Rule of law

Yes, we have focused heavily on seeking reform of the Australian Taxation Office in recent times. But the issue is not simply about tax revenue. It’s much bigger. It’s about the rule of law. In this longer-than-normal communication we explain what motivates us by drawing some parallels between China and the ATO.

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We start with a story of an acquaintance who does business in China who lamented a recent bad experience. A disgruntled client wanted a refund and penalties to which the client was not entitled. The client had police raid our acquaintance’s office, seize computers, detain a director and scare the life out of staff. She is now unable to leave China.

Throughout this process there’s been no independent court involvement, no ‘rule of law’. This story should not surprise.

Ex-Premier of China Zhao Ziyang would aptly describe this as the ‘rule of man’ as opposed to the ‘rule of law.’

Zhao was the ‘make it happen’ economic reformer under paramount leader Deng Xiaoping’s opening up of China in the 1980s. Zhao, however, incurred Deng’s anger for not supporting the 1989 massacre of the Tiananmen Square pro-democracy protestors. Zhao spent the following years until his death under house arrest. He kept secret diaries revealing the inner workings of the Chinese Communist Party.

Nothing has changed in China since. It is ruled by dictatorship—largely the legacy of Deng Xiaoping. Economic development is pursued on the condition that dictatorship prevails. The story told above is indicative of such a regime. The rule of law does not operate.

Dictatorships operate through cascading patronage. The supreme ruler allocates power to those below through interpersonal relationships. Our business acquaintance was unfortunate enough to have a vindictive client who personally exercised the power of the state within this complex chain.

China has proven that massive economic growth can be achieved under a dictatorship. The downside is that business activity is fraught with major risk. If an individual falls foul of a powerful person or group, they are squashed. Zhao Ziyang’s ‘rule of man’ prevails over ‘rule of law.’

In Australia, we pride ourselves on a tradition which is founded on the operation of democracy and the rule of law. That is, ‘the people’ rule within defined and enforceable rules. Theoretically, all individual power is constrained. The rules-based system is supposed to prevent the abuse of power experienced by our acquaintance in China.

But Australians should not be smug. Democracy and the rule of law are not complete. Elements of dictatorship exist and do oppress individuals from time to time. Perhaps the starkest example is the Australian Taxation Office, whose power and behaviour received concentrated media exposure in 2018.

Under taxation law, the Tax Commissioner is effectively a ‘tax dictator’ exercising all power. The Commissioner’s power cascades under professional privilege to individuals in the ATO.

The ATO can and does raid people’s homes, takes computers and documents, takes money from their bank accounts, detains persons and stops them leaving Australia. This is done without the ATO having to prove that a debt is actually owed. The ATO only needs to form an opinion of a debt and that ‘opinion’ is enforceable.

Oversight of the ATO by the judiciary is strangely twisted. Take one example. Why would a court rule that the ATO did not have to produce a document in its possession which a taxpayer claimed proved their innocence? This happens because the judiciary reviews cases within the framework of the Tax Commissioner’s formidable powers. If legislation states that the ATO can behave this way, the judiciary simply confirm this.

To the ordinary person this is a perversion of the rule of law as ordinarily understood.

Major media coverage of the repeated abuse of small business people by the ATO has triggered political recognition of a problem. Small business people have effectively been bankrupted by the ATO—even where the ATO subsequently admitted no debt was owed.

But although moves are afoot to extend the ATO’s already extensive powers, both the Morrison Coalition government and the Shorten Labor opposition have said that change is needed. Labor says that change can occur within the ATO. The Government has announced that a separate, independent tribunal for small business people will provide checks against ATO abuse. It’s an effective reform step which the government plans to implement quickly.

What the ATO example reveals is that democracy and the rule of law can never be taken for granted. Even in Australia we must constantly work against those aspects of overbearing power within our systems.

Where the rule of law prevails over the ‘rule of man’, stronger, more resilient societies and economies should emerge. Where even ordinary persons can engage in business confident that the risk of abuse by powerful individuals is constrained, they will engage in more business. This creates social and economic strength. That’s what we’re campaigning for.

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If you’re particularly interested in following through this issue, this 2001 speech by then-Chief Justice Murray Gleeson is worth reading.

In part, he says:

As an idea about government, the essence of the rule of law is that all authority is subject to, and constrained by, law. The opposing idea is of a state of affairs in which the will of an individual, or a group, (such as a Party), is the governing force in a society…

In Australian legal and political discourse, a governing authority could not satisfy the requirements of the rule of law merely by being able to point to a fundamental law which empowered it to act in an arbitrary manner….

Suppose legislation created an office of Tax Collector, and decreed that every person who derived income should pay to the Collector such percentage of that income as the Collector, in his or her absolute discretion, with uncontrolled power to discriminate, might think fit. That would be a tax. But would it be a law, within the meaning of a Constitution which assumes the rule of law?