Prefilled Personal Income Tax Returns: Australia

Like the rest of the developed world, Australasian tax reforms in the past 30 years have exhibited many efficiency-enhancing features: lower income tax rates, tax base broadening, a change in tax mix towards indirect taxation, and increased neutrality and uniformity in tax structures. In New Zealand and Australia, these outcomes have reflected the pro-market policies initiated in the 1980s by the then Treasurers Roger Douglas and Paul Keating, respectively. Increased legal complexity and increased tax operating costs (defined as the sum of tax administrative and compliance costs) were undoubtedly outcomes that derived from such policies in Australia and New Zealand, as well as in Canada and most certainly the United States (see Sandford, 1993). This is ironic as tax simplicity has long been recognized as a criterion for good tax policy and tax simplification was declared to be a key rationale for many of the tax reforms taking place in the 1980s and 1990s. The increase in tax operating costs (whether in absolute or relative terms) and the loss of tax simplicity have also clashed with the stated economic strategy of microeconomic reforms in many member countries of the Organisation for Economic Co-operation and Development (OECD). Prefilled (or pre-populated or pre-completed) income tax returns represent one of the latest tax simplification initiatives being undertaken in many OECD countries (Highfield, 2006; OECD, 2008). Their use began in Denmark in the late 1980s and subsequently has spread to other Nordic and EU countries (ANAO, 2008). They have also been adopted, or are in the process of being adopted, at sub-national levels in North America (for example, in California and Quebec). In Australia, the prefilled tax returns program (formally known in Australia as “pre-filling service - e-tax” or simply “pre-filling,” a terminology adopted in this chapter, is relatively new, having been first mooted in 1998 and formally introduced in 2006/07 after minor trials in earlier years. More recently, pre-filling has received high-level official endorsement, initially from the Henry Review of Australia’s Future Tax System (Australian Treasury, 2009), and subsequently in the Government’s response to that review (Australian Government, 2010) and in the May 2010 Budget. Recommendation 123 of the Henry Review argues that “pre-filled personal tax returns should be provided to most personal taxpayers as a default method of settling their tax affairs each year” (2009: 104). In turn, the Government has apparently accepted this “tick and flick” approach, though — as discussed later in the chapter — it may not have entirely understood the ramifications when it did so. The principal aim of this chapter is to examine in detail the experience of pre-filling in Australia. The organization of the remainder of the chapter is as follows. Section 2 provides a more detailed background discussion of pre-filling in Australia, including the drivers of change and its historical development. Section 3 presents a description of the current state of play of pre-filling in Australia and discusses some of the issues that have arisen during its implementation. Finally, section 4 presents a preliminary assessment of the impact of pre-filling and considers a number of proposals that could enhance its performance.

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