Tax Office debts take off 29 October 2009 5:32PM Ian Rogers Tax debts owed by business and households climbed by 12 per cent in the year to June 2009, the annual report for the Australian Taxation Office shows. Collectable debt increased by only one per cent in 2008.At a time when credit growth across the rest of the economy is a tepid three per cent (on an annual basis) and business credit has declined all year, the ATO remains a pragmatic source of finance for anyone struggling to raise funds elsewhere.The ATO puts its level of "collectable debt" at $12.2 billion at June 2009, which is a minor pool of credit in context. The Reserve Bank estimates private sector credit at around $1.9 trillion.On the other hand the existence of tax liabilities (assuming private sector lenders can verify there are any) is usually a red flag to any lender considering an application for a loan.The ATO's stock of "debt holdings" is double the level of collectable debt, at $24.5 billion. This figure includes disputed debt and tax owed by insolvent businesses and bankrupt individuals.This larger estimate of ATO debt is broken down in the Tax Office annual report.Tax debts owed under business activity statements increased nine per cent over 2008/09, while income tax debt increased 17 per cent. Debt subject to appeal increased seven per cent while insolvency-related debt increased 27 per cent.While tax debts are rising, the ATO took a lenient attitude in many cases, and thus penalties and interest imposed fell over the year.This leniency looks likely to continue, given measures announced a few months ago to give smaller businesses more time to pay.According to the annual report, "while the increasing rate of collectable debt is a concern, it is mainly attributable to the economic downturn and a strategy of keeping viable businesses in business."