The federal Treasury has come under fire for its role in a $921 million crackdown on the black economy, with a scathing audit office report exposing a litany of basic governance failures.

In findings released this week, the Australian National Audit Office (ANAO) savaged the Treasury over a 2018 plan to claw back billions in unpaid taxes, which was promised by the Morrison government.

It concluded the Treasury was ineffective in implementing recommendations from the Black Economy Task Force, despite being handed $12.3 million in taxpayer funds for the crackdown.

The Treasury has hit back, arguing it deprioritised the black economy because of the pandemic.

But the department didn’t even create a framework to assess whether action across the Australian Taxation Office and Department of Home Affairs was working, the audit office found.

“As such, it is not evident that outcomes have been achieved,” ANAO said of the failure.

“Treasury is not effective in co-ordinating implementation of the [Black Economy Taskforce] report.”

The black, or shadow, economy describes a range of activities that aren’t captured by the tax system, either because the income itself is derived from crime, or because it hasn’t been reported to the tax office when it should have been.

That includes everything from cash-in-hand jobs to illicit tobacco sales.

The tax crackdown was unveiled by the Morrison government in 2017 at a $921 million cost to taxpayers through to 2025-2026.

It is supposed to implement 27 expert recommendations for reducing the $12.4 billion a year in unpaid taxes from activities that aren’t reported.

Less than half (44 per cent) of the recommendations have been implemented to date, ANAO found, with just two of the 2018 calls implemented to date and only 10 “largely implemented”.

However, the audit did find find work by the ATO and Home Affairs has been “largely effective”.

Treasury failures exposed

Auditors saved their criticism for Treasury, which “has not clearly defined responsibilities and accountabilities for the co-ordination of the implementation of the taskforce report” and failed to “plan and actively manage whole-of-government implementation time frames”.

The seven recommendations Treasury is solely responsible for –  including improving supply chain standards and better monitoring of the shadow economy – haven’t been fully implemented.

One recommendation that called for an economy-wide cash limit was ditched by the cabinet.

But auditors found one of Treasury’s other jobs, which involved creating a consumer awareness campaign about the black economy, hadn’t been implemented despite Treasury saying it was.

ANAO said 2018 plans for a communications campaign never went ahead because the Treasury failed to seek funding, later arguing that there “was no specific policy measure to implement”.

“It is not clear why or who made this decision,” ANAO said.

“[Treasury] considered that the recommendation had been indirectly implemented through the effects on consumers from other shadow economy measures, and the costs of participating in the shadow economy would be highlighted to consumers as measures were implemented.

“It was not clearly specified how this would be done and no performance monitoring or evaluation was provided to demonstrate this.”

Auditors went on to conclude that Treasury “has not consistently determined an evaluation approach for its seven recommendations” and has heightened the risk of “poor implementation outcomes”.

Treasury: COVID derailed plans

In its response to the audit report, Treasury blamed COVID-19 priorities for derailing its plans.

Treasury’s Luke Yeaman, who was acting secretary in late May when the department responded to the audit office’s criticisms, said work on the black economy was “deprioritised” in early 2020.

“The decision to deprioritise functions during the COVID-19 pandemic was entirely appropriate given the circumstances,” he said.

“The fact that the shadow economy work program is not yet finalised, as highlighted in this report, should be balanced against other assessments of Treasury’s performance in the COVID-19 pandemic.”