Senator JOYCE—I wanted to address a question to the minister on the $3.72 billion that you were proposing to obtain from extra revenue collection. Where did this number come from?

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Mr D’Ascenzo—The original figure?

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Senator JOYCE—The $3.72 billion.

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Mr D’Ascenzo—It arose out of our publication of the change program last year in September. Subsequent to that the former government wrote to us to inquire whether or not we thought we had sufficient level of coverage in relation to our compliance activities. We wrote back, broadly saying that we think our coverage is low and we would like to increase our level of coverage in certain areas of the economy, but there was going to be a limitation to how many resources we could skill up, particularly in relation to the more complex work.

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Senator JOYCE—What section of the economy is that $3.72 billion going to come from?

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Mr D’Ascenzo—It will come from a mix of direct and indirect revenue outcomes. Basically, we have a projected revenue forecast, and our estimation would be that we could improve that revenue forecast by an additional $3.72 billion.

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Senator JOYCE—Is it coming from all taxpayers or from a specific segment of the economy?

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Mr D’Ascenzo—It is coming from all segments but not necessarily to the same level of contribution. Basically, the rate of return that we expect in terms of direct effect or voluntary compliance effect would be higher in the more high-value, complex end of the market, so large-case, high-wealth individuals. But we did want to improve significantly our coverage of income tax in the area of micro and also individuals.

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Ms Granger—The figure is constructed with an average rate of return, in terms of what we get right across the community for income tax compliance, but it has also been structured because the rates of return tend to be higher in the large and medium markets but it takes longer lead times to develop cases in that area. You will see higher rates of return both in direct revenue and in indirect effects in the later years of the program. For example, the fourth year is the highest rate, as we are able to skill more people and move them from the less complex work to the larger work. In this first year there will be a bigger concentration on the micro market—in particular, employer obligations—and some individual issues, such as capital gains, which we have talked about before this committee before, where we also believe our coverage is thin. As people become skilled, we will move them through and we will bring more into those areas doing the less complex work.

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Senator JOYCE—How did we presume that this number existed, $3.72 billion? How did we come to a number that we know exists that we have not collected? If we knew it existed, why did we not collect it before and how do we now say that we know that there is this precise figure of $3.72 billion that we are going to pursue? If it was there, why did we not collect it before? If we did not collect it, how do we know that it is $3.72 billion and not $7 billion or $4 billion or zero?

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Ms Granger—As I said, it is an average rate of return on what compliance activities historically have been able to achieve. As to the reason we have not been able to do this before, the basis of our submission for funding was that we did not have sufficient staff to be able to treat these risks and we needed to add to our base. The reason for that is that the economy has grown. The number of taxpayers, the number of businesses, the number of high-wealth people has expanded significantly in the last few years, as has the complexity of our work. That is just a function of the changes in the community. More people are investors these days. There are more complex business structures. There are more international dealings. That all adds to the complexity of work we do, as well as numbers.

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Senator JOYCE—You are saying that in recent times, by reason of the expansion, growth and success of the economy, you now believe—

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Ms Granger—Our coverage is thinner.

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Senator JOYCE—Your coverage is thinner?

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Ms Granger—We know our coverage is thinner.

Senator JOYCE—I would like to follow up on that. Minister, I refer you to page 37 of the portfolio additional estimates statements, which mention an election commitment. I imagine you would know more about an election commitment than the people surrounding you. Can you explain to us how you came up with the two per cent efficiency dividend, what was the premise of that statement and how are you going with it?

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Senator Conroy—That was announced by the shadow finance minister prior to the election. It is not a lot different from the efficiency dividends that your former Finance and Treasury Departments have announced and imposed on departments in previous years.

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Senator JOYCE—Are you happy with that? Is it tracking along as expected?

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Senator Conroy—I am not involved directly in the administration. I am on the receiving end.

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Senator JOYCE—You are sitting here today, so I imagine you are.

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Senator Conroy—I am on the receiving end of the efficiency dividend, so I can assure you it is tracking along.

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Senator JOYCE—It is tracking along?

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Senator Conroy—It certainly is in my department.

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Senator JOYCE—Can you enlighten us at all as to why it is two per cent?

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Senator Conroy—It is a number between one and three.

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Senator JOYCE—Is that about the depth of it?

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Senator Conroy—I am just letting you know that it is a number between one and three. It is two per cent.

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Senator JOYCE—Is that advice from Mr Swan?

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Senator Conroy—It was devised by the shadow finance minister and our ERC process prior to the election, and it has been announced as an election commitment.

Senator JOYCE—Can you please explain to all the people watching with your knowledge of this issue—

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Senator Conroy—Watching? Have you got your mum watching?

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Senator JOYCE—What was the efficiency dividend before it was two per cent?

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Senator Conroy—I am glad you asked that because your government had an efficiency dividend of 1.25 per cent which it then reduced, which was just further confirmation of how out of touch and flabby your government had become in terms of—

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Senator JOYCE—It was a little bit more precise than a number between one and three.

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Senator Conroy—On what basis did you choose to go from one to 1.25 per cent? On what basis did you then reduce it from—

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CHAIR—Order, order! Can I not have debates between the people here? Can the minister finish his answer without engaging in debate?

Senator JOYCE—I wanted to refer the minister to page 35 of the portfolio additional estimates. Can you explain to us the efficiency dividend of one per cent to 1.25 per