An evolving compliance model for tax enforcement

Decades of research on regulatory rule enforcement prompted a battle of sorts between those who favor a deterrence approach and those who promote compliance approaches, between punishment and persuasian (Reiss, 1984; Hawkins, 1984; Pearce and Tombs, 1990; Snider, 1990). In some areas, evidence suggests that deterrence works, if only modestly, as in the area of occupational health and safety (Scholz, 1991; Braithwaite, 1985). In nuclear safety and other realms, a shift away from a rule enforcement approach toward a more communitarian style of self-regulation improves compliance (Rees, 1994). In other domains, however, it is unclear whether the effect of increased deterrence is positive or negative (Makkai and Braithwaite, 1994). Tax enforcement is an area where the effects of deterrence and compliance approaches are unknown (Andreotti, Erard and Feinstein, 1998). When taxpayers are audited, for example, and a penalty imposed, it is unclear whether they learn that they got away with a lot of things that the audit did not detect. The deterrence sign will be positive if this is the bigger lesson than the lesson that cheating will be punished. Sometimes an audit succeeds in deterring cheating in the long run, but in the year or two after audit taxpayers believe they are unlikely to be audited, and this has a dramatic negative effect on compliance in those two years. This and other kinds of complexity have moved the compliance literature over the past decade away from a crude contest between punishment and persuasion. Rather the debate has been about how to get the right mix of the two. In the case studies discussed in this essay, the Australian Taxation Office (ATO) became persuaded to an enforcement pyramid approach to regulation (Ayres and Braithwaite, 1992; Gunningham and Grabosky, 1998). This means regulatory staff prefer the low-cost option of persuasion first and escalate to more deterrenceoriented options (and ultimately to incapacitation) as less interventionist strategies successively fail. In this essay, we first consider the history of the development of an Australian Taxation Office (ATO) compliance model out of the work of the Cash Economy Task Force. Ultimately, the responsive regulatory model developed by this group was adopted as policy for all ATO operations. We consider how the model has begun to be applied in three domains: with large corporations, with high wealth individuals and in the cash economy. In each of these three domains taxpayer compliance is become more challenging

Attitudes Toward Animal Suffering: An Exploratory Study

A total of 302 undergraduates in the social sciences and the humanities at two Australian universities were given a questionnaire designed to explore public attitudes toward animal suffering. Though preliminary, the results strongly suggest that attitudes may greatly support animal welfare and animal rights. However, as reflected in the answers to the questionnaire, actual behavior does not always follow suit. The recommendation is made that the animal welfare/animal rights movement should perhaps emphasize raising people\u27s awareness of the inconsistencies between their attitudes toward animals and their behavior

Are taxpayers’ charters ‘seducers’ or ‘protectors’ of public interest? Australia’s experience

This paper uses Australian data from two national random surveys to show that citizens’ ratings of their tax authority’s performance on adhering to the principles of a Taxpayers’ Charter provide useful information for assessing the level of resistance-cooperation that the Tax Office is generating in the community through its administration of the tax system. As predicted, the ratings that people gave were affected by factors outside the narrow understanding of service delivery. This paper argues that the breadth of influence on Charter ratings strengthens rather than limits their usefulness because to understand a decline in ratings, tax authorities must engage in a degree of introspection that takes account of the overall integrity of the tax system. The central hypothesis that was confirmed in this study was that while Charter performance plays a role in eliciting cooperation and containing resistance once a partnership between a tax authority and taxpayer has been established, it does little to improve relationships when taxpayers have moved beyond the psychological or legal reach of the authority

Perceptions of who's not paying their fair share

Data from the Community Hopes, Fears and Actions Survey are used to examine how pervasive the view is that the more privileged in society are failing to pay their fair share of tax, to understand the beliefs that underpin such perceptions, and the reforms that are needed to open dialogue with the Australian public about the issue. Support is found for five hypotheses. Economic self-interest provides a partial explanation for perceptions of vertical inequity, but more important are disillusionment with the Australian democracy and perceptions of insufficient procedural justice from the Tax Office. Values about how Australian society should develop also play a part. Those looking for a more equal, caring and compassionate Australia perceive there to be a high level of vertical inequity. Such perceptions are not shared by those aspiring to an Australia that pursues competitive advantage either economically or politically

Cash economy: summary of CTSI research findings and questions for future research

Research on purchasers and suppliers of cash economy activity in Australia has been conducted in the Research School of Social Sciences at the ANU using two data sets the first from a national survey conducted in July 2000, the second from a follow-up survey conducted in January 2002. The data that have been analyzed so far provide the following insights into cash economy behaviour and raise a number of questions for further investigation

Social Capital, Rehabilitation, Tradition: Support for Restorative Justice in Japan and Australia

This paper investigates the attitudes and beliefs that the public hold about criminal behaviour in Japanese and Australian society, with a view to uncovering sources of resistance to, and support for, restorative justice. The study draws on a survey of 1,544 respondents from Japan and 1,967 respondents from Australia. In both societies, restorative justice met with greater acceptance among those who were (1) strong in social capital, (2) believed in offender reintegration and rehabilitation, (3) saw benefits for victims in forgiveness, and (4) were advocates for victims' voices being heard and amends made. The alternative 'just deserts' and deterrence models for dealing with crime were grounded in attitudes of punitiveness and fear of moral decay, and reservations about the value of reintegrating and rehabilitating offenders. Like restorative justice supporters, 'just deserts' and deterrence supporters expressed concern that victims' voices be heard and amends made. Winning public support for competing institutional arrangements may depend on who does best in meeting expectations for meeting the needs of victims

Individual behaviour in the cash/shadow economy in Australia: Facts, empirical findings and some mysteries

This paper first gives an explanation of the behaviour which motivates individuals to engage in the shadow economy. It will be shown that people who fear being caught by tax authorities will be less likely to work in the shadow economy and those who earn more money in the official economy will also work less in the shadow economy. The result of a logistic regression shows that if others are seen to be engaged in the shadow economy then this increases subsequent demand for such activities. It was found that on average, a shadow economy worker earned AUS$2135.31 during the year 2000, and households spent AUS$2,293.00 for these services. Using micro-data to calculate an overall aggregate figure for the estimated size of the shadow economy in Australia during the year 2000, it was found that between 4.81% and 8.8% of the gross national income (GNI) was earned in the cash economy.

Attitudes to tax policy: Politics, self-interest and social values

The attitudes that the community hold to taxation policy are commonly understood from the perspective of self-interest. Drawing on rational actor theory, tax policy is expected to find favour when it financially benefits the taxpayer and disfavour when it financially disadvantages the taxpayer. Following this line of argument, taxes that are costly to the community, such as a goods and services tax (GST), should receive a negative evaluation overall. Cuts to income tax, on the other hand, should be regarded more favourably, being supported by all beneficiaries. Two problems arise with this argument. First, evaluations of the GST are not as uniformly negative as might be expected. Similarly, evaluations of income tax cuts are not as uniformly positive as might be expected. The data presented in Tables 1 and 2 show variability in community attitudes to the GST and tax cuts respectively

The Community Hopes, Fears and Actions Survey: Survey method, sample representativeness and data quality

This paper describes and discusses the method used to collect data on the hopes, fears and actions of Australians in relation to the tax system in 2000. Data were collected from June through to October 2000 by means of a national survey of Australians who were randomly selected from the publicly available electoral rolls. A response rate of 29% yielded 2040 questionnaires that could be used for further analysis. Diagnostic statistics comparing the sample with Australian Bureau of Statistics population estimates on age, sex, occupation and education suggested that the sample was broadly representative of the population, but with some bias in favour of those involved in occupations in which reading and writing skills are integral. The survey also underrepresented younger age groups, a bias that is shared with many other social surveys of this kind. A number of regression models were run to find out if responses were affected by anonymity, time taken to respond to the survey and the introduction of the goods and services tax (GST) during the survey period. No evidence was forthcoming to suggest a direct relationship between any of these variables and tax-related attitudes and behaviours. We conclude that these data provide a satisfactory base for examining the relationships outlined and discussed in the Centre for Tax System Integrity Working Papers No. 2 and No. 3 (Braithwaite, 2001; Braithwaite, Reinhart, Mearns & Graham, 2001)

The theoretical base for the ATO compliance model

The ATO Compliance Model was developed by the Cash Economy Task Force between 1996 and 1998 (Commonwealth of Australia, 1998a). The model drew on two theoretical frameworks from regulation responsive regulation (Ayres and Braithwaite, 1992; Braithwaite, 2002 based on fieldwork described in Braithwaite, 1985; Grabosky and Braithwaite, 1986) and motivational posturing (Braithwaite, Braithwaite, Gibson, and Makkai, 1994; Braithwaite, 1995). Both theoretical frameworks are grounded in data from surveys, observations and interviews relating to regulators and regulatees in action. These data, collected in different settings, were interpreted against a background of social science theory, most notably reactance theory (Brehm and Brehm, 1981), procedural justice theory (Tyler, 1990, 1997), self-categorisation theory (Turner, 1987), defiance theory (Sherman, 1993) and reintegrative shaming theory (Braithwaite, 1989; Ahmed, Harris, Braithwaite and Braithwaite, 2001). Ideas and data were then pulled together to develop the theoretical frameworks described in more detail below