Life is short, but the Tax Act is long

He forgot to do his tax return

IT’S around this time every year I get a jolting reminder of how short life is. Yep, tax returns are due on Monday, people. Have you done yours yet? So while some of you laze about reading newspapers this weekend, think of me sitting at home sifting through receipts and cursing the Tax Office for not creating an Apple compatible etax portal. Seriously fellas, get on to it. If not for me, do it for Steve.

Just so we’re clear, it can make perfect sense to leave filling out your tax return to the very last minute, as I do. It all depends on whether you think you’ll get a tax refund or be issued a tax bill. Remember the time value of money? Give me a dollar today and I can invest it. Give it to me tomorrow and it’s not worth as much.

So if you think you’ll get a tax bill, leave it to the last minute. But if you are likely to get a tax refund, you really should have submitted months ago and had that money sitting in a uBank online savings account earning 6.51 per cent (payable only if you make regular deposits).

As an economics journalist, I feel a sense of responsibility to be among the select minority of taxpayers who still persevere each year in doing their own tax return.

But let’s face it, three in four taxpayers this year will use a tax agent to do their dirty work for them (and earn an extension on lodgement). And who could blame them?

According to a review of the Australian tax architecture for the Ken Henry tax review: “The time and resources individuals devote to complying with the requirements of the law could be allocated to more productive or satisfying activities and therefore represent a significant cost to the economy.” Amen to that.

Estimates put the cost of taxpayer compliance with the tax system as high as 2.1 per cent of gross domestic product. That’s as much as 12 per cent of tax revenue collected. The complexity of the system contributes to 1.2 to 1.5 million taxpayers every year failing to lodge. A report in 2009 by the Inspector-General of Taxation found the chances of being penalised are low: only 98,700 penalties are imposed a year for non-lodgement.

The annual drudgery of tax returns is a missed opportunity to engage people with where their tax dollars go. A small thank you note on lodgement would go a long way …

“Thank you, madam, for your completing your annual tax return. Personal income taxes account for about 45 per cent of total federal government revenue and assist us greatly in the work that we do. Business chips in another 20 per cent through the corporate tax rate and another 15 per cent comes from the GST, so thanks for that too. The rest we get from a bunch of customs duties, excises on fuel, alcohol, tobacco and some other itty bitty taxes too small to mention here.

You might be wondering where it all goes. Rest assured we usually spend every dollar we get (sometimes less, sometimes a bit more). By far our biggest expense is in welfare payments to individuals and families. Of every dollar we collect in tax this year, we expect to spend about a third on social security and welfare. About 16 per cent will be spent on health, 8 per cent on education and 6 per cent on defence.

We hope you think that’s money well spent. If not, please alert us at the earliest possible election. Many thanks for your time. Now please do go sit in the sunshine and read a newspaper.”

THE IRVINE INDEX

1.2 million
Australian taxpayers fail to lodge a tax return each year (this is a lower estimate by the Inspector-General of Taxation – the upper estimate is 1.5 million).

98,700
Number of ‘‘failure to lodge’’ penalties applied by the Tax Office in 2007-08.

$366b
Total estimated government spending in 2011-12.

88
Pages of Australian income tax law in 1936.

$122b
Federal government spending on social security and welfare in 2011-12.

5743
Pages of income tax law at the time Ken Henry began his tax review in 2008.

$34b
Cost of the age pension in 2011-12 paid to 2.2 million people.

20,000
Public servants at the Tax Office, the second largest government agency, employing 15 per cent of the Australian Public Service.

Sources: Inspector-General of Taxation, Review into the non-lodgement of individual income tax returns, June 11, 2009; Architecture of Australia’s Tax and Transfer System, by Australia’s Future Tax Review, accessible at taxreview.treasury.gov.au; 2011-12 federal budget documents accessible at budget.gov.au; FaHCSIA Facts and Figures, October 2011.

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