Key findings
Australians have a strong commitment to the principles of
taxation. An overwhelming majority believe it is their responsibility
to pay tax and that tax enables the government to do worthwhile things
that make life better for everyone.
Australians question the reasonableness and fairness of the
system, however. They see some people as having more opportunity and a
greater willingness to get out of paying tax than others, and while
Australians readily admit that this is wrong, they seem to think that a
lot of people are getting away with it.
The distortions introduced by legitimate, illegitimate and
indeterminate strategies to reduce the tax paid to government is likely
to influence Australians' impressions of fairness in the system.
Interestingly Australians seem to be able to tolerate a considerable
amount of unfairness before retaliating. When unfairness does
`kick-in', however, community response can be vociferous and resistance
can be enduring. This was particularly the case when taxpayers felt
that they had been treated badly as individuals - that they had been
treated disrespectfully or deceived or taken advantage of in some way.
The Centre's work has consistently supported the importance of The
Taxpayers' Charter as a code of practice for tax administration.
There was very little evidence over a range of studies of
simple relationships between attitudes and cheating on tax. The factors
that cause us to cheat are many and varied, and we suspect that
context, intermediaries and the amount of control we personally
exercise over our tax affairs plays a central role in how likely we are
to evade or avoid tax.
Our mindset about tax does play a small part in explaining why some of us pay
our tax while others do not. The first mindset might be called tax obligation
and describes the view that we should pay tax, we will be caught and
penalized if we don't pay tax, and overall, the tax system works pretty
well for all of us. Within this mindset, there was confidence in the
integrity in the system and tax is paid with good will.
The second mindset is called victimisation, and
describes feelings of being treated unfairly by the Tax Office in terms
of how much tax is paid. Being victimised also means feeling excluded
and distrustful of the Tax Office. Those who feel victimized resist
paying tax or pay reluctantly.
The third mindset is freedom from Tax Office constraint. This mindset
brings confidence that there is a way of beating the taxman through gaming the
law.
These three mindsets are all present in the Australian
population and can be held by any of us depending on circumstances.
They work together and combine with other factors to determine our
responses to tax regimes.
Val Braithwaite,
Director, CTSI
Staff's views on their most important findings
-
Michael Wenzel

Taxation involves a fascinating array of fairness issues. Justice
researchers could have a field day; administrators and policy makers
could be excused for despairing in the face of the complexity.
Taxpayers may be concerned about the distributive unfairness of tax
burdens, tax-funded benefits, and tax minimization opportunities; the
procedural unfairness of lack of consultation, lack of transparency in
decision-making, disrespectful treatment and so on; and retributive
unfairness of penalties for tax evaders or tax amnesties. And people
judge these issues not only as they affect them personally, but also -
and this is often neglected - their social groups and the community as
a whole. The policy implications are challenging for tax authorities in
that they highlight the responsibility of tax administrators to manage
the public's willingness to cooperate through engaging in dialogue and
debate about tax issues.
-
John Braithwaite

Aggressive
tax planning is a cyclical phenomenon in both Australia and the United
States. Cycles end with an enforcement crackdown by the tax authority
and strengthened resolve by the courts to interpret the law more
purposively. They restart as a response to perceived drift in this
enforcement resolve. The upswing in aggressive tax planning is
initially gradual and supply driven (by promoters). This gradual growth
passes a tipping point at which the upswing becomes demand driven. When
some taxpayers get the idea that "everyone is doing it", a stampede
into a new peak in aggressive tax planning occurs. Targeting
enforcement on promoters and aggressive advisers is the main policy
implication of understanding this phenomenon. Most demand is for
"honest, low fuss" advisors; counter-cyclical enforcement policy
reinforces this on the demand side.
-
Greg Rawlings
The globalisation of financial markets has opened up new opportunities for multinational corporations and
high-wealth
individuals to take advantage of world-wide tax planning through
offshore finance centres (popularly known as tax havens) to drastically
reduce the amount they have to pay in taxes. This has been possible
because of loopholes in the regulation of global business and
competition for tax dollars between states. Individuals and businesses
(both large and small) which aren't a part of the global scene end up
paying a disproportionately higher share of taxation. This has resulted
in growing differences between citizens, with some people able to
reduce their taxes by taking full advantage of the opportunities
presented by globalisation and its accompanying tax benefits, while
others are unable to. The policy implications involve issues of
fairness in the tax system within the nation, but increasingly
encompass global questions of fairness and economic sustainability
across the rich and poor countries of the world.
-
Jenny Job
People
generally believe that trust is rationally created. Putnam's social
capital work highlighted that trust in strangers is the result of civic
engagement, especially volunteering. Unfortunately, this theory did not
stand the test in New South Wales and Victoria. Instead, theories that
trust is developed early in life in the family and in one's personal
circle held true. So Putnam is right that the basis of trust in
strangers is relational, it just starts earlier in life. Similarly, the
creation of trust in government and its organisations is generally
theorised as being based on rational factors, for example, community
perceptions about the extent of corruption, wise government spending,
and how powerless they feel. But relational factors such as trust in
strangers, people's sense of reciprocity and duty to the collective,
and their satisfaction with life are also important. Surprisingly, even
if government and its organisations behave badly, we will still trust
them.
- Eliza Ahmed

The legitimacy of the tax system and the legitimacy of higher education
policy are inter-connected. Dissatisfaction with university courses
undermines a sense of obligation to repay HECS (Higher Education
Contribution Scheme) debt, which in turn impedes tax morale and
triggers tax evasion. For policy makers, this is an important finding.
If government does not succeed in winning over the hearts and minds of
the people in relation to a particular policy, those most affected will
find a way of registering their sense of unfairness. And they do so
through another branch of government, the tax system. This is why
policy needs to be not only economically sound, but emotionally
intelligent.
-
Tina Murphy
The
ATO has the responsibility of regulating over 8 million taxpayers each
year to ensure they pay their fair share of tax. This responsibility
sometimes involves punishing taxpayers who have failed to meet their
obligations. However, when regulators such as the ATO punish
non-compliers in ways that are seen to be harsh and insensitive, this
sometimes results in widespread resistance to their decisions and
rules. This is particularly the case when taxpayers may have
inadvertently violated tax laws (either through ignorance or an
innocent mistake). This is because deterrence-based policies that place
an emphasis on punitive penalties can be seen to be procedurally
unfair. Our research has shown that when decisions are seen to be
procedurally unfair taxpayers question the legitimacy of the ATO's
authority. If left unchecked, this can result in decreased levels of
trust, resistance and subsequent non-compliance in the future. These
findings suggest that regulators need to be responsive in the way they
administer their enforcement practices.
- Vivienne Waller

Responsive regulation requires that the regulatory agency is able to
detect non-compliance. In the context of taxation in Australia, the
ATO's ability to ensure voluntary compliance with both the letter and
spirit of taxation law rests not only on taxpayer understandings of and
commitment to the taxation system, but also on ATO ability to detect
non-compliance. In order that trust and confidence in the ATO is not
undermined, it is critical that integrity underpins all ATO efforts to
detect non-compliance. The implications of this extend beyond treating
taxpayers as honest unless their actions indicate otherwise. At a
grass-roots level, integrity also involves transparency in ATO field
officer's everyday dealings with taxpayers.
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