The Australian Taxation Office (ATO) will soon be forced to pay a new tax just to help collect around $50 billion in outstanding tax money owed to the government in the form of post-COVID tax debts, as well as regular receivables, where commercial recovery agents are used to expedite collection.
Yep, you read that right. The government will soon be putting a new tax on the collection of tax, a quirk that flows from a new edict from the Department of Finance that financially penalises agencies that use outsourcers by extracting a new levy on work they send out of the Australian Public Service.
Revealed earlier this month by Finance and the Public Service Minister Katy Gallagher as part of a parade of savings measures to be included in Tuesday’s budget, the “additional external labour levy” revealed this month is slated to generate $375 million over four years from 2024-25.
The internal accounting mechanism appears intended to send a price signal to agencies otherwise unwilling or unable to swap out labour hire, outsourcers or contractors for permanent APS staff.
However, a key area the new outsourcing levy is set to hit hard is commercial debt recovery and management, where the ATO is one of the biggest clients, after the utilities sector and retail banks.
The ATO has confirmed to The Mandarin that debt-collection outsourcing is set to be hit by the outsourcing levy.
“The ATO looks to deploy a diverse workforce across its large portfolio of work,” an ATO spokesperson said.
“In response to this latest direction from Government, and consistent with the recently released APS Strategic Commissioning Framework, the ATO is in the planning stages of implementing this newly announced Measure.”
Government debt that is enforceable is prized by recovery agents because agencies are essentially paid on a time and materials basis rather than buying a debt ‘book’ or ‘ledger’ for a number of cents in the dollar they then have to try and recoup.
At the same time, government agencies have far greater powers to resolve outstanding debt, like seeking garnishee orders that allow them to access people’s tax refunds and potentially social security benefits.
According to government contract notifications, one of the biggest debt recovery suppliers to the ATO Recoveries Corporation was awarded a contract now worth $11.5 million for debt recovery and management services that commenced on October 14, 2022, and runs through until June 28, 2024.
Procurement records show the Recoveries Corporation contract was amended just one year into the deal on October 18, 2023, to boost the amount spent by $4.45 million. A further contract handed to the firm is worth $3.6 million,
Also listed under the category of “debt management” contracts for the ATO is a $16.1 million contract with long-term contact centre outsourcer Datacom Connect, with the description for the contract listed as “provision of labour services”.
However, it’s not just the ATO who has used debt recovery firms to claw back money owed to the government. Services Australia previously awarded both Illion and Probe Group outsourced debt collection contracts, with the most recent contracts listed as being worth $6.6 million and $5.2 million respectively. However the agency has entirely insourced debt recovery since the robodebt royal commission.
The Department of Education and the Department of Employment and Workplace Relations also retain debt collectors, albeit to a far lesser degree.
One of the reasons government agencies prefer to use debt collection outsourcers is that it’s hard to attract public servants to do the work, not least because it’s a tough gig that often requires difficult conversations with clients.
Most debt management and recovery firms rotate their staff across a variety of work, varying from commercial factoring to consumer and insolvency books, with social security and mortgage work regarded as some of the most difficult.
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