The ATO's cultural shift away from being 'revenue focused' to a 'light touch' approach to tax enforcement posed a grave danger to federal government revenue streams.

The ATO's cultural shift away from being 'revenue focused' to a 'light touch' approach to tax enforcement posed a grave danger to federal government revenue streams. Photo: Louie Douvis

The Tax Office's ability to catch or deter corporate tax cheats is being "gutted" by downsizing of its workforce, according to departing insiders.

The ATO's cultural shift away from being "revenue focused" to a "light touch" approach to tax enforcement posed a grave danger to federal government revenue streams, the upper middle managers have warned.

In exit interviews with Fairfax media, two compliance managers who are among the thousands of taxation bureaucrats leaving the office this year, have revealed how the ATO's ability to do its job is being hollowed out by the downsizing process.

The revelations come as the federal government and opposition traded barbs over the Tax Office, with the Abbott government denying reports on Tuesday that ATO cuts might cost $1 billion in tax revenue.

According to the federal budget papers, the ATO's staff numbers will drop from 21,390 to 19,068 in the next 12 months and the agency lost 900 staff last year as it bears the brunt of budget cuts.

The two managers, who spoke on condition of anonymity, told of falling audit rates, a loss of industry-specific expertise and junior tax public servants being "outgunned" by highly paid private sector accountants.

The ATO did not respond to questions before deadline on Tuesday.

One of the resigning bureaucrats said that corporate tax cheats were more likely than ever before to avoid an audit, with ATO compliance teams “lucky” to generate two or three audits for every 20 risk reviews of corporate tax returns.

“Toward the end, a lot of our risk reviews weren’t converting to an audit process, we were getting a really bad conversion rate,” the manager said.

“It’s an exception more than the rule that you’ll get an audit up.

“The cases we were selecting weren’t the optimum cases where you’d be able to find issues that you could then convert into an audit.

“But as you lose the expertise, how are you going to pick the right cases?”

One of the managers said there was a widespread belief that the downsizing process was focused on effecting cultural change by ridding the Tax Office of many of its veterans and specialists.

“Some very senior capable people are going out the door and there are some others who were pushed to the side because they were too 'revenue focused', which means it was felt they didn’t understand the commerciality of a transaction,” he said.

“In Box Hill, about 10 EL2s (executive level two) from one area have gone out the door, and that area has been gutted.

“What’s left has not necessarily been the best.”

One of the managers warned that the ATO’s tax compliance capability was the major deterrent to tax avoidance and evasion and warned of anarchy if it was eroded.

“The Commissioner [of Taxation] says that 95 per cent of the revenue comes walking through the door, but it comes through the door because the compliance ability is there, the stick is in the cupboard,” he said.

“But if the stick is not in the cupboard, if people know there’s no cops on the beat, then it's going to lead to anarchy down the track then someone is going to realise that they’re going to have to go out and recruit these people again.”