ATO‘s Use of private Debt Collector Questioned as Taxpayers Face Aggressive Recovery Tactics
The Australian Taxation Office’s (ATO) increasing reliance on private debt collectors is under scrutiny following reports of vulnerable taxpayers being pursued for debts despite documented hardship and ongoing repayment efforts.
A 55-year-old woman, Suzanne, whose income evaporated during the pandemic, received a letter from the ATO demanding she pay $2,590.33 within one week, threatening legal action if she failed to comply.
“I didn’t have the money nor could I raise it given I’d sold everything close to that value to pay living expenses; only my car was over that amount,” Suzanne stated. She was receiving unemployment benefits at the time and had previously informed ATO staff of her financial difficulties. Even selling her vehicle, a broken-down Holden Captiva, wouldn’t have immediately resolved the issue due to necessary repair costs.
Suzanne’s situation highlights a growing trend. Guardian Australia reports that as January 2024, the ATO has referred over 355,000 taxpayers to Recoveriescorp, a company backed by private equity firm Allegro. This escalation in the use of external collectors follows a period where the ATO was instructed by the government to adopt a more lenient approach to debt collection during the economic uncertainty of the pandemic years.
The ATO’s decision to outsource debt recovery has sparked debate, particularly given Recoveriescorp’s stated commitment to “support people towards sustainable financial outcomes through respectful and practical solutions.” An Allegro spokesperson declined to comment, citing contractual obligations.
Suzanne’s original debt stemmed from missed quarterly pay-as-you-go (PAYG) installments early in the pandemic. However, her income had significantly decreased by the time she was placed on the quarterly system, rendering the initial prepayments likely needless. Despite this, she initiated a weekly payment plan of approximately $46 in 2023, which she continues to maintain.
The debt continued to grow, however, as Suzanne remained on the PAYG system, with roughly $900 added to her arrears every three months. This, coupled with difficulties completing her tax returns, created a “cycle of financial catchup” and significantly impacted her mental health.”I was struggling to meet essential living costs, and the ongoing financial stress took a meaningful toll on my mental health,” she explained.
Further complicating matters, suzanne experienced reductions in her Centrelink benefits, exacerbating her financial strain. Despite repeatedly alerting ATO staff to her hardship, her PAYG payments were not cancelled, and her repayment schedule was not reassessed. Rather, she was referred to a debt collector – a step typically reserved for taxpayers who are unresponsive, not those actively making repayments.
Recoveriescorp’s letter warned of potential “garnishee” notices or legal action if the full amount wasn’t paid within seven days. Suzanne expressed her distress, stating, “Between attempting overwhelming tax returns and collating evidence, it has consumed time I could have spent looking for work instead of trying to correct a debt because if I don’t, collection will force me into further hardship.”
an ATO spokesperson acknowledged the agency’s commitment to improving interactions with the community, particularly for those facing vulnerability. They stated that external collection agencies (ECAs) provide additional capacity to address taxpayer liabilities and are contractually obligated to adhere to specific standards.
The ATO is currently attempting to recoup approximately $50 billion in outstanding collectible debt, much of which is self-reported by taxpayers. However, recent collection programs have faced criticism for being overly aggressive. One initiative, nicknamed “robotax” due to its similarities to the flawed robodebt program, aimed to recover over $15 billion before a key component was suspended following widespread condemnation. Many of the debts targeted by “robotax” were decades old and previously unknown to taxpayers.
Suzanne’s case underscores the potential for hardship caused by the ATO’s current debt recovery practices and raises critical questions about the balance between revenue collection and the fair treatment of vulnerable taxpayers.
