Processes of Tax Reform – Lessons from the Past

2. Processes of Tax Reform – Lessons from the Past Valerie Braithwaite Regulatory Institutions Network (RegNet) ANU Valerie.Braithwaite@anu.edu.au http://vab.anu.edu.au

3. Three Objectives ● Introduction to the work of the Centre for Tax System Integrity (CTSI) Reflection on three models of community engagement for effective governance Understanding pathways to defiance for “internal testing” of policy ● ●

4. Centre for Tax System Integrity Aim: Understand the basic drivers of tax compliance Develop and test regulatory models for building citizen engagement, cooperation and compliance. Background: Deterrence could not explain why people paid their taxes The ATO was gearing up for the introduction of the GST The Regulatory Institutions Network (RegNet) was gearing up to develop general regulatory models applicable across regulatory regimes – security, environment, OH&S, competition and consumer policy, health, intellectual property.

7. Centre for Tax System Integrity Over 200 papers and reports 10 surveys (7 general population surveys, 2 mass marketed scheme investor surveys, 1 survey of recent graduates (HECS)) Randomized trial experiments, a series of qualitative studies Is the material dated? No, research was designed to test ideas and theories about how things work – not to describe the events of the day For more information Andrew.Stout@ato.gov.au or Valerie.Braithwaite@anu.edu.au

8. What are the big ideas that we tested? • To make the link with policy and practice let us ground the findings in three models of community engagement – practical tools that come out of theory driven and empirically tested research • (a) Taxpayers’ Charter • (b) ATO Compliance Model • (c) Wheel of Social Alignments

9. Taxpayers’ Charter Content: Transparency in quality decision-making and respectful treatment of taxpayers Idea: Procedural justice  Increases legitimacy of rules and law, cooperation with authority and compliance Obtaining favourable decisions or outcomes is far less important to individuals than experiencing procedural fairness Procedural fairness means impartiality in decisions, consistency in decisions, being treated with respect Reference: Tyler, Tom (2008) Psychology and Institutional Design, Review of Law and Economics 4 (3): 801-887.

10. The ATO Compliance Model

11. Responsive Regulatory Pyramids Enforcement pyramidStrengths-based pyramid Ayres, Ian and Braithwaite John (1992) Responsive Regulation: Transcending the Deregulation Debate Oxford: Oxford University Press. Braithwaite, John, Makkai, Toni, and Braithwaite, Valerie (2007) Regulating Aged Care: Ritualism and the New Pyramid Cheltenham: Edward Elgar.

12. The Wheel of Social Alignments Braithwaite, Valerie (2009) ‘Tax evasion’ In M. Tonry, Handbook on Crime and Public Policy Oxford: Oxford University Press

14. Honest .17 Disillusionment Adviser -.35 .14 Thinking -.17 .51 Morally R2=.58 .18 .33 -.49 RESISTANCE Integrity .18 .22 -.66 Perceived Deterrence .29 .23 Feeling Oppressed

15. Honest Adviser Disillusionment -.35 .17 Thinking Morally -.40 -.40 .52 -.18 R2=.50 .19 Perceived DISMISSIVENESS -.15 Deterrence .18 .42 .27 Feeling Oppressed .57 Aggressive Adviser .30 Seeking Status

16. 48 Freemarket 38 40 85 Tax HFHE (L) 2005 Disillusionment 87 Hope 2003 Tax CHFAS 2000 86 0 20 40 60 80 100 Percent agree or strongly agree A comparison of levels of disillusionment with Australian democracy and support for small government and free markets 2000 - 2005

17. 19 18 Police stations 23 21 Hospitals 22 21 Schools 51 51 Lawyers 57 48 54 Tax Office 49 37 57 58 Centrelink 60 62 65 Local council Democracy 2005 64 66 Banks 71 Tax HFHE (L) 2005 Hope 2003 65 Tax ATSFONS 2001 70 Federal government 71 71 73 Newspapers & TV 84 78 80 Insurance companies 86 0 10 20 30 40 50 60 70 80 90 100 Percent who do not trust at all or only a little Percent expressing little trust in institutions 2001 - 2005

18. 45 Tax HFHE (L) 2005 Trust 52 Tax ATSFONS 2001 Tax CHFAS 2000 57 0 10 20 30 40 50 60 Percent agree or strongly agree A comparison of levels of trust in the Tax Office 2000 - 2005

19. 5 Unskilled factory workers 6 9 Farm labourers 9 11 Waitresses 10 24 Trades people 22 23 Small business owners 24 29 Farm owners 29 Tax ATSFONS Tax CHFAS 47 Tax agents and advisors 45 49 Doctors in general practice 51 60 Surgeons 59 73 Senior judges and barristers 64 75 Owner managers 70 78 Chief executives 77 0 10 20 30 40 50 60 70 80 90 Percent paying a bit less or much less than their fair share Perceptions of the degree to which different occupational groups are paying their fair share of tax

20. 11 Gameplaying 10 13 5 Disengagement 7 6 57 Resistance 57 55 Tax HEHF (L) 2005 Tax ATSFONS 2001 74 Tax CHFAS 2000 Capitulation 72 73 92 Commitment 94 92 0 20 40 60 80 100 Percent agreement Percent endorsing each motivational posture to Australian Taxation Office 2000 - 2005

21. 12 Gameplaying 11 9 Disengagement 8 50 Resistance 55 70 Capitulation 62 82 Hope Commitment Democracy 84 0 20 40 60 80 100 Percent agreement Percent endorsing each motivational posture to federal government

22. Conclusions Advertising is beguiling but no one authority is its master Be clear about benefits, ensure justice issues are addressed ASAP, and do a moral obligation litmus test as policies are being developed and as they are implemented Command and control thinking about the implementation of policy is likely to add extraordinary expense incurred through costs of surveillance and deterrence Deterrence is a necessary part of regulation but it must be credible, enforceable and fair Education and persuasion are useful vehicles for establishing the integrity of authorities as new policies are introduced and implemented Fairness in processes and procedures can be established and corrected during the education and persuasion process setting the scene for high standards of procedural justice