Trust in the age of AI: Data stewardship inside the ATO
The ATO’s leaders explain how the organisation maintains the critical balance between AI advancement and human-centered decision making
When government organisations collect and process our most sensitive financial information, the line between technological efficiency and ethical oversight becomes critical. The very tools that promise to streamline operations and improve accuracy can also pose significant risks to privacy, fairness, and public trust. For tax authorities, this balancing act takes on heightened importance as they navigate a landscape transformed by artificial intelligence and automation.
In a world increasingly driven by these powerful technologies, maintaining public confidence while leveraging digital capabilities presents unprecedented challenges. The Australian Taxation Office (ATO), as the nation’s principal tax collector, sits at a critical intersection of these issues. With access to sensitive financial information and the power to enforce tax obligations, the ATO must balance technological advancement with ethical considerations and human oversight.
At the UNSW 16th ATAX International Conference on Tax Administration, held in Sydney last month, two ATO leaders shared their perspectives on this delicate balance. Reflecting on his first year as Commissioner of Taxation, Rob Heferen provided insights into the broader social contract underpinning Australia’s tax system while Second Commissioner, Client Engagement Group, Jeremy Hirschhorn, focused on the ethical use of data and AI. Their addresses revealed a tax authority grappling with fundamental questions about trust, technology, and transparency in modern tax administration.
The trust equation: Data stewardship in government
For Mr Hirschhorn, the foundation of effective tax administration rests on trust. The ATO doesn’t simply collect tax; it collects sensitive financial information under compulsory powers. The nature of this relationship creates special obligations. “In reflecting on this topic and preparing for today, I have realised the real topic I would like to discuss is trust,” Mr Hirschhorn said.
“The trust given to tax administrators to perform a vital function: to fairly collect tax so that Governments can provide services to citizens.” This trust extends beyond mere data collection to include responsible stewardship of that information, and he emphasised that tax administrators must view themselves not as owners but as trustees of taxpayer data.
“Everyday Australians trust us to acquire and hold their private financial information. Importantly, this sharing is not freely chosen by individuals, but is compulsory,” he noted. “These factors emphasise the sensitivity and care with which we must treat taxpayer data. On-sharing of this data, even with other parts of government, must be strictly in accordance with law.”
The ATO’s approach to data ethics is guided by six core principles published on its website. These principles encompass acting in the public interest, upholding privacy and security, ensuring transparency, purposeful data use, maintaining human supervision, and practising responsible data stewardship. Mr Hirschhorn explained that these guardrails help ensure the organisation remains worthy of the public’s trust.
The importance of these principles became evident in Mr Hirschhorn’s reference to the Robodebt scandal, which serves as a cautionary tale for government agencies handling sensitive data. Even when data sharing occurs legally, the original collector maintains an ongoing responsibility for how that information is used. “A lesson from Robodebt is that the tax administrator must continue to act as a steward of that data even after it has been legally shared,” Mr Hirschhorn warned.
Challenges and future focus
For Mr Heferen, effective tax administration means collecting the right amount of tax according to law, in the most efficient way for both government and taxpayers, while treating taxpayers with courtesy and respect. But how does the ATO measure its performance against these standards?
One key metric is the tax gap – the difference between what the ATO expects to collect and what would be collected with full compliance. For 2021-22, the ATO estimates it collected $545.8 billion of $590.3 billion due, leaving a net tax gap of $44.5 billion (7.5%). In the context of the performance of the tax system, Mr Heferen said the tax gap data indicates 90.1% voluntary performance, which adjusts to 92.5% when ATO compliance action is factored in.
Tax debt represents a significant challenge for the ATO, with the total debt book exceeding $105 billion – the largest it has ever been. Nearly half ($46.4 billion) is considered collectable debt, almost double the amount owed in 2019.
The ATO’s vision emphasises making compliance simpler, recognising the department’s role as a “complexity broker” that helps navigate the tax system’s intricacies. It also acknowledges the importance of the tax profession as partners in this effort. The ATO is developing a “future interactions strategy” that balances digital solutions with human assistance.
“While it’s important that all taxpayers have a clear digital pathway to resolve their interactions with the ATO, there will always be members of the community who need direct assistance from an ATO officer,” Mr Heferen explained. “While digital systems can enable a fast and seamless experience in some instances, they cannot be a substitute for human judgement.”
For those who deliberately avoid tax obligations, the ATO is taking a more targeted approach. “It is important to note that only 22,000 taxpayers are responsible for $11 billion of the total tax collectable debt value. In context, that’s about 1% of the total debtors responsible for 20% of what’s owed,” Mr Heferen said. “This approach we are taking to collect the tax owed to the government is deliberate and targeted, with action being taken for those who repeatedly refuse to engage with us and continue to ignore our reminders.”
The dangers of data hubris
As organisations collect more data and develop increasingly sophisticated analytical tools, there’s a growing risk of what Mr Hirschhorn termed “data hubris” – an excessive confidence in data and systems that can lead to significant errors.
The ATO views data quality on a six-level curve, ranging from taxpayer-provided information with no bulk dataset available (level 1) to data so reliable that the tax system is designed around it (level 6). Understanding where data falls on this spectrum is crucial for making appropriate decisions. “Before making any decision based on data, it is critical to understand the potential impact on the taxpayer of the tax administrator making a mistake, and to ensure that you have the procedural and cultural safeguards to protect against ‘high impact actions’ made in error,” Mr Hirschhorn explained.
The 2025 International ATAX Conference, hosted by UNSW Business School
He noted that high success rates in data-driven compliance activities should be viewed with caution rather than celebration. “A high ‘hit rate’ should be viewed with great caution. It is more likely to be a sign of ‘data hubris’ than widespread non-compliance, and should be treated as such until proven otherwise,” he said.
The UK Post Office scandal provided a sobering example of what happens when organisations place blind faith in technology. In that case, hundreds of sub-postmasters were wrongly prosecuted due to errors in an accounting system, with devastating consequences for those affected.
Humans must remain in the decision loop
While the ATO embraces artificial intelligence and automation to improve efficiency, Mr Hirschhorn was unequivocal about the limits of these technologies. AI may accelerate processes and assist with analysis, but it cannot replace human judgment in significant decisions. “AI may be a helper,” Mr Hirschhorn explained.
“It can move things around, it can link, synthesise and analyse information, and it can do some things much faster and more consistently than we as humans can. But AI cannot determine what constitutes fairness and reasonableness, having considered unique taxpayer circumstances with compassion and empathy.”
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This position leads to a clear principle: decisions that adversely affect taxpayer rights should be made by humans, not machines. Even as AI becomes more sophisticated, Mr Hirschhorn suggested this human-centric approach is part of the social compact between government and citizens. “Even in some future where AI passes some form of advanced Turing’s test for compassion and empathy, part of the social compact with citizens is that they want a human to make decisions with important impacts on their life,” he noted.
Beyond human decision-making, Mr Hirschhorn emphasised the importance of explicability. Tax administrators should be able to explain their actions and decisions to affected individuals in understandable terms. Relying on “the computer said so” as justification breaches accountability obligations to both individual taxpayers and the broader system.
Balancing technology and humanity in tax administration
The complementary perspectives of Mr Heferen and Mr Hirschhorn highlight the complex equilibrium the ATO seeks to maintain. While embracing technological advancements that improve efficiency and effectiveness, the organisation remains committed to human oversight and ethical principles that preserve public trust.
Mr Hirschhorn captured this balance in his observation that AI should be viewed as “a bionic arm” – an extension of human capabilities rather than a replacement for human judgment. Similarly, Mr Heferen emphasised that digital pathways cannot substitute for human intervention in complex cases requiring compassion or empathy.
Read more: How AI is reshaping the role of tax professionals
As the ATO continues to evolve its approaches to data, AI, and automation, these principles provide a framework for responsible innovation. The ultimate goal remains collecting the right amount of tax to fund essential government services, maintaining the social contract that underpins Australian society.
Mr Heferen concluded his address with a realistic assessment of the ATO’s position: “Is our tax administration perfect? Of course not. Is it about right? I am obviously biased, but I would say definitely. Can we improve? Of course. We’ve got work to do to achieve this. But that’s our aim.”
In an era of rapid technological change, this commitment to continuous improvement while preserving human judgment and ethical principles offers a model for government agencies navigating the digital frontier. The ATO’s experience demonstrates that effective public administration requires not just technological sophistication but also a deep understanding of the social compact it serves to uphold.