermine the integrity of our tax and welfare systems and reduce the amount of revenue collected by governments’.¹⁵

1.7 In March 2017, the Taskforce released its interim report — Black Economy Taskforce Interim Report.¹⁶ The report outlined initial findings on the scope, drivers and risks underpinning shadow economy activities. It made nine recommendations. The interim report noted that few inroads had been made into the shadow economy in recent years and that the shadow economy is not just a taxation issue. Rather, it touches on policy and regulatory settings across government making it a whole-of-government issue.

1.8 In October 2017, the Taskforce produced its final report — Black Economy Taskforce Final Report.¹⁷ It made 80 recommendations (62 recommendations and 18 supplementary recommendations) directed at many areas of government. It set out a high-level strategy covering 10 areas (see Appendix 4) and identified 16 high-priority issues and associated recommendations.

1.9 Describing the shadow economy as an ‘urgent, pervasive and damaging problem’, the Taskforce estimated that the size of the shadow economy had grown from 1.5 per cent of GDP¹⁸ in 2012 to three per cent in 2017.¹⁹ The Taskforce’s report highlighted a gap within the Australian Public Service, stating that ‘we do not have a single policy and strategic home for the black economy within government; no central body examines emerging trends and vulnerabilities from a whole-of-economy perspective’.²⁰

Government response to Black Economy Taskforce report

1.10 In the 2017–18 Budget²¹, the Government introduced three measures in response to the Taskforce’s interim report around: banning electronic sales suppression tools²²; reporting on contractors in the courier and cleaning industries; and extending funding for one year for ATO audit and compliance activities.

1.11 In May 2018, the Government responded to the Taskforce’s final report.²³ It agreed that a new approach was needed to bring together multiple arms of government and leverage private sector expertise. Table 1.1 provides an overview of the Government response to the Taskforce’s 80 recommendations.

Table 1.1: Government response to the Taskforce recommendations, May 2018

Note a: Generally, if the Government response for a recommendation included multiple types of responses (i.e., agreed in principle to part of the recommendation and noted for another part), the recommendation has been counted towards the higher-level level of agreement. In this case, it would be agreed in principle.

Note b: Five of the supplementary recommendations were not included in the May 2018 Government response. See discussion at paragraph 2.15.

Source: Australian Government, Tackling the Black Economy: Government Response to the Black Economy Taskforce Final Report, May 2018, pp. 13–43.

1.12 Commencing with the 2018–19 Budget, through multiple budgets the Government introduced measures to implement the Taskforce’s 80 recommendations set out in its final report. Appendix 5 lists the Budget measures that have been introduced in the context of implementing the Taskforce interim and final reports. These measures were to be delivered primarily by Treasury, the ATO and the Department of Home Affairs (Home Affairs).²⁴ Through these measures, the Government provided $921 million in funding between 2017–18 and 2025–26.²⁵

1.13 Key measures from the 2018–19 Budget included the following:

• $318.5 million to the ATO and the Office of the Commonwealth Director of Public Prosecutions to deliver new and enhanced enforcement against the shadow economy;
• $153.2 million to Home Affairs, the ATO, Treasury and others to deliver a package combatting illicit tobacco, including to establish an Illicit Tobacco Taskforce;
• $19.3 million to the ATO, the Australian Securities and Investments Commission and the then Department of Industry, Innovation and Science to develop a business case for modernising business registers;
• $12.3 million to Treasury to establish an implementation team to coordinate the implementation of the whole-of-government response to the Taskforce report and to implement its recommendations; and
• $3.4 million to the ATO to lead a multi-agency Black Economy Standing Taskforce to facilitate a cross-agency approach to combatting the shadow economy.

Previous audits and review

1.14 A 2012 Inspector-General of Taxation review into the ATO’s use of benchmarking to target the shadow economy made eleven recommendations, which included: improving community awareness on benchmarking; improving support for tax practitioners and taxpayers; and enhancing data integrity of benchmark inputs. The ATO agreed with nine recommendations in full and two in part.²⁶

1.15 Auditor-General Report No. 27 2015–16 Strategies and Activities to Address the Cash and Hidden Economy found that the ATO’s strategies were consistent with international practice, however, there were not clearly defined indicators to measure the success of its strategies. The report made two recommendations which the ATO agreed with.²⁷

1.16 Auditor-General Report No. 18 2019–20 Tax Avoidance Taskforce — Meeting Budget Commitments focussed on the ATO’s Tax Avoidance Taskforce.²⁸ It also considered the 2018–19 Budget measure which provided the ATO with $313.2 million over four years to expand and enhance its existing activities to combat the shadow economy. For the shadow economy program, the audit found that documentation was more detailed in supporting resource estimates. The ATO advised at the time that there was no way to track effort against compliance work undertaken across the ATO. The audit found that the ATO was not able to provide the number of full-time equivalent staff working on the program or what activities the program included. The audit report noted that for the shadow economy program budget measure, the ATO had developed a methodology to estimate actual resourcing and established project codes to track shadow economy case work. The report made two recommendations. The ATO agreed with one recommendation and partly agreed with the other.²⁹

Rationale for undertaking the audit

1.17 The Taskforce outlined the harm caused by the shadow economy to vulnerable individuals, as well as the potential to penalise those doing the right thing by creating an uneven playing field. It found that the shadow economy was ‘rapidly shifting and evolving in step with wider economic, technological and social changes’.³⁰ It outlined the need for better governance within the Australian Public Service to address risks related to the shadow economy.³¹ It also highlighted the need for sustained focus on the implementation of its strategy.³²

1.18 The shadow economy undermines the integrity of the tax system, penalises taxpayers who do the right thing and has the potential to create a culture of non-compliance.³³ For the ATO, the shadow economy remains an ongoing risk to the ATO’s purpose of fostering willing participation in the taxation and superannuation systems.

1.19 Treasury, the ATO and Home Affairs have primary responsibility for implementing the Taskforce recommendations and for ongoing management of the whole-of-government response to the shadow economy. This audit provides assurance to the Parliament about whether the Government response to the Taskforce’s report is being implemented effectively.

Audit approach

Audit objective, criteria and scope

1.20 The objective of the audit was to assess the effectiveness of the implementation of the Government response to the Black Economy Taskforce report.

1.21 To form a conclusion against the objective, the following high-level criteria were adopted.

• Did Treasury establish effective governance and coordination arrangements supporting the implementation of the Government response to the Black Economy Taskforce report?
• Are the entities effectively implementing the recommendations that they are responsible for?
• Are the entities effectively implementing recommendations where there is more than one entity responsible for implementation (shared responsibility)?

1.22 This audit primarily focusses on assessing whether the 27 Taskforce recommendations agreed to by the Government have been effectively implemented (see Table 1.1). For the Taskforce’s 53 other recommendations, the Government agreed in principle, supported, noted or did not support these. Where the Government response to these 53 recommendations included a new action to be undertaken, the ANAO sought to verify whether these actions have been undertaken (see paragraph 2.81). For the remaining recommendations, the ANAO sought to rely on Treasury’s information for implementation status (see paragraph 2.82).

Audit methodology

1.23 The audit methodology involved:

• examination of entity records, including email records and electronic documentation;
• meetings with officials of Treasury, the ATO and Home Affairs; and
• meetings with other Australian Government entities not subject to this audit.

1.24 The audit was conducted in accordance with ANAO Auditing Standards at a cost to the ANAO of approximately $562,154.

1.25 The team members for this audit were Nathan Callaway, Dr Leah Farrall, David Willis, Amanda Reynolds, Joanna Giang, Michael Dean, Alyssa McDonald and David Tellis.

2.1 For cross-entity initiatives, additional effort is often required to design effective governance arrangements than for single-entity initiatives. These arrangements should be tailored to facilitate horizontal collaboration and ensure a clear line of vertical accountability.³⁴

2.2 The Taskforce report stated that there was a need to have sustained focus on implementation, something that it observed had not happened with previous shadow economy reviews.³⁵ In this context, the Taskforce noted:

We need to leave a lasting institutional legacy, to ensure this problem receives the attention it deserves in future years. This will require changes to the machinery of government, but also new patterns of cooperation with the states and territories and other countries.³⁶

2.3 The Taskforce report also outlined the need to break down agency silos and embrace joint action in relation to the shadow economy.³⁷ The Taskforce argued that clear responsibilities and accountabilities would be needed so that the ‘[r]eport is not left on the shelf’.³⁸

2.4 Treasury was responsible for managing implementation of the whole-of-government response to the Taskforce report, including reporting back to Government on implementation.³⁹

Does Treasury’s management of information support effective governance and coordination?

Information management

2.5 The management of information is fundamental to sound public sector administration.⁴⁰ Under the Archives Act 1983, the National Archives of Australia sets information management standards for Australian Government agencies.⁴¹ The Public Governance, Performance and Accountability Act 2013 also includes requirements relating to recording keeping.⁴²

2.6 The ANAO found the following regarding Treasury’s management of information relating to the whole-of-government implementation of the Taskforce report.

• Records were not always available to support efficient and continuous business.⁴³
• Records of key decisions were not always documented.⁴⁴
• Records did not always provide evidence of policy and program development and implementation.⁴⁵
• Records did not allow for transparency and accountability.⁴⁶

2.7 Treasury’s management of information impaired its ability to support effective governance and coordination in terms of the whole-of-government implementation of the Taskforce report. The impacts of Treasury’s poor information management in this regard are discussed throughout this audit report and include: not having clearly defined implementation roles and responsibilities; not having a clearly defined implementation schedule; and not having a sound basis on which to report on the implementation of the recommendations across government.

2.8 Poor information management has also impacted Treasury’s ability to demonstrate effective implementation of the Taskforce recommendations that it had responsibility for. These issues are further discussed in Chapters 3 and 4.

2.9 Poor information management creates a range of risks such as not being able to find information when needed and not being able to trust the completeness and accuracy of the information. As Treasury noted in its 2021–22 Corporate Plan, Treasury relies on high quality analysis as well as timely access to information to deliver high quality advice to government. Treasury’s Enterprise Information Strategy 2021–2024⁴⁷ draws the connection between well managed information and its ability to create an effective policy environment. Treasury’s management of information in relation to the implementation of the Taskforce report impacts its ability to provide accurate and timely advice to the Government (see paragraphs 2.58 to 2.63 for a further discussion on monitoring and reporting).

2.10 As a result of Treasury’s poor information management in relation to the implementation of the Taskforce report, the ANAO adopted an information collection methodology which involved the bulk extraction of mailboxes of relevant Treasury officials and a bulk download of components of Treasury’s records management systems. There are various references throughout this report to information management issues and the ability of the ANAO to assess Treasury’s role in coordinating the implementation of the Government response to the Taskforce report.

Did Treasury clearly define implementation responsibilities and accountabilities?

Development of the Government response and policy proposals

2.11 The Taskforce’s report contained 80 recommendations (see Table 1.1). The recommendations were directed across many areas of government with Treasury identifying in March 2018 that at least 15 Commonwealth entities would be involved in the implementation of the recommendations.

2.12 Treasury led the development of the Government response and policy proposals to implement the recommendations of the Taskforce report. This involved engagement across the Commonwealth entities that Treasury had identified as being relevant to develop a whole-of-government position. The Government provided a public response to the Taskforce report in May 2018.⁴⁸

2.13 Treasury advised the Government that 30 recommendations were the responsibility of other Ministers or would require coordination across multiple entities. The Government established a Ministerial Working Group to support a coordinated approach across entities. This group met in February 2018 and included the Attorney-General, the Minister for Finance, the Minister for Home Affairs, the Minister for Jobs and Innovation and the Minister for Social Services.

2.14 The Government responded to the Taskforce recommendations with the following responses: agreed; agreed in principle; supported; noted; or did not support. Treasury did not define each of these categories of response and it is not always clear the difference between agreed in principle, supported, and noted. The Government’s response to each recommendation, however, also includes a more elaborated response which sometimes provides greater clarity.

2.15 Due to an ‘oversight’ by Treasury, there were five supplementary Taskforce recommendations that were not included in the May 2018 Government response. Treasury ‘assumed’ that the Government would note these recommendations. It is not clear on what basis this assumption was made. In an October 2019 submission to the Government, these recommendations were listed as having been noted. In this submission, Treasury did not outline that these recommendations were not included in the May 2018 Government response and did not specifically seek a response from the Government in October 2019 to these recommendations.

Coordination across government

2.16 Treasury was to lead and coordinate the whole-of-government implementation of the Taskforce recommendations.⁴⁹ In the 2018–19 Budget, the department received $12.3 million over five years to establish a team to manage whole-of-government implementation and to implement the recommendations for which it had implementation responsibility.⁵⁰ This funding was used to establish the Black Economy Division in July 2018. There were to be 15 (average staffing level)⁵¹ staff allocated to the division in 2018–19 and 2019–20, with this reducing to 13 in 2020–21 and 2021–22 and then eight in 2022–23.

2.17 Treasury noted at the time that, without this staffing, implementation would be significantly delayed. It advised the Government that there was a significant risk of the recommendations not being delivered without a single coordination area leading the consultation both within and outside government. The Black Economy Division was to ensure a whole-of-government approach and to maintain the necessary focus and momentum across government.

2.18 Treasury did not set out a clear plan of action for the Black Economy Division to achieve its objectives. There was a lack of clarity around: the division’s deliverables and outcomes; cross-entity governance; stakeholder engagement; risk management; resource management; and monitoring, review and evaluation.

2.19 In the context of the COVID-19 pandemic, on 23 March 2020, Treasury’s Executive Board agreed to ‘pause’ the work of the Black Economy Division.⁵² Funding was retained by Treasury and redistributed. In June 2020, a paper presented to the Executive Board indicated that Treasury would deliver an abridged shadow economy work schedule and exit strategy from this work. There was no detail of what the abridged work schedule and exit strategy would include.

2.20 While acknowledging that the COVID-19 pandemic required a rapid response from Treasury, Treasury documentation does not provide an assessment of the potential impact of this decision on the implementation of the Taskforce report. This impacts Treasury’s ability to demonstrate ‘the proper use and management of public resources’⁵³ and requirements to document key decisions.⁵⁴

2.22 In September 2020, Treasury advised the Black Economy Advisory Board (discussed at paragraphs 2.29 to 2.33) that ‘the black economy work program is now resuming after being paused in early April’. The Black Economy Division was not re-established and Treasury advised the ANAO in March 2023 that due to the additional workload related to the COVID-19 pandemic, the work related to the implementation of the Taskforce report was resumed in a more limited way than before the pandemic started. It also advised that it has focussed on the implementation of the recommendations that it has responsibility for.

2.23 In October 2020 and June 2021, Treasury provided an update to the Assistant Treasurer on the implementation of the Taskforce report. These briefs did not outline Treasury’s abridged shadow economy work schedule and exit strategy and did not seek decisions from the Assistant Treasurer.

2.24 Treasury advised the ANAO that, as of December 2022, its work during 2022–23 relating to the shadow economy has mostly involved the cessation of the cash payment limit measure (see Table 3.2) and attendance at Shadow Economy Advisory Forum and Black Economy Standing Taskforce meetings.

Implementation governance

2.25 Treasury made several attempts to develop and define governance arrangements to support the implementation of the Taskforce’s recommendations across government. These arrangements, however, were not fully established. The ANAO requested governance documentation from Treasury and searched Treasury’s records for documentation. A range of draft documentation was found. The following observations relate to those documents.

• There were unclear decision-making roles.
• There were insufficient arrangements to provide strategic direction. There was a proposal to establish a cross-entity governance committee. This was not established. The Black Economy Advisory Board (discussed below) was also identified as being a key strategic governance body.
• There was no inter-agency operational group to support the coordinated implementation of recommendations. Treasury advised the Government in March 2018 that such a group would be established and that it would agree priorities and monitor implementation.

Note a: ANAO comment — the ANAO sought clarification from Treasury as to which aspect of the recommendation was not agreed to, noting that the department’s summary response presented on page 10 of this report indicates that the department agreed with all recommendations. Treasury advised that it considers that its existing policies meet this recommendation, but that further work is needed to ensure their consistent application.

Black Economy Advisory Board and the Shadow Economy Advisory Forum

2.29 Treasury established the Black Economy Advisory Board, with the board meeting for the first time in September 2018. The board had no executive powers, supervisory functions or decision-making authority. Its role was to provide strategic advice to the Government on the shadow economy in connection with implementation of the Taskforce recommendations, and to identify emerging shadow economy threats. Treasury advised the ANAO that this board was one of the key governance bodies for the implementation of the Taskforce recommendations. Table 3.2 provides further information about this board.

2.30 By May 2021, a decision was made to disband the Black Economy Advisory Board and transfer its responsibilities to the ATO. Documentation regarding this decision was not available, however, Treasury wrote to the ATO on 11 May 2021 to outline the transition arrangements. Treasury advised the Assistant Treasurer of this change on 21 June 2021 to take effect from 1 July 2021.

2.31 In place of the Black Economy Advisory Board, the ATO established the Shadow Economy Advisory Forum which held its first meeting in September 2021.⁵⁵ This change was to reflect a shifting focus to operational matters. Treasury advised the forum in September 2021 that the ‘whole-of-government implementation of the agreed recommendations had now largely drawn to a close’. Treasury attends the ATO forum to inform tax policy processes (as of January 2023, Treasury had attended each of the forum meetings since its establishment).

2.32 While it continues to have a mix of public and private membership, the forum does not have a role in overseeing the implementation of the Taskforce report or reporting to the Minister on emerging risks and trends within the shadow economy. The forum met six times between 1 July 2021 and February 2023, consistent with its charter.

2.33 Treasury’s website on the Black Economy Advisory Board has not been updated and, as of February 2023, refers to the board as still being in existence. There are several other aspects of Treasury’s website that are not up to date regarding the shadow economy including:

• Treasury still using the term ‘black economy’ rather than ‘shadow economy’;
• the information on the cash payment limit indicating that it is still being introduced, although the Government decided in October 2022 to not progress with this measure;
• consultations related to the shadow economy not being updated; and
• news and media not being updated.

Note a: ANAO comment — The ANAO notes that Treasury’s 24 May 2023 updates do not address all aspects identified in paragraph 2.33.

Implementation responsibilities for recommendations

2.36 In most instances, the Taskforce’s 80 recommendations were directed to ‘the Government’ rather than to specific entities. The Government’s response to the Taskforce recommendation also did not always identify the entities that would be responsible for implementation.

2.37 In October 2022, Treasury was unable to provide a source of truth to the ANAO in relation to implementation responsibilities for the recommendations. While Treasury developed a spreadsheet to track responsibilities, the most up-to-date information was contained in a spreadsheet that was last modified in September 2019.

2.38 There were inaccuracies within the September 2019 version of the spreadsheet in terms of implementation responsibilities. For the 27 agreed recommendations, the ANAO found that implementation responsibilities were: accurate for fifteen recommendations; partially accurate for eight recommendations; and inaccurate or unclear for four recommendations.

2.39 For the four recommendations where implementation responsibilities were inaccurate or unclear, the ANAO was unable to identify an implementing entity or entities, or specific set of actions for implementation. As shown in Table 2.1, the ANAO has assessed three of these recommendations as ‘not implemented’. One recommendation was assessed as ‘partly implemented’ as the Government agreed to implement the recommendation through existing arrangements, although it was not clear which arrangements were relevant and how these were to meet the intent of the recommendation. Appendix 9 lists the recommendations and presents the full Government response for each recommendation.

Table 2.1: Agreed recommendations that lacked implementation responsibilities

Note a: The description of ANAO assessment categories is at Appendix 6.

Source: Black Economy Taskforce Report, October 2017, Tackling the Black Economy: Government Response to the Black Economy Taskforce Report, May 2018, and ANAO analysis of entity documentation.

Does Treasury have a framework for coordinating the whole-of-government implementation of the Black Economy Taskforce report?

Coordination framework

2.40 It was Treasury’s responsibility to lead and coordinate the whole-of-government implementation of the Taskforce recommendations. The ANAO found that whole-of-government implementation was not managed as one program, instead, implementation consisted of initiatives, some of which had been established through Budget measures (see Appendix 5).

2.41 Despite not being managed as one program, common elements of program management (such as governance frameworks, implementation planning and performance monitoring and reporting) may have better supported Treasury to establish effective coordination arrangements. Many of these aspects were missing from Treasury’s coordination approach as outlined throughout this report.

2.42 A November 2020 internal audit found that Treasury lacked a framework for managing programs and projects. The report identified this gap as a high risk for the department. The audit report noted that the absence of such a framework reduced the likelihood of desired outcomes being achieved and the ability of the department to defend decisions.

2.43 In response, Treasury introduced a program management framework (the Framework) in May 2022. The Framework aims to address concerns around: inefficient and inconsistent practices; vital elements of project management missing; and the department’s ability to learn lessons. The Framework includes six program management fundamentals: governance; stakeholder management and engagement; risk management; controls; records management; performance reporting; and evaluation and review.

2.44 Treasury advised the ANAO in December 2022 that if implementation of the Taskforce report commenced now, use of the Framework would not be mandatory, although, staff would be encouraged to use it as appropriate.

Implementation timeframes

2.46 The Taskforce noted that the shadow economy is ‘rapidly shifting’ and that ‘a sense of urgency is needed from policymakers’.⁵⁶ Its report included ‘short-term, urgent measures, addressing the most pressing concerns, but also actions which provide a foundation for later interventions’.⁵⁷ The Taskforce set out an indicative timetable for implementation that included 24 recommendations for early action.⁵⁸

2.47 In March 2018, Treasury advised the Government that a coordinated response was needed to ensure that timing across all entities involved in implementation was optimal and that shadow economy initiatives continued to be prioritised.

2.48 As part of the development of the funding proposals for the 2018–19 Budget, Treasury outlined in February 2018 that implementation of the Taskforce recommendations would occur in two tranches — the first tranche in 1–18 months (2018–19), and the second tranche in 18–36 months (2019 onwards). There was inconsistent information in this advice in terms of which tranche seven of the recommendations would be implemented and 16 of the recommendations, including two fully agreed to by the Government, were not included.

2.49 Of the 24 recommendations prioritised for early action by the Taskforce, 14 were planned to be delivered as part of tranche one, six as part of tranche two, one (recommendation 5.1 — development of a shadow economy data strategy) was not included in either of the tranches and three recommendations were not agreed to by the Government.

2.50 The Black Economy Division was to ensure that timing for implementation was coordinated across government. There was no evidence that Treasury actively monitored and managed the whole-of-government implementation timeframes. This included that there was no evidence of monitoring and reporting against the two tranches that were developed as part of the 2018–19 Budget process.

2.51 Planning of timeframes for individual recommendations is discussed in Chapters 3 and 4.

Does Treasury have fit-for-purpose arrangements to monitor and report on implementation progress, and to evaluate outcomes?

2.52 Performance planning and reporting should provide meaningful performance information with a clear line of sight between planned and actual performance.⁵⁹ Fit-for-purpose monitoring and evaluation activities should be planned before beginning any program or activity. This includes identifying timeframes, resources, baseline data and performance information.⁶⁰

Implementation monitoring

2.53 In relation to the Taskforce report, Treasury was responsible for tracking the implementation of cross-portfolio initiatives and updating Treasury ministers on progress.⁶¹ Treasury did not have adequate processes to monitor the whole-of-government implementation of the recommendations. There was a lack of clear articulation of what success would look like, what should be monitored and how often. At the whole-of-government level:

• implementation responsibilities were not always clear (see paragraphs 2.36 to 2.39);
• there was no implementation plan, or schedule, on which to base an assessment of implementation and timeliness (see paragraphs 2.46 to 2.51);
• it was unclear how implementation of cross-portfolio projects would be tracked; and
• there were no performance measures.

2.54 Treasury developed a mapping spreadsheet (discussed at paragraph 2.37) with data to monitor implementation of the recommendations. This spreadsheet had not been updated by Treasury since September 2019. In October 2022, Treasury updated the information in this spreadsheet with the aim of providing the ANAO with the current implementation status of all of the recommendations.

Treasury assessment of implementation

2.55 Treasury’s assessment of the status of the 80 Taskforce recommendations is as follows.

• As of September 2019, Treasury assessed that: 36 (45 per cent) of the recommendations were in progress; 22 (27.5 per cent) required no further action; and 22 (27.5 per cent) were implemented.
• As of October 2022, Treasury assessed that: 24 (30 per cent) of the recommendations were in progress; 26 (32.5 per cent) were implemented; two (2.5 per cent) were partly implemented; and 28 (35 per cent) were not implemented.

2.56 The ANAO did not verify the completeness and accuracy of the September 2019 data. There was no documented process supporting the collection of data for this spreadsheet. Treasury advised the ANAO that it relied on periodic updates from other entities in terms of their implementation of recommendations and that it did not actively monitor the status of recommendations being undertaken through other government processes.

2.57 There were risks to the quality of the October 2022 data due to the quality of Treasury’s information and the ability of the department to seek updates from implementing entities as contact had not been maintained with relevant entities.

Implementation reporting

2.58 As part of its coordination role (see paragraphs 2.16 to 2.24), Treasury was to report back to the Government on implementation of the Taskforce report. Treasury did not clearly define reporting arrangements, including the frequency, the content, how to handle emerging issues and risks that arise outside the regular reporting cycle and the audience for reporting.

Reporting to Government

2.59 Between July 2018 and December 2022, Treasury made seven submissions to the Treasurer or Assistant Treasurer providing updates on the whole-of-government implementation of the Taskforce report.⁶² Three submissions were in 2018, three in 2019 and one in 2021.

2.60 The ANAO identified issues relating to the quality of advice to the Government.

• Commencing with the Government response to the Taskforce report, Treasury did not include five of the Taskforce’s supplementary recommendations in the submission to Government (as discussed in paragraph 2.15).
• Reporting to the Government over time was in different formats and information varied over time making it difficult to track implementation progress. In January 2019, Treasury reported that 12 of the 80 recommendations had been ‘completed’. In this context, ‘completed’ meant implemented. Then in September 2019, Treasury reported that 53 recommendations had been ‘actioned’ instead of ‘completed’. In this context, ‘actioned’ included recommendations that were both implemented and being implemented.
• In October 2019, Treasury provided an update on the implementation of recommendations and proposed a strategy for progressing these recommendations. Treasury suggested that several recommendations had been implemented when, according to ANAO analysis, they had not.
• As of February 2023, there have been no updates to Government since June 2021. Data provided to the ANAO by Treasury in October 2022 indicates that 30 per cent of all recommendations were in progress and that 30 per cent of all fully agreed recommendations were in progress at that time.

External reporting

2.61 As of February 2023, Treasury’s website includes information about the Taskforce report and the shadow economy, although as noted (see paragraph 2.33), this content is out of date. The ATO’s website also included reporting about the implementation of the Taskforce report. This was largely focussed on the ATO’s activities rather than the whole-of-government implementation.⁶³

2.62 In its 2017–18 Annual Report, Treasury included a case study about Combatting the Black Economy.⁶⁴ Treasury did not develop an external performance measure relating to the implementation of the Black Economy Taskforce program of work.

2.63 Treasury is also responsible for reporting to the Black Economy Standing Taskforce (discussed in Table 3.3) on the whole-of-government implementation of the Government’s shadow economy agenda. It is unclear how Treasury would be in position to fulfil this role.

Internal reporting

2.64 There was one documented implementation update to the Secretary to the Treasury in October 2018 from the Black Economy Division on the implementation of the Taskforce report.

2.65 Between October 2018 and March 2020, there were approximately fortnightly brief updates from Treasury’s Revenue Group to the Executive Board covering the work of the group, including the Black Economy Division. Between July 2018 and December 2022, in reporting to the Executive Board there were also various references to the funding for the Black Economy Division.

Evaluation

2.66 The Commonwealth Evaluation Policy, introduced in December 2021, outlines that entities should set clear objectives for policies, projects and programs, and measure progress towards achieving these objectives.⁶⁵

Objectives

2.67 In its report, the Taskforce set out a whole-of-government strategy and policy agenda to address the shadow economy, stating that:

This agenda has a clear purpose and objective: to make our society both fairer and more equitable by creating a level playing field. To the extent that this yields a revenue dividend, the Government’s capacity to fund needed services (or provide tax relief or lower deficits) will be greater.⁶⁶

2.68 It also stated that a strategy is required that: ‘addresses underlying causes, not symptoms, while keeping regulatory burdens low; goes beyond tax; and breaks down agency silos and embraces joint action and the intelligent use of data and analytics’.⁶⁷

2.69 The Taskforce’s high-level strategy contained 10 elements (see Appendix 4). The Government response to the Taskforce’s report stated that implementation of its response would seek to address the underlying causes of the shadow economy.⁶⁸

2.70 In December 2018, Treasury specified a strategic objective and outcome relating to the whole-of-government implementation of the Taskforce report, as shown in Figure 2.1.

Figure 2.1: Whole-of-government strategy for combatting the shadow economy

Source: Treasury documentation.

Assessing the achievement of objectives

2.71 Treasury did not set out an approach for assessing whether the objective and outcome presented in Figure 2.1 were achieved. It advised the ANAO in October 2022 that ‘as a policy agency, not a regulatory agency, Treasury does not undertake whole-of-government evaluation of the success of individual measures, including those that are now managed and implemented by other agencies’. Treasury noted that other entities may have evaluation arrangements for their recommendations.⁶⁹

2.72 Without an evaluation framework at the whole-of-government level, Treasury has been unable to demonstrate the extent to which the implementation of the Taskforce’s strategy, as set out in its report and to be delivered through its recommendations, has achieved its intended objectives.

2.73 The Commonwealth Evaluation Policy includes guidance on planning, undertaking and reporting on evaluations, including around establishing evaluation arrangements to support the development of new policy proposals. This guidance highlights the importance of planning for evaluation and having a structured approach to assessing the achievement of objectives.

2.74 Recommendation 2.1 of the Taskforce report, which was agreed to by Government, was to implement an ongoing shadow economy research program. The Taskforce stated that part of this program could be about measuring the effectiveness of Government responses to the shadow economy. As of February 2023, this recommendation had not been implemented (see Table 3.2).

Five-year report

2.75 Treasury expected that implementation would take five years (until 30 June 2023) and that there would be a five-year report on the progress in implementing the recommendations, and on the emerging trends and risks in the shadow economy.⁷⁰ Treasury is responsible for producing the report and part of the rationale for seeking five years of funding for the Black Economy Division (see paragraph 2.16) had been to complete the report by June 2023.

2.76 The Taskforce report suggested that the report would be developed every five years. It outlined that it should be strategic in focus and provided the following view.

In addition to looking at emerging trends and risks, they [the reports] would consider the size of the black economy and factors (policy-related, economic and social) which may be contributing to its growth (or reduction). In doing so, the reports would adopt the same approach as this Taskforce, which has rejected the view that the black economy is merely a tax phenomenon and highlighted its dynamic and changing nature. The reports could be part of the Government’s Intergenerational Reports.⁷¹

2.77 Treasury identified the need to plan for the report, stating in October 2018 that during 2019 the structures for the five-year report would be established. There was no evidence of adequate planning in this regard.

2.78 Treasury reallocated funding away from Taskforce activities in the context of the COVID-19 pandemic (discussed paragraph 2.19 to 2.20). However, it still intended to produce the five-year report. It advised the Government in June 2021 that it would have responsibility for the five-year report and would advise the Government on appropriate arrangements, including the ongoing need for a five-year report, in due course. Treasury has not produced the five-year report and has not reported to the Government in relation to the report. In May 2023, Treasury advised the ANAO that it intends to brief the Government on a range of shadow economy matters raised in this audit, including the merits of an evaluation to assess whether the objectives of the whole-of-government strategy have been achieved.

ANAO assessment of the implementation status of recommendations

2.79 As outlined in Table 1.1, the Government responded to the 80 recommendations of the Taskforce in a variety of ways in May 2018. Of the 80 recommendations, the Government:

• did not support or did not respond to eight recommendations;
• agreed with 27 recommendations⁷²; and
• agreed in principle, supported or noted the remaining 45 recommendations.⁷³

2.80 The Government responses to each of these 45 recommendations (agreed in principle, supported or noted) can be further categorised into responses that identify new actions to be undertaken and responses that do not include new actions (for example, by referring to other reviews or processes already underway). Of the 45 recommendations, the ANAO assessed that the Government responses for:

• 18 recommendations included new actions; and
• 27 recommendations did not include new actions.

2.81 Table 2.2 provides an overview of the ANAO’s assessment of the implementation of the 27 recommendations agreed to by the Government.⁷⁴ The table also provides an assessment against the 18 recommendations where the Government response included new actions to be undertaken. The ANAO assessed whether these actions had been completed.

Table 2.2: ANAO assessment of the implementation status of Taskforce recommendations, as of March 2023

Note a: Appendix 6 provides the ANAO’s categorisation of assessment status.

Source: ANAO assessment of entity documentation.

2.82 For the 27 recommendations that were agreed in principle, supported or noted by the Government and did not include new actions, the ANAO did not verify implementation. For these 27 recommendations, Treasury data indicated that: nine had been implemented; 10 had not been implemented; and eight were in progress.

3.1 Effective implementation of recommendations is best supported by fit-for-purpose governance and implementation arrangements.⁷⁵ Effective implementation is ultimately about whether the recommended actions have been undertaken and whether those actions have achieved the intent and outcomes of the recommendation.

3.2 The Taskforce report included recommendations where implementation had either a single entity leading implementation or recommendations with shared responsibilities for implementation.⁷⁶ Table 3.1 provides an ANAO breakdown of the Government’s response to single entity-led recommendations.

Table 3.1: Agreed recommendations with one lead entity responsible for implementation

Source: ANAO analysis of the Government response to the Taskforce report.

Is Treasury effectively implementing the recommendations that it has responsibility for?

Governance and processes supporting implementation

3.3 As outlined in Table 3.1, Treasury led the implementation of seven recommendations that were agreed to by the Government.⁷⁷ These are listed in Table 3.2 below.

Roles and responsibilities

3.4 Treasury established the Black Economy Division (discussed paragraphs 2.16 to 2.24) in July 2018 to coordinate the whole-of-government implementation of the Taskforce report. This division also had responsibility for the implementation of six of the seven recommendations that Treasury was responsible for implementing.

3.5 The ANAO found that Treasury’s records did not clearly set out roles and responsibilities for implementing its recommendations, including whether there were oversight arrangements, senior accountable officers and project leads.

Implementation process

3.6 Treasury did not have a documented process for the implementation of its recommendations. As such, the ANAO reviewed available documentation from each recommendation to attempt to identify an implementation process. The ANAO found the following.

• There were no project plans or evidence of fit-for-purpose planning for five of the recommendations. For two recommendations (3.1 and 8.2), there were one page project plans, however, it is unclear if these plans were finalised.
• There was evidence of partly fit-for-purpose planning and management of implementation timeframes for two of the seven recommendations (3.1 and 9.2).
• Treasury had no process in place to assure or confirm that its recommendations had been implemented in full.

Monitoring and reporting on implementation

3.7 Treasury did not have a defined process for monitoring and reporting on the implementation of its seven recommendations. There was also no evidence of regular internal monitoring and reporting to track the implementation of the seven recommendations.

Implementation of recommendations

3.8 Of Treasury’s seven agreed recommendations, it self-assessed in March 2023⁷⁸ that it had: ‘implemented’ one (recommendation 7.1); ‘largely implemented’ one (8.2); ‘partly implemented’ two (12.8 and 16.1); and ‘not implemented’ three (2.1, 3.1 and 9.2).

3.9 As shown in Table 3.2, the ANAO assessed that: two recommendations were ‘largely implemented’; one was ‘partly implemented’; and four were ‘not implemented’. Appendix 5 lists the Budget measures referred to throughout the table. Appendix 9 lists the recommendations and presents the full Government response for each recommendation.

Table 3.2: Treasury’s implementation of the Taskforce recommendations

Note a: The description of ANAO assessment categories is at Appendix 6.

Note b: Standards Australia, Supply chains standards to reduce the black economy, undated, available from https://www.standards.org.au/getmedia/5f797bed-28a2-4cad-871b-92d9d8a609f6/Black-Economy-Discussion-Paper.pdf.aspx [accessed 23 February 2023].

Note c: Standards Australia, A Standards Recommendation Report — Combatting the black economy, enabling good practice, undated, available from https://www.standards.org.au/getmedia/98116513-5ebe-4fea-9011-9f02031c7a0c/Combating-the-black-economy-Report.pdf.aspx [accessed 16 February 2023].

Source: ANAO analysis of Treasury documentation.

Assessment of the effectiveness of implementation

3.10 The Taskforce recommendations include both actions to be undertaken and objectives or intent to be achieved. The approach to assessing implementation effectiveness (that is, whether implementation has achieved the recommendation’s objective or intent) should be fit for purpose. The Commonwealth Evaluation Policy states that decisions should be made around the scale of effort and resources allocated to an evaluation. An evaluation should be proportional to the value, impact, strategic importance and risk profile of the program or activity.⁷⁹

3.11 Treasury has not consistently determined an evaluation approach for its seven recommendations, considering what would be fit for purpose within the context of each of the recommendations. The following provide examples where Treasury has given some consideration to assessing the effectiveness of implementation.

• In relation to recommendation 3.1 (an economy-wide cash payment limit), Treasury advised the ANAO that the Shadow Economy Advisory Forum ‘provides an avenue to consider the performance of this measure and other black economy measures’. It is unclear how this is to occur in practice. The Forum’s charter does not identify this role as part of its terms of reference.
• In relation to recommendation 16.1 (advisory board), the Black Economy Advisory Board’s charter included a requirement to review the charter annually. Although the Board has since been dissolved (see Table 3.2), there is no evidence that these annual reviews occurred during its existence.
• Treasury self-assessed recommendation 7.1 (a strategy for consumers) as being ‘implemented’. Treasury again identified the Shadow Economy Advisory Forum as being an avenue to consider the effectiveness of this recommendation, however it was unclear on what basis the Forum would do this.

Is the ATO effectively implementing the recommendations that it has responsibility for?

3.12 As outlined in Table 3.1, the ATO led the implementation of six recommendations that were agreed to by the Government.⁸⁰ These recommendations are listed in Table 3.3.

Governance and processes supporting implementation

3.13 In the 2018–19 Budget, the ATO received $313.2 million over four years to introduce ‘new and enhanced enforcement’ against the shadow economy. Part of this funding was to implement the six Taskforce recommendations for which it had sole responsibility.

3.14 To deliver the Budget measure and implement its recommendations, the ATO established the Black Economy Program (BEP) in July 2018. The initial funding for the BEP ended on 30 June 2022, however, the ATO received extended funding.⁸¹ Over the four years from 2018–19 to 2021–22, the BEP consisted of 33 projects⁸² and five strategies around: compliance and enforcement activities; using data and tech to better target the shadow economy; prevention strategies; new law and policy measures; and the Black Economy Standing Taskforce.

Roles and responsibilities

3.15 The ATO established governance arrangements for the BEP, which included the: the Black Economy Program Office; the Black Economy Steering Committee⁸³; and the Black Economy Governance Committee.⁸⁴ These three aspects of BEP’s governance have roles regarding program oversight and monitoring the progress of project delivery. Each governance body had SES leadership, and for their respective projects, appointed project teams led by senior accountable officers and project managers.

3.16 The Black Economy Governance Committee is also responsible for approving changes to agreed plans, including changes to the allocation of funding within the BEP. The ATO did not spend all BEP funding (see paragraphs 3.33 to 3.34). During the program, the ATO redirected resources away from BEP work to support other work.

3.17 The ANAO found that the ATO clearly set out roles and responsibilities for the implementation of its six agreed recommendations.

Implementation process

3.18 In December 2018, the ATO developed a project management process for the BEP (the Black Economy Project Pathway) based on its corporate processes. The pathway included key documentation and activities to be undertaken throughout the project’s delivery. The Black Economy Governance Committee was responsible for approving the progression of projects through the five governance gates set out in the pathway.⁸⁵

3.19 The ANAO assessed the ATO’s planning processes and found that the ATO:

• had project or implementation plans for three of its six recommendations, had a plan for one of the two projects to implement recommendation 11.5, had plans for 10 of the 13 projects for recommendation 8.1, however for recommendation 7.4, the ATO did not have a project plan in place; and
• had implementation timeframes in place for five out of the six recommendations, with timeframes partly in place for recommendation 7.4.

3.20 In September 2021, the Black Economy Program Office advised the Black Economy Governance Committee that not all corporate project documentation requirements had been completed for 16 of the BEP’s 33 projects.

3.21 To address issues relating to corporate project documentation, the Black Economy Program Office initiated a retrospective validation process for endorsements and movements between governance gates. The Black Economy Governance Committee was ‘concerned’ about endorsing retrospective project documentation. It decided it would validate an assessment of documentation to see if delivery of a project had been ‘done well’. For the projects requiring retrospective validation, the Black Economy Governance Committee therefore did not approve the progression of a project through the governance gates.

Monitoring and reporting on implementation

3.22 A single BEP project did not necessarily link to a single recommendation from the Taskforce report. For example, the ATO advised the ANAO that recommendation 8.1 (targeted, stronger and more visible enforcement strategy) was to be implemented through 13 distinct projects.

3.23 The project management process included that regular status reporting would be undertaken for each project. The ANAO found that implementation progress was monitored and reported on for all six of the agreed recommendations.

3.24 At the end of a project, a closure report was to be completed. As of January 2023, the ATO had closure reports for five of the six agreed recommendations. For recommendation 8.1, the ATO provided final closure reports for seven of the 13 projects.

Implementation of recommendations

3.25 Of the ATO’s six agreed recommendations, it self-assessed that it had ‘implemented’ all six.

3.26 The ANAO assessed that the ATO had: ‘implemented’ two of its recommendations; ‘largely implemented’ three of its recommendations; and ‘partly implemented’ one of its recommendations. Table 3.3 sets out the ANAO’s assessment of the implementation status of each of the ATO’s six agreed recommendations. Appendix 5 lists the Budget measures referred to throughout the table. Appendix 9 lists the recommendations and presents the full Government response for each recommendation.

Table 3.3: ATO’s implementation of the agreed Taskforce recommendations

Note a: The description of ANAO assessment categories is at Appendix 6.

Source: ANAO analysis of ATO and TPB documentation.

Assessment of the effectiveness of implementation

3.27 The ATO had arrangements in place to assess the effectiveness of the implementation of its projects to implement its recommendations.

• The project plans or similar for four of the six agreed recommendations included arrangements for assessing the effectiveness of the implementation of the recommendations. For recommendation 7.4, the ATO did not have a project plan in place. For recommendation 11.5, one of the projects to implement this recommendation set out arrangements and one did not.

3.28 In October 2019, an ATO internal audit found that the BEP did not have a mechanism to measure and evaluate effectiveness at the program level. It noted the challenges in measuring the program outcomes due to the ‘broad and evolving’ scope and objectives for the program. The internal audit area also advised that the BEP should prioritise the completion of the design of a multi-layered approach for measurement.

3.29 In September 2021, the Black Economy Program Office developed the Policy Program Outcome Management Plan to define program outcomes and to set out arrangements for tracking the achievement of outcomes. As noted in Table 3.3 against the ANAO’s assessment of the implementation of recommendation 8.1, the ATO has not included measures of efficiency in its performance framework for the BEP.

3.31 As of March 2023, the ATO is finalising an evaluation of the BEP’s effectiveness. It is being undertaken by the Black Economy Program Office using information contained in the closure reports of the BEP projects. The evaluation is being conducted in line with the Policy Program Outcomes Management Plan. It includes an evaluation against financial and non-financial targets and outcomes.

3.32 Previous ANAO audits have identified improvement areas relating to how the ATO tracks expenditure and revenue against Budget measures.⁸⁶ For the BEP, the ATO developed a financial tracking methodology to enable it to track and monitor expenditure against the funding it received in the 2018–19 Budget. This audit has not examined the appropriateness of this methodology. An ATO internal audit completed in June 2021 on the methodology found the design of financial tracking options was satisfactory, however, there was room for improvement in the application of those financial tracking methodologies. The internal audit found that the application of methodologies was labour intensive and identified improvement opportunities.

3.33 As of May 2023, the ATO had completed project closure reports for 30 of the BEP’s 33 projects.⁸⁷ These reports show that the ATO had received $332.4 million in funding and had expended $242.2 million. That equates to a $90.2 million (27 per cent) underspend across the program. Reasons set out in closure reports for underspending included the: reallocation of resources to COVID-19 related programs and activities; pausing of activities, such as compliance activities, due to COVID-19 restrictions; inability to recruit planned staffing; and non-delivery of project deliverables.

3.34 The ATO advised in May 2023 that it intends to assess expenditure as part of its evaluation of the BEP, although the draft September 2022 version of the evaluation report did not cover the program underspend.

Is Home Affairs effectively implementing the recommendation that it has responsibility for?

3.36 As shown in Table 3.1, Home Affairs led the implementation of one recommendation that was agreed to by the Government. This was recommendation 13.2 — coordinated enforcement to combat illicit tobacco (see Table 3.4).⁸⁸

Governance and processes supporting implementation of recommendation 13.2 — coordinated enforcement to combat illicit tobacco

3.37 In the 2018–19 Budget, the Government introduced a measure for combatting illicit tobacco (see Appendix 5). As part of this measure, the Illicit Tobacco Taskforce (ITTF) was established on 1 July 2018. The Australian Border Force (ABF) led the establishment of the ITTF. The ITTF is a multi-agency taskforce, including: Home Affairs and the ABF; the Australian Criminal Intelligence Commission; the ATO; AUSTRAC; and the Commonwealth Director of Public Prosecutions.

Roles and responsibilities

3.38 In May 2018, Home Affairs established the Illicit Tobacco Taskforce Implementation Working Group. This group’s role was to coordinate implementation across Home Affairs and ABF in setting up the ITTF. It met eight times, with its final meeting in September 2018. The meeting minutes of the working group show that this group met approximately fortnightly and discussed relevant planning considerations, such as: a communication and media plan; funding allocation; and the development of the Joint Agency Agreement.⁸⁹ It also monitored implementation during this period with updates from relevant stakeholders.

Implementation process

3.39 In establishing the ITTF, costing agreements were created and signed by each of the partner agencies to secure funding. Funding for the ITTF is provided to Home Affairs. Home Affairs then allocates the funding to entities in accordance with these agreements.

3.40 For this recommendation, there was no project plan or stated implementation timeframes. Once the ITTF was stood up in July 2018, quarterly reports provided updates on ITTF operations, including timeframes. In its 2019–20 annual report, the ITTF noted that some timeframes were impacted due to the COVID-19 pandemic.

3.41 Ongoing governance over the ITTF is through the National Illicit Tobacco Senior Management Group⁹⁰ and the National Illicit Tobacco Management Group.⁹¹ Both groups included members from other agencies, and were responsible for the endorsement of the ITTF’s annual reports.

Monitoring and reporting on implementation

3.42 Home Affairs outlined a range of monitoring activities that have been undertaken over the establishment of the ITTF. None of these activities linked back to the Taskforce report to confirm that the recommendation had been implemented. Instead, the arrangements identified by Home Affairs were focused on the ITTF and its status at the time that the activities took place (see paragraph 3.46).

Implementation of recommendation 13.2 — coordinated enforcement to combat illicit tobacco

3.43 Home Affairs’ assessed recommendation 13.2 as ‘implemented’, as of April 2019. This is the date when the Joint Agency Agreement was finalised.

3.44 The ANAO assessed recommendation 13.2 as ‘largely implemented’ (see Table 3.4). Appendix 9 includes this recommendation and the Government response in full.

Table 3.4: Taskforce recommendation 13.2 — coordinated enforcement to combat illicit tobacco

Note a: The description of ANAO assessment categories is at Appendix 6.

Source: ANAO analysis of Home Affairs’ documentation.

Assessment of the effectiveness of implementation

3.45 The objective of this recommendation was to provide coordinated enforcement to combat illicit tobacco. The ITTF’s mission is to ‘proactively target, disrupt and dismantle serious actors and organised crime syndicates that deal with Tobacco’.⁹²

3.46 The ITTF produces weekly, quarterly and annual performance reports. The annual reports are produced for the head of each member agency of the ITTF. The 2021–22 report includes quantitative and qualitative reporting on the performance of the ITTF. It includes an overview of key operations, as well case studies outlining the work of the ITTF. The report contains statistics on ITTF detection and seizures. The ITTF reported that in 2021–22:

• it seized 462.6 million cigarettes and 33.5 tonnes of loose leaf and molasses tobacco;
• it located and destroyed approximately 77 acres of domestic illicit tobacco crops;
• the amount of revenue protected increased by 49.5 per cent from 2020–21; and
• over 20 per cent of the ABF’s total illicit tobacco border seizures were due to the ITTF.

3.47 The ITTF has not set performance targets for detections, seizures or revenue evaded. However, its 2021–22 report includes time series data from 2018–19 to 2021–22 on the theoretical value of revenue (excluding GST) evaded associated with the illicit tobacco located as part of its activities. This shows an increase from approximately $200 million in 2018–19 to $632.7 million in 2021–22. There were no targets or performance commitments linked with the funding to create the ITTF.⁹³

3.48 Home Affairs’ approach to performance monitoring and reporting provides largely sufficient evidence into the effectiveness of the ITTF and its operations. The objective of creating a more coordinated enforcement to combat illicit tobacco has been pursued through the establishment of the ITTF. While comparing performance over time provides insights, the ITTF’s quarterly and annual reports do not contain targets that specify what it aims to achieve over the period.

4.1 The Taskforce report included recommendations requiring implementation by more than one entity (shared responsibility). Fit-for-purpose governance arrangements and processes support the effective implementation of recommendations.⁹⁴ Clear implementation planning and scheduling across entities assists with: identifying roles and responsibilities; setting objectives against which to measure success; managing interdependencies; and establishing a baseline for monitoring and reporting.

4.2 There were nine recommendations agreed to by the Government with shared responsibilities. Table 4.1 shows the number of these recommendations where Treasury, the ATO and Home Affairs had responsibility for implementation.⁹⁵ Table 4.2 lists all nine recommendations.

Table 4.1: Responsibilities for agreed recommendations with shared responsibilities

Source: ANAO analysis of the Government response to the Taskforce report.

Are there fit-for-purpose arrangements supporting the implementation of recommendations with shared responsibilities?

Arrangements to coordinate the implementation of recommendations with shared responsibilities

4.3 There were nine recommendations agreed to by the Government that either Treasury, the ATO or Home Affairs had shared responsibility for implementing. As shown in Table 4.1:

• Treasury had responsibility for the implementation of all nine of these recommendations;
• the ATO had responsibility for the implementation of eight recommendations; and
• Home Affairs had responsibility for two recommendations.

4.4 As outlined in paragraph 2.16, Treasury was funded in the 2018–19 Budget to lead and coordinate the whole-of-government implementation of the Government response to the Taskforce report.⁹⁶

4.5 Treasury did not establish a cross-entity body to coordinate implementation as it had proposed (see paragraph 2.25). In relation to recommendations with shared responsibilities, Treasury proposed establishing a steering group and six working groups between the ATO and Treasury. These were also not established.

4.6 Treasury did not develop a cross-entity implementation plan. There were also no cross-entity implementation plans for any of the nine recommendations with shared responsibilities.

4.7 Although there was a lack of overarching cross-entity arrangements established to support implementation of the recommendations with shared responsibilities, there were cross-entity arrangements established for four recommendations (4.3, 6.1, 9.1 and 13.4). For example, the Modernising Business Registers program established to implement recommendation 4.3 (creation of a single business register) has joint program governance arrangements, with cross-entity representation.

4.8 In addition to these arrangements, Treasury and the ATO have a framework to coordinate working arrangements. The ATO advised the ANAO that it worked with Treasury in accordance with this protocol in implementing its recommendations. The ‘ATO — Treasury protocol’ signed on 10 September 2012 outlines that:

These working arrangements apply in designing new policies and laws that form part of these systems, and in the administration of that law once enacted. Treasury has accountability for providing advice to government on policy and law design issues. The ATO’s administration of enacted laws includes forming views about the interpretation of those laws, recognising that the courts are the final arbiter on matters of statutory interpretation.⁹⁷

4.9 Treasury, the ATO and Home Affairs each provided the ANAO with information on their own individual approaches for implementing the parts of the recommendations they considered themselves responsible for. Arrangements to identify and clearly set out shared roles and responsibilities for the nine recommendations were not established.

Governance and processes supporting the implementation of recommendations with shared responsibilities

Treasury

4.10 Similar to the recommendations where Treasury was the single entity responsible for implementation (see paragraphs 3.3 to 3.11), the ANAO found that Treasury did not have fit-for-purpose governance and processes supporting the implementation of its nine recommendations with shared responsibilities.

• Treasury has not documented clear roles and responsibilities for implementation and oversight for all nine recommendations.
• For four recommendations, Treasury developed project documentation that provides some timeframes for the implementation of recommendations (6.2, 7.5, 7.6 and 13.1). Treasury did not set out implementation timeframes for four recommendations (4.3, 6.1, 9.1 and 13.4). For one recommendation (4.2 — ABN reforms), Treasury developed a clear project timeframe outlining the work required and the stages of implementation.
• Treasury did not establish systems to monitor and track the implementation of recommendations. For all eight recommendations, Treasury did not establish processes to provide assurance that recommendations were implemented. For one recommendation (9.1 — increasing the integrity of government procurement), Treasury developed a lessons-learned document.

ATO

4.11 The ATO implemented six of its eight recommendations with shared responsibilities as part of its Black Economy Program (discussed paragraph 3.14). Two recommendations (4.2 — ABN reforms and 4.3 — creation of a single business register) were the responsibility of the Modernising Business Registers business line.⁹⁸

4.12 Similar to the recommendations where the ATO was the single entity responsible for implementation (see paragraphs 3.12 to 3.32), the ANAO found that the ATO had largely fit-for-purpose governance and processes supporting its role in the implementation of the recommendations with shared responsibilities.

• The ATO developed project documentation with clear roles and responsibilities for implementation for its eight recommendations. Arrangements were established for monitoring and reporting on implementation progress.
• For six recommendations, the ATO developed schedules and timeframes. As of March 2023, for two recommendations (6.2 — a sharing economy reporting regime and 7.6 — improving record keeping practices), the relevant legislation passed through the Parliament in December 2022 and implementation projects had not commenced.⁹⁹
• For its eight recommendations, there was monitoring and reporting on timeframes and delivery through regular status reporting.
• Four recommendations, managed as part of the Black Economy Program, were finalised as of March 2023. The ATO developed closure reports for these four recommendations. For recommendation 4.2 — ABN reforms, the ATO advised the ANAO that Treasury was the lead for the consultation and that for a consultation project the ATO is not required to conduct activities to provide assurance that the recommendation was implemented.

Home Affairs

4.13 The ANAO found that for recommendation 13.1 (modernising offences that apply to illicit tobacco), Home Affairs did not establish supporting governance and processes for implementation. Home Affairs did not establish a project to implement recommendation 13.1.

4.14 The ANAO found that Home Affairs had fit-for-purpose governance and processes supporting its role in the implementation of recommendation 13.4 — moving the taxing point for tobacco excise.

• Home Affairs established clear roles and responsibilities for implementation and oversight for recommendation 13.4. It conducted monthly or more frequent project monitoring and reporting and established a working group that included members from Home Affairs and the ATO to discuss and contribute to a range of implementation matters including import, refund, duty free operator and transitional arrangements.
• Clear implementation timeframes were established for recommendation 13.4, with monitoring and reporting on timeframes and delivery through regular status reporting. An end of project evaluation was developed in May 2021.

Have the entities completed the recommended actions and do the actions meet the intent and achieve the expected outcomes?

Implementation of recommendations

4.15 Table 4.2 includes the entities’ self-assessments of implementation of the nine recommendations agreed to by the Government with shared responsibilities.

• Treasury assessed that of its nine recommendations: three were ‘implemented’; two were ‘largely implemented’; and four were ‘in progress’.¹⁰⁰
• The ATO assessed that of its eight recommendations: four were ‘implemented’; one was ‘largely implemented’; and three were ‘in progress’.
• Home Affairs assessed that its two recommendations were both ‘implemented’.

4.16 The ANAO assessed that of the nine agreed recommendations with shared responsibilities, as of March 2023: five were ‘in progress’; and four were ‘largely implemented’. Table 4.2 sets out the ANAO’s assessment against the recommendations. Appendix 5 lists all Budget measures referred to in the table. The description of ANAO assessment categories is at Appendix 6. Appendix 9 lists the recommendations and presents the full Government response for each recommendation.

4.17 Three recommendations (6.1, 13.1 and 13.4) had Budget measures with estimated revenue gains to the Budget. As discussed in relation to the ATO in paragraph 3.32, previous ANAO audits have identified improvement areas relating to how the entities track revenue against Budget measures. After the ATO, Home Affairs is the second largest Commonwealth revenue collector.¹⁰¹

Assessment of the effectiveness of implementation

4.19 The Taskforce recommendations include both actions to be undertaken and objectives or intent to be achieved. Effective implementation of recommendations with shared responsibilities includes each entity agreeing on how success will be measured and reported.

4.20 For the nine recommendations with shared responsibilities, Treasury, the ATO and Home Affairs provided the ANAO with actions taken for the parts of each recommendation they had self-assessed responsibilities for.

4.21 Table 4.2 includes discussion around the evaluation arrangements for each of the recommendations with shared responsibilities. The ANAO observed that where evaluation arrangements were established, they were largely focussed on entity-specific individual implementation projects or responsibilities. At the same time, for these recommendations, the ANAO found that implementation activities were interdependent and that more attention could have been given to establishing joint evaluation arrangements. Some examples are as follows.

• Recommendation 6.1 (expansion of reporting systems) — two aspects of this recommendation require ongoing monitoring and reporting. One is about determining whether more industries should be incorporated into the reporting regime and the other is about determining if industries should be removed from the regime as compliance improves. This is likely to require monitoring from the ATO, which holds the relevant data. However, the results should then be fed back to Treasury to inform policy development. Clearly setting out arrangements such as roles and responsibilities, schedules and reporting expectations is likely to increase the effectiveness of these monitoring arrangements.¹⁰²
• Recommendation 6.2 (a sharing economy reporting regime) — as of March 2023, there remains uncertainty around an approach to evaluating the implementation of this measure. While the ATO advised that this will be finalised during implementation, early consideration of monitoring and evaluation (even during policy development) can help with ensuring that governance is in place to support monitoring and evaluation activities. Early attention can also help ensure that implementation and evaluation planning properly are addressed as part of Budget and Cabinet processes.¹⁰³
• Recommendation 9.1 (increasing the integrity of government procurement) — as noted above in Table 4.2, as of March 2023, Treasury is conducting a review of the Shadow Economy Procurement Connected Policy. The interdependent nature is evident by the fact that part of the ATO’s reason for closing its project related to implementing this recommendation was the uncertainty due to Treasury’s review being delayed in the context of the COVID-19 pandemic.

4.22 The Commonwealth Evaluation Policy aims to embed a culture of evaluation and learning from experience to underpin evidence-based policy and delivery. The policy is principles based and outlines the need for entities to determine fit-for-purpose arrangements based on the value, impact, strategic importance and risk profile of the program or activity.¹⁰⁴

4.23 As outlined in paragraph 4.8, the ATO and Treasury have a protocol for working together.¹⁰⁵ The protocol is focussed on: the integrated tax design process; quality assurance of new law; revenue costing; and the law and its administration. While the protocol outlines both agencies’ commitment to continuously provide the best possible advice to the Government, it does not address monitoring and evaluation, particularly in the context of when a change to a law has been made.

Appendix 1 Entity responses

ANAO comment on the Department of the Treasury response

1. Overall, the ANAO found that 44 per cent of the recommendations agreed to by the Government had been implemented or largely implemented, as of March 2023. See paragraphs 2.79 to 2.82, Table 2.1, Table 3.2, Table 3.3, Table 3.4 and Table 4.2.
2. Where the Government decided that no further action was necessary, this has been noted in the ANAO assessment. This includes recommendation 3.1 (Table 3.2) and recommendation 12.2 (Table 2.1). Where Treasury sought funding and this was not approved by the Government, this has been noted in the ANAO assessment. This includes recommendation 2.1 (Table 3.2) and recommendation 11.2 (Table 2.1).

Appendix 2 Improvements observed by the ANAO

1. The existence of independent external audit, and the accompanying potential for scrutiny improves performance. Improvements in administrative and management practices usually occur: in anticipation of ANAO audit activity; during an audit engagement; as interim findings are made; and/or after the audit has been completed and formal findings are communicated.

2. The Joint Committee of Public Accounts and Audit (JCPAA) has encouraged the ANAO to consider ways in which the ANAO could capture and describe some of these impacts. The ANAO’s 2022–23 Corporate Plan states that the ANAO’s annual performance statements will provide a narrative that will consider, amongst other matters, analysis of key improvements made by entities during a performance audit process based on information included in tabled performance audit reports.

3. Performance audits involve close engagement between the ANAO and the audited entity as well as other stakeholders involved in the program or activity being audited. Throughout the audit engagement, the ANAO outlines to the entity the preliminary audit findings, conclusions and potential audit recommendations. This ensures that final recommendations are appropriately targeted and encourages entities to take early remedial action on any identified matters during the course of an audit. Remedial actions entities may take during the audit include:

• strengthening governance arrangements;
• introducing or revising policies, strategies, guidelines or administrative processes; and
• initiating reviews or investigations.

4. Within this context, during the course of the audit, the ANAO did not observe changes in the Australian Taxation Office’s and the Department of Home Affairs’ approach to the implementation of the Government response to the Black Economy Taskforce report.

5. The Department of the Treasury updated its website on 24 May 2023 in response to Recommendation 2 (see paragraphs 2.33 to 2.35).

Appendix 3 List of Commonwealth entities — Black Economy Taskforce

1. The Black Economy Taskforce included the following Commonwealth entities:

• the Department of the Treasury;
• the Attorney-General’s Department;
• the Australian Competition and Consumer Commission;
• the Australian Federal Police;
• the Australian Prudential Regulation Authority;
• the Australian Securities and Investments Commission;
• the Australian Taxation Office;
• the Australian Transaction Reports and Analysis Centre (AUSTRAC);
• the Board of Taxation;
• the (then) Department of Education and Training;
• the (then) Department of Employment;
• the (then) Department of Human Services;
• the (then) Department of Immigration and Border Protection;
• the (then) Department of Industry, Innovation and Science;
• the Department of the Prime Minister and Cabinet;
• the Department of Social Services;
• the Digital Transformation Agency;
• the Fair Work Ombudsman; and
• the Reserve Bank of Australia.

Appendix 4 Black Economy Taskforce high-level strategy

1. Move people and businesses out of cash and into the banking system, which makes economic activity more visible, auditable and efficient (Chapter 3 in the Black Economy Taskforce (the Taskforce) report).

2. Strengthen the identity underpinnings of the banking system by introducing a more reliable, safe and modern individual identity credential (initially for interactions with the Commonwealth Government) and reforming the Australian Business Number system (Chapter 4).

3. Improve agencies’ ability to enforce existing laws by promoting better sharing of data and more modern data analytics (Chapter 5). At the same time, closing data gaps by extending our tax reporting systems and promoting more data sharing with state governments (Chapters 6 and 15).

4. Improving Commonwealth agencies’ effectiveness by working more closely with other governments (state, local and international) and business organisations, community groups and unions (Chapters 11 and 15).

5. Tackling behaviours directly by strengthening incentives for consumers and small businesses including an amnesty and benefits for small businesses which adopt non-cash business models (Chapters 3 and 7).

6. Supporting this with a dedicated social norms agenda, including education, public awareness and new-business strategies (Chapter 11).

7. Making enforcement more visible, better tailored to the offence and more effective (graduated penalties, greater use of civil law and multi-agency action). Targeting particular problem areas, including phoenixing, sham contracting, visa abuses and vulnerable workers. In the criminal area, adopting a more strategic approach on illegal tobacco and gambling (Chapters 8, 10, 12, 13 and 14) and disrupting the proceeds of crime.

8. Pursuing a new responsible supply chain agenda, which is an emerging integrity issue, in both the public and private sectors (Chapter 9).

9. Disrupt crime and illegality, the sharp end of the black economy, including illegal tobacco and unregulated gambling (Chapters 12, 13 and 14).

10. Institutional changes to strengthen, modernise and better marshal our future efforts on the black economy (Chapter 16).

Appendix 5 Budget measures introduced by the Government to implement the Black Economy Taskforce interim and final reports

1. The following table lists the Budget measures that have been introduced in the context of implementing the Government response to the Black Economy Taskforce reports.

Appendix 6 ANAO categories for assessing the effectiveness of the implementation of recommendations

Table A.2: ANAO categories for assessing the implementation of recommendations

Appendix 7 ANAO assessment of the implementation of the 27 recommendations agreed to by the Government

Table A.3: ANAO assessment of the implementation of agreed recommendations

Source: Department of the Treasury, Black Economy Taskforce Final Report, October 2017, available from https://treasury.gov.au/review/black-economy-taskforce/final-report [accessed 27 September 2022] and ANAO analysis.

Appendix 8 Recommendations that were agreed in principle, supported, noted, not supported or not included in the Government response

1. The following table provides a list of the 53 recommendations that were not fully agreed to by the Government. The Government response, linked at the footnote, includes the full list of recommendations and the Government’s response to each recommendation.¹⁰⁶

Table A.4: Recommendations that were not fully agreed to by the Government

Note a: These recommendations were not included in the May 2018 Government response, however, were subsequently categorised as being noted.

Source: Australian Government, Tackling the Black Economy: Government Response to the Black Economy Taskforce Final Report, May 2018.

Appendix 9 Recommendations agreed to by the Government

Table A.5: Recommendations agreed to and the Government response for each

Source: Australian Government, Tackling the Black Economy: Government Response to the Black Economy Taskforce Final Report, May 2018, available from https://treasury.gov.au/sites/default/files/2019-03/Government-response-final.pdf [accessed 22 March 2023].