I’ve heard talk that there are some sick individuals in society who actually take pleasure in filling out their annual tax returns. For such people, July 1 looms like the opening day of the latest Harry Potter movie. It’s the day they get to rip the plastic from the latest Tax Pack, pencil sharpened and calculator at the ready. Opponents of moves to scrap annual tax returns reason that most Aussies relish any opportunity to game the system, claim deductions and beat the taxman.
Sorry, but I don’t buy it.
For the bulk of taxpayers, myself included, the end of the financial year serves merely as a constant reminder of the fleeting nature of life. A reminder that, as the years pile on top of each other, each one seemingly quicker than the last, life is short.
The exquisite cruelty of the Tax Office’s dominion is that even as this realisation dawns, so too does the knowledge you will soon be required to waste even more of your life filling out yet another tax return. The average time spent filling out a tax return has grown to about 8.5 hours a year.
The anguish is evidently too much for some. More than a million Australian taxpayers fail to lodge a tax return each year, according to a research paper prepared for Ken Henry’s review of the tax system titled ”Behavioural Economics and Complex Decision-Making”.
Think about that. That’s roughly one in every 10 workers. So of your 10 closest work colleagues, chances are one of them will not file a return this year.
For some ”non-lodgers”, as the Tax Office calls them, the decision is a deliberate one to minimise tax. But a sizeable chunk simply fall prey to the complexity, hassle and sheer tedium of filling out a tax return.
”Overall it appears that for a significant number of people (in the 100,000s) failure to lodge is not premeditated, and is more likely to be due to procrastination and confusion than attempted tax evasion,” the research paper found.
The irony is that many of these people are among the most disadvantaged in society, those on low or irregular incomes, and would therefore have a good chance of getting a refund if they did file.
The main problem with the current system of tax returns is that it is an ”opt-in” system. Taxpayers must take the initiative in obtaining a tax pack or downloading e-tax , filling it out and submitting it.
Among the many useful recommendations to arise from the Henry tax review was the suggestion this process be changed to an ”opt-out” system. Taxpayers would be automatically issued a tax bill, or refund, at the end of the financial year, which they could either choose to accept or ”opt out” of by completing their own tax return.
The government is making a start at simplifying tax returns by adopting another Henry recommendation for a standard deduction for work expenses. From 2012-13, taxpayers will be able to choose a standard deduction of $500 a year, rising to $1000 in 2013-14, and be spared the hassle of sifting through shoeboxes of receipts. Some will still opt to calculate their own expense claims, for instance if they can substantiate a higher claim, but for others, they will be able to simply tick a box to proceed. If you didn’t claim any work expenses to begin with, you’ll be ahead on the deal.
But the Henry vision of simplifying tax returns is much bigger. In Australia’s future tax system, every citizen would be given a log-in to a single online account through which they could access a range of up-to-date information, including their income, tax withheld, child support payments, HECS debts, superannuation contributions, etc. Instead of having to contact separate government agencies, such as Centrelink and Medicare, every time they moved house or got a new job, this online portal would give people a single access point for updating their details across all government agencies.
Such a site would contain historic information, allowing you to compare your income and tax liabilities across several years, potentially all the way from cradle to grave.
Online calculators would also enable you to test the impact on your benefits and tax liability of hypothetical changes to your circumstances, such as having a baby, increasing your work hours or increasing your superannuation contributions. Family accounts could be linked.
An information portal like this would effectively render annual tax returns redundant. You, and the Tax Office, would already know, at the click of a button, the entirety of your financial relationship.
Besides eliminating the need for the dreaded tax return, there are other potential benefits. By giving people the ability to calculate how much they’d lose in benefits versus gain in income by returning to work, it could also have a real benefit in helping to lure more people back into the workforce. Likewise, being able to see an estimate early in your career of your projected retirement nest egg could help people better save for retirement.
The website could also help better engage citizens on where their valuable tax dollars go by providing individual estimates of where their tax is spent. For example, a person paying $20,000 in tax a year could see how, based on the composition of total government spending, roughly $6400 ends up spent on welfare and family payments and $1800 on education.
Of course, it would be necessary to consider privacy and security issues in such a move. But let’s face it, the government already knows almost every detail of your financial life. Wouldn’t it be handy if you did too?