The federal Minister for Small Business has instructed the Australian Tax office to lay-off on audits of independent contractors and the self-employed.

Bruce Billson, who controls the portfolio of Small Business – now its own department in the new federal government - has told the ATO and other government agencies to give the little guys a go, relaxing investigations into thousands of cases of unreported income per year.

Mr Billson said in an interview: “The issue is less about the law itself; it’s the way it has been administered... we’ve seen independent contractors in the transport industry whose pay is determined by an independent tribunal... and contractors in the clothing, textile and footwear area engaged to do contract work now being told they have to be engaged and employees to get minimum hours.”

The Minister for Small Business claims the previous Labor government pushed the Fair Work Ombudsmen and other industry watchdogs to crack down on independent workers, pushing the market towards union-friendly agreements.

A spokesperson from the Construction, Forestry, Mining and Energy Union said the audits were in place to prevent people being forced into shoddy contracts where employers could avoid paying benefits such as superannuation or sick leave.

Auditors are not chasing phantoms in contractor’s reporting though, statistics show there are massive failings in the level of self-regulation and compliance.

ATO figures show in 1500 audits between 2009 and 2010, average tax adjustments of about $24,000 had to be made. Data from 2009 suggests 31 per cent of contractors in building and construction had not lodged a tax return, while 20 per cent lodged a return but omitted some or all of their income. In 2011, tax commissioner Michael D’Ascenzo showed evidence of widespread sham contracting in call centres, cleaning, security, logistics, media, retail, tourism, hospitality, educations, aged-care, health and telecommunications.

Small Business Minister Bruce Billson says the government is looking for a return to Howard-era freedom of independent contractors, saying “those that aren’t legitimate deserve to be pursued, but those who are legitimate don’t deserve to be harangued.”