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Roger Clarke's 'TFN Scheme'

The Tax File Number Scheme:
A Case Study of Political Assurances and Function Creep

Roger Clarke

Principal, Xamax Consultancy Pty Ltd, Canberra

Visiting Fellow, Department of Computer Science, Australian National University

Version of 12 September 1991

© Xamax Consultancy Pty Ltd, 1991

This document is at http://www.rogerclarke.com/DV/PaperTFN.html

Published in Policy 7,4 (Summer 1991)


Abstract

The scheme to enhance the Tax File Number arose from the ruins of the Australia Card proposal in 1987. This brief history shows that the initial scope was wider than had been commonly understood, and that additional uses have accumulated through 'function creep'. The express limitation of the scheme to taxation uses has been progressively circumvented, such that the scheme now applies to virtually every benefit and pension paid by any Commonwealth government agency, and production of the TFN is mandatory. It is becoming the general purpose identification scheme the Australia Card was intended to be. The Government's assurances of mid-1988 are shown to have been worthless, and the information technology imperative rampant.


Introduction

The Government's 1985 Australia Card proposal was eventually withdrawn in September 1987, in the face of an unprecedented public outcry against its privacy-invasive nature (Clarke 1986, 1988; Greenleaf & Nolan 1986; Greenleaf 1987; Smith 1989). At that time, the Government gave a commitment to enhance the Tax File Number (TFN) scheme, which had been in use within the Australian Tax Office (ATO) since the 1930s. This paper outlines the origins, nature and original and expanded scope of the enhanced TFN scheme.


The Enhanced Tax File Number Scheme of 1988

Details of the enhanced TFN Scheme were announced by the Government in May 1988. Copious assurances were given that it was to apply exclusively to taxation administration; see Exhibit 1.

Exhibit 1: Assurances of Limitation to Taxation Uses

"The Tax Office will be the only government agency which uses the tax file number for the purposes of identifying and registering its client base"

"The new measures are designed solely to help reduce tax evasion"

"The requirement for taxpayers ... to quote their file number will be limited to the following areas:

Press Release by The Treasurer, No.47 of 25 May 1988

"No other government or non-government agency will have access to the Tax Office file number registration system, nor will it be able to use an individual's TFN for any registration system of its own"

The Treasurer's Second Reading Speech to the Taxation Laws

Amendment (Tax File Numbers) Bill 1988, 1 September 1988

"10.26. The Committee recommends that the Taxation Laws Amendment (Tax File Numbers) Bill 1988, if enacted, be strictly limited in its terms, so that it applies only in relation to taxation purposes and those purposes be so framed as to prevent a progressive extension of the ambit of the Bill"

Senate Standing Committee on Legal and Constitutional Affairs, 'Report on

Feasibility of a National ID Scheme: The Tax File Number' October 1988

Concerns were expressed by privacy lobby groups about a number of aspects of the proposal. For example, the Australian Computer Society's Submission to the Treasurer referred to:

The Liberal-National Party Opposition and the Australian Democrats supported the proposal in principle but negotiated several significant changes in the Bill, in particular to ensure that:

The amended proposals were passed into law in December 1988. A number of protections existed to ensure that the TFN scheme was not, and could not become, the general-purpose national identification and personal data system that the Australia Card scheme had been intended to be. These included the explicit assurances provided by the Government, and the terminology of the enabling legislation.

A further safeguard was the Privacy Act 1988, passed at the same time as the TFN legislation. This created the Information Privacy Principles and applied them to (most of) the Commonwealth public sector, created the office of Privacy Commissioner, and established the TFN Guidelines. Those Guidelines expressly stated that the TFN could only be used or disclosed in relation to 'taxation law', and that the TFN could not be used as the basis for a national identification system. As the ATO brochure of December 1988 stated, "only the Tax Office can use your number and only for tax purposes".


Initial Scope of the Scheme

There were several ways in which the scheme was automatically much broader than had been generally understood. One reason was that key terms such as 'income', 'assessable income' and 'salary or wages' should not be understood in a commonsense manner, but had to be interpreted in accordance with statutory definitions. When these are identified and examined, they are found to be expressed in such a way that a large number of seemingly extraneous matters are included.

Another reason is that 'taxation law' is a term defined in 1984 in s.2 of the Taxation Administration Act as any Act and Regulations "of which the Commissioner [of Taxation] has the general administration". Reasonable though this seems, it has the effect that any Act which by administrative arrangement is moved within the responsibility of the Taxation Commissioner, is deemed to be 'taxation law', irrespective of whether or not it has anything to do with taxation.

Moreover, the term 'taxation law' is amendable by any Act of Parliament which states that, for example, "this Act shall be deemed to be 'taxation law' for the purposes of the Taxation Administration Act", whether or not that Act makes an explicit change to the relevant section of the Taxation Administration Act. The scope of taxation law is therefore readily expandable both by administrative action of the Government (i.e. without the purview of Parliament), and by the inclusion in a new Bill of a simple machinery provision which is unlikely to attract careful scrutiny by Parliament. Four areas are identified in which the TFN scheme's scope was automatically expanded merely by Parliament enacting the Bills originally presented to it by the Government. Subsequent sections identify later areas of expansion.

(a) Unemployment and Sickness Benefits

The Government mentioned in attachments to the original Press Release of May 1988 that unemployment benefits and sickness benefits (USB - both administered by the Department of Social Security) would be included in the TFN scheme, because recipients of these benefits "are considered to be employees for tax purposes". No authority for this was provided, and observers appear to have accepted the statement at face value.

Because of the complexity of the relevant laws, additional legislation was needed to effectively include USB in the TFN scheme. The relevant legislative amendments, passed in late 1989, went much further than the original Act had gone, in that they made the quotation of the TFN a pre-condition to the payment of unemployment benefit, jobsearch allowance and sickness benefit. Until this amendment was passed, the sanctions against failure to provide one's TFN had been restricted to taxation at the marginal rate.

(b) Payments to Students

At no stage during the public discussion or Parliamentary Debates does there appear to have been discussion of the effect of s.221A(1) of the Income Tax Assessment Act on the scope of the TFN scheme. This section deems a number of sources of funds to be 'salary or wages' for taxation purposes. It came as a great surprise to people who had been involved with the issue to discover that the TFN scheme also encompassed a wide variety of payments to tertiary students administered by the Department of Employment, Education and Training (DEET) (e.g. under Austudy), by virtue of various amendments to s.221A which had been enacted between 1985 and 1988.

(c) Higher Education Contribution Scheme (HECS)

At the same time as it was proposing the TFN enhancements, the Government was in the process of introducing the Higher Education Contribution Scheme (HECS). This is a charge levied on tertiary students for each subject in which they enrol in a tertiary institution. The amount of the debt is administered by the Department of Employment, Education & Training (DEET), but is paid by way of additional taxation in years in which the person's taxable income exceeds a threshhold.

HECS was originally referred to as 'the graduate tax', but this term was dropped by the Government because it claimed (reasonably enough) that the charge was not a tax, but a fee for services: it was merely to be collected through the taxation system as a matter of convenience and economy. Nonetheless, the Government drafted the legislation such that the TFN Act and the subsequent Higher Education Funding Act 1989 established the HECS scheme as 'taxation law', and hence authorised the administering agency to use the TFN.

(d) Child and Spouse Maintenance Payments

Yet another use of the TFN was in relation to the collection of child and spouse maintenance payments, a function assigned to the ATO in 1987. Because any Act administered by the ATO is deemed to be 'taxation law', irrespective of the function to which it relates, the TFN was automatically authorised to be used for the Child Support Agency. It is noteworthy that the key purpose of this particular use is as a locator service for defaulters.


Extensions to the Scope of the TFN Scheme

During 1989-91, a succession of extensions to the scheme appeared.

(a) Additional Social Security Uses

In the February 1990 Economic Statement, the Government announced that a number of additional classes of people would be required to supply TFNs to the Department of Social Security by 1 October 1990. The classes were:

An ATO brochure of December 1988 ('The Facts About Tax File Numbers') had stated that "only the Tax Office can use your number and only for tax purposes". But by June 1990, the ATO brochure 'Safeguarding Your Privacy' adopted a very different view, stating that "tax file numbers are also used to help prevent Social Security fraud", despite the fact that it was not until the following August that enabling legislation was even tabled in the Parliament.

(b) Additional Benefits-Related Uses

As part of the Budget Papers in August 1990, the Minister for Social Security provided details of yet more uses of the TFN. The Releases referred to the February announcement in relation to three classes of benefits, and stated that "tonight's announcement extends the requirement to include the remaining social security payments, such as age and invalid pension, as well as Veterans' Affairs and Student Assistance Act payments together with those under the First Home Owners' Scheme".

The purpose of the decision was "to automatically verify income information supplied by clients seeking Government income support payments". This was already done, but manually, and "it made sense to cut these costs". This implied that the purpose was not to prevent fraud of any kind, and certainly not tax fraud, but to reduce clerical costs. However the Releases also referred to parallel matching across agencies, using the TFN, to enable efficiency in detecting 'double-dipping' (the concurrent receipt of two or more mutually incompatible government benefits, most commonly as a result of a failure to promptly notify DSS of a relevant change in circumstances). The Minister was quoted as saying that "the extent of welfare payment including deliberate fraud had been grossly overestimated" (although by whom and when was not mentioned), but that "net overpayments last year including those arising from deliberate fraud amounted to [only] about 0.1% of payments made to clients".

It was stated that "all people will have to provide a tax file number to be eligible for, or continue to receive" any of the benefits referred to. It was also claimed that "the work will be done in accordance with the Privacy Principles and in consultation with the Privacy Commissioner".

It is noteworthy that DSS was not a supporter of the Australia Card scheme, which had been mainly stimulated and carried by the Health Insurance Commission. In fact, DSS expressly argued that its identification scheme was sufficient, and that the Australia Card number and register would not assist it in any material way to improve its fraud prevention, detection and prosecution activities. Between 1985-7 and 1989-90, however, the Department's attitude changed to such an extent that it had become a proponent of extension of the TFN's use far beyond its original scope.

(c) Data Matching Uses

Data matching is a process in which personal data records relating to many people are compared in order to identify records of interest. Apart from the United States, Australia is a world leader in the application of the technique (Clarke 1991).

The Budget Papers of August 1990 announced a Government decision that ATO (Taxation), DEET (Employment, Education and Training), DVA (Veterans' Affairs) and DCS&H (Community Services & Health) were now to provide identity details of all of their clients, including TFNs, to DSS (Social Security), for 'parallel matching'. These agencies were also authorised to receive in return results of the matching process. Hence DSS now provides a hub-service for other agencies, in a manner reminiscent of that in which the HIC (Health Insurance Commission) was to provide centralised services to a variety of agencies in relation to the Australia Card scheme.

DSS's previous reticence about the efficacy of large-scale or scatter-shot data matching, as had been proposed as part of the Australia Card scheme, has been replaced by enthusiasm for more precisely targetted matches, to the extent that senior executives within the Department appear to have been the initiators of the proposed legislation. Such practices would involve transfer of a large volume of data about a large number of people, which was collected for completely unrelated uses (such as enrolment in a university, or receipt of student assistance benefits from DEET), without the consent or even knowledge of the persons concerned, and without checks and balances to ensure the quality of the data being matched, or the reasonableness of decisions made on the basis of matches.


Conclusions

Exhibit 2 summarises the scope of the TFN scheme, showing the originally explicit and implicit uses, and those which have been subsequently added.

Exhibit 2: People Authorised by Law to Use the TFN

Directly Related to Taxation (explicit in the original 1988 law)

Legally Defined as Taxation Laws (implicit in the 1988 law)

Additions During 1990-91

The initial scope of the enhanced TFN scheme was greater than that understood at the time by people who took an active part in assessing its impact. This was a result of the sheer complexity of the existing and proposed legislation, aided by a failure on the part of the Minister and the public servants who prepared the publicly available documents to disclose all of the legislation's implications.

The TFN has exhibited the characteristic popularly referred to as 'function creep', whereby additional uses accumulate, and change the purpose of the scheme. From an exclusively taxation scheme, the TFN now applies to:

The two primary areas to which the scope has been widened so far are:

That these extensions were announced progressively during the first twenty months of the scheme's operation demonstrates how worthless the Government's assurances of mid-1988 were, and how ineffectual the protections built into the initial legislation.

Fuller analyses of this and related matters are to be found in Clarke (1990), Graham (1990) and Clarke & Greenleaf (1992).


References

Clarke R.A. (1986) 'The National Identification Scheme: Costs and Benefits' Policy 2,1 (February 1986)

______ (1988) 'Just Another Plastic Card for Your Wallet: The Australia Card Bill' Prometheus 5,1 and Computers & Society 18,1 (June 1988), with an addendum in 18,3 (July 1988)

______ (1990) 'The Expansionary History of the Enhanced Tax File Number Scheme, May 1988 - August 1990' working paper available from the author, September 1990

______ (1991) 'Computer Matching: Theory and Australian Practice' Working Paper available from the author, March 1991

Clarke R.A. & Greenleaf G.W. (1992) 'The Resistable Rise of the National Personal Data System' Software L.J. 5,2 forthcoming (February 1992)

Graham P. (1990) 'Computers in Public Administration: The Australia Card Case' Austral. Comp. J. 22,2 (May 1990)

Greenleaf G. (1987) 'The Australia Card: Towards a National Surveillance System' L. Soc. J. of N.S.W. 25,9 (October 1987)

Greenleaf G. & Nolan J. (1986) 'The Deceptive History of the Australia Card' Aust. Qtly 58,4 (Summer, 1986) 407-425

Smith E. (1989) 'The Australia Card: The Story of Its Defeat' Macmillan, 1989



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