It seems incredible that our tax system still requires so many people to keep receipts and documents for up to five years. Or that every year, so many taxpayers make the annual pilgrimage to a tax agent.
It isn’t surprising then that Australians are some of the highest users of tax experts in the world. Over 73 per cent of Australian taxpayers lodge their tax return through a tax agent or accountant.
While some professional advice can be necessary to manage the mounting intricacy of the tax system, the numbers of Australians who rely on tax agents suggests the system is far too complicated especially when you consider another set of statistics.
Of the nearly 13 million Australians who lodged a tax return, over eight million had what could be termed ‘simple tax affairs,’ but 5.4 million of these people still decided to use a tax agent or accountant.
Too many Australians still need to use a tax professional to work through the large number of treatments, choices and exceptions a particular taxpayer needs to understand to work out their tax liability.
In the 1950s when our tax system was largely designed, we had around 1,080 pages of tax law. We now have more than 14,000 pages. Complexity imposes unnecessary costs on taxpayers.
According to a 2013 Australian Tax Forum study, the costs of navigating the tax system for an average taxpayer have grown by about 73 per cent since 1995. Over the past decade, the tax compliance costs of personal taxpayers have grown more rapidly than both tax revenue and the nation’s gross domestic product.
ATO and Treasury analysis estimates that compliance with the tax system costs Australian taxpayers in the vicinity of $40 billion annually.
For the average taxpayer the gross tax compliance costs in Australia are estimated to be $9.6 billion, accounting for seven per cent of income tax revenue (or six per cent of tax revenue if state land taxes and stamp duties are also included) and 0.65 per cent of GDP. This results in an average cost of $370 per person to manage their tax affairs.
If you include all the out-of-pocket direct costs such as the unnecessary hours spent collecting, collating and calculating the documents for these tax returns, the net tax compliance costs of a typical personal taxpayer range from $472 to $977.
There is also a high cost of tax compliance (relative to income tax revenue collected) of personal taxpayers in the lowest taxable income group. The distribution of compliance costs for individual taxpayers tends to make tax compliance highly regressive for lower income earners.
The time and resources Australians spend on managing their tax affairs is time not spent innovating, creating products, delivering services, generating wealth or enjoying their leisure time.
The Australian Tax Office (ATO) is focussed on making it as easy as possible for taxpayers to get things right. In many cases, simple administrative solutions can help to spare people from having to deal with the complexity of the tax law.
Towards this end, the ATO is using a range of data it already collects to pre‑fill tax returns, sparing taxpayers from needing to record and report information themselves.
The lodgement process is also being simplified by allowing taxpayers to access and submit online tax returns, pre‑filled with the information the ATO already collects.
Contrast our complex and archaic tax system with the reforms undertaken by other countries; only six in 10 New Zealand taxpayers now file tax returns; and, in Denmark, taxpayers are not obligated to respond to a pre-filled return – a ‘no response’ is deemed to be acceptance of the return.
Australia can’t risk falling behind. Many of Australia’s international competitors are changing their tax systems to make them more competitive.
Australians deserve a simpler tax system that is easier to understand and comply with. The Government’s objective is to achieve a better tax system that delivers taxes that are lower, simpler, and fairer.