ATO: Back to the future

Scary. That’s the only way to describe yesterday’s news that insolvencies reached a record level for the month of February.

While collapses are traditionally higher in the first quarter of the year – when those businesses that limped through Christmas get hit by the early-year slowdown – the fact that we should be hitting records month-after-month four years after the GFC does not seem right.

In fact, it speaks volumes about what’s really happening out there in the non-mining sector. Things are ugly out there. In some sectors, conditions are worse than they were during the height of the GFC.

Which is why it makes absolutely no sense that the Australian Taxation Office is being more aggressive towards debt collection. 

As insolvency numbers have steadily increased over the last 12 months, accountants and insolvency experts have consistently told us that the main reason is the more aggressive stance from the ATO towards collecting outstanding debt.

We heaped praise on the ATO during the GFC for an empathetic and pragmatic approach towards struggling SMEs.

SMEs struggling to meet their obligations were allowed to use payment plans and given interest-free deals that freed up cashflow and gave entrepreneurs vital breathing space.

It was never clear whether this approach was at the ATO’s discretion or due to a quiet, off-the-record prompting by the Government, but there’s no doubt that the ATO’s action represented the most practical assistance provided to the SME community during the GFC.

But the empathy was always going to end and it’s clear that the ATO is now in debt collection mode. Court-ordered company wind-ups hit a record of 449 in February compared with 79 the month before, which experts attribute in no small part to increased ATO activity.

We understand that the ATO has a job to do. And we understand that SME debt makes up a large part of total outstanding tax debts.

But the Tax Office needs to wake up and have a hard look at conditions out there in the economy.

The GFC might be seem like it is behind us, but in many ways conditions are worse than they were back in late 2008 and 2009.

Back then, the Government was flooding the economy with cash handouts. Back then, the Australian dollar was well below parity. Back then, fuel prices were lower. Back then, interest rates were at 3%, not 4.25% (or 4% depending on today’s RBA decision).

The ATO needs to look at how it can better support SMEs over the next 12 months. Payment plans and interest-free periods need to be back on the agenda. The pursuit of debts may need to be wound back or at least approached differently.

If the ATO doesn’t want to help, then the Government should tell it to. No doubt Wayne Swan will be smiling about the interest rate cut today, but he should be very concerned – ashamed even – that we are seeing record numbers of company collapses on his watch.

The pain in the SME community is real. The help must come quickly, and the ATO knows what to do.