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Niemirowski, Pauline; Wearing, Alexander J --- "Do Australian Taxation Office Staff and Compliant Taxpayers Identify With Tax From the Same Perspective, or Are There Significant Degrees of Separation?" [2006] JlATax 4; (2006) 9(2) Journal of Australian Taxation 119

DO AUSTRALIAN TAXATION OFFICE STAFF AND COMPLIANT TAXPAYERS IDENTIFY WITH TAX FROM THE SAME PERSPECTIVE, OR ARE THERE SIGNIFICANT DEGREES OF SEPARATION?

Pauline Niemirowski^[*] and Alexander J Wearing^{[[**] ]}

This article (which is based on data from the Australian Taxation Office’s (‘ATO’s’) Determinants research) explores whether ATO staff, who were considered exemplars of tax compliance, identified with tax from the same perspectives as compliant taxpayers. The comparisons were conducted to determine if ATO staff were typical Australian taxpayers. That is, whether or not they understood, perceived, interpreted and dealt with tax matters, in the same way as compliant taxpayers.

Responses from 358 ATO staff and 292 taxpayers deemed by the ATO to be compliant were scrutinised to identify similarities and significant differences. A comprehensive survey questionnaire addressed tax related behaviours, beliefs, attitudes and values, tax knowledge and competence, social factors such as satisfaction, seriousness of offences, and lifestyle factors. Results were expected to show high congruence since compliant taxpayers, according to ATO records, also exhibited exemplary tax values, orientation and compliance. There were, however, important differences and the results indicated that taxpayers’ exemplary compliance behaviour was not an indicator of similar tax perspectives. The main finding was the degree of congruence for perceptions regarding tax complexity, difficulties with the tax administration process, fairness, competence, ethics, compliance, use of tax agents, and ATO client service.

In addition, two ‘unapparent differences’ were identified that distinguished disparity between compliant taxpayers and ATO staff. A ‘tax competence deficit’ and ‘tax compliance responsibility deficit’ confirmed why the majority of taxpayers had direct relationships with tax agents and indirect relationships with the ATO. The implications of these results for individual non-business taxpayer client service, tax return policy, ATO and tax agent client relationships, and tax community education are discussed.

1. INTRODUCTION

The 2004 Economic Survey of Australia released by the Organisation for Economic Co-operation and Development acknowledged the Australian government’s ‘progress towards reforming the tax system’.^[1] The report commended progress in the broad-based goods and services tax areas and establishment of a less complex and more internationally competitive tax regime. Other reported improvements in efficiency were advancements in lowering high marginal tax rates, the abolition of distorting state taxes as well as reform of payroll tax. Nevertheless, despite the significant reforms, the Australian taxation system does not achieve full personal tax and non-business taxpayer compliance. Tax compliance research has consistently identified the differences between compliant and non-compliant taxpayers, but not the reasons why compliant taxpayers comply.^[2] Research studies have, however, recognised the significance of factors such as civic duty and moral values,^[3] tax morale,^[4]

public opinion,^[5] ethics, personal and social norms,^[6] norm breaking,^[7] procedural justice,^[8] tax knowledge,^[9] knowledge of the economy,^[10] perceptions of fairness,^[11] and ethics^[12] to understanding either compliance or deterrence. In addition, high moral reasoning and educational communications lower tax evasion intention for taxpayers with low moral reasoning.^[13] Understandably, the tax research focus is tax evasion and evaders, as evasion represents a high risk to revenue collection, self-assessment and voluntary compliance. For example, it is estimated that Australia loses up to AUD14.3 billion a year through cash in hand work and tax evasion,^[14] and New Zealand addresses a problem of ‘entrenched’ evasion.^[15] Kaplan, Newbury and Reckers^[16]

indicate that for each one percentage point increase in voluntary compliance, the United States of America could raise USD7 to USD10 billion dollars in revenue, and The New York Times reported that the Internal Revenue Service estimated that 2001 unpaid tax could be as high as USD353 billion, 16 percent of the total owed by individual taxpayers, due to understating income.^[17]

1.1 Compliance Research

Those researching taxpayers’ high risk evasion activities focus primarily on detecting non-compliance behaviours, and an intuitive assumption is that compliant taxpayers are a low risk group. This assumption might be misguided if the reason why compliant taxpayers comply is because they are not competent to undertake their tax obligations, and choose to transfer their tax behaviours, knowledge problems, and all compliance responsibility to a tax professional. This is significant because, for example, Wallschutzky^[18] reported that using tax agents increased non-compliance behaviours, and Murphy^[19] that attitudes and the relationship between low and high risk taxpayers with their tax agents explained aggressive and non-aggressive taxpayer behaviour. Similarly, O’Donnell, Koch and Boone^[20] reported that procedural knowledge and outcome expectations interacted with task complexity when tax accountants developed recommendations for their clients. Compliant taxpayers are deemed exemplars of self-assessment and voluntary compliance but use tax agents who are not deemed compliant,^[21] so there might be valid cause to reconsider current views.

The ATO’s release of Taxation Statistics for 2002 to 2003 indicated that individual non-business taxpayers represented 54 percent of the total taxpayer population (10.7 million), and that 834 129 individual taxpayers were self-preparers. The report also stated that 7.9 million of the 10.7 million personal taxpayers used a tax agent (74 percent of lodgements), and that 7.8 million were electronic lodgements.^[22] Taxpayers’ preference to use tax agents as the means to meet their tax obligations does not signify exemplary taxpayer compliance or a transfer of tax obligations. Tax agents who favour aggressive tax behaviours or who make errors are potentially at risk of liability claims occurring from their tax services,^[23] and fiscal law might currently not be geared to deal with this. There is no guarantee of permanent exemplary voluntary compliance and compliant taxpayers might one day evade taxes because of stricter enforcement,^[24] or because deterrence was not effective.^[25] It is not certain whether compliant taxpayers are true tax exemplars, typical Australian taxpayers, or similar to tax staff. In addition, it is unclear whether, in the instance that compliant taxpayers identify with tax issues from the same perspective as tax staff, if congruent perspectives explain taxpayers’ compliance behaviour.

There is a paucity of research on the taxpaying behaviour of tax officers and staff, and this gap is significant to understanding taxpayer behaviour according to the ATO Compliance Model and its ‘BISEP’ constituents: business, industry, social, economic and psychological.^[26] If ATO staff are regarded as legitimate exemplars of tax compliance, then comparing their behaviours, beliefs, attitudes and values with those of compliant taxpayers could explain why compliant taxpayers comply, that is, because they identify with tax issues from the same perspective as ATO staff.

The ATO operates on the basis that taxpayers are treated as honest unless they act clearly otherwise.^[27] Since introducing self-assessment, voluntary compliance and self-reporting reforms in 1986, and then in 1992, the ATO has progressively moved to establish a positive working relationship between itself and the public.^[28] Taxpayers, under Australia’s self-assessment tax system, are responsible for declaring all assessable income such as investments, dividends, distributions, rents and interest, and claiming only the deductions and rebates they are entitled to. Through increased accountability and transparency, the ATO’s 2002 integrated compliance programme also proposed to facilitate greater understanding of the community by using ‘their’ language, developing a new way of identifying risk and holistic strategic responses, as well as how to measure the ATO’s administrative effectiveness.^[29] The success of that enterprise depends to a considerable degree on whether the ATO and the taxpayer public identified with tax issues from the same perspective. Given that the ATO as tax administrator aims to maximise and enforce compliance as well as enable taxpayers to meet their tax obligations, it would be advantageous to understand how tax staff and compliant taxpayers identify with tax and compliance.

How tax compliance and tax evasion are defined by the ATO is the foundation of values from which ATO staff administer tax law and identify compliant taxpayers. The ATO defines tax evasion as ‘unlawfully escaping liability for, or payment of, tax. It is when someone has deliberately and dishonestly evaded tax’.^[30] Therefore, according to ATO tax compliance principles and taxpayers’ recorded tax behaviours, compliant taxpayers do not exhibit non-compliant tax behaviours for lodgement, debt payment, and audit and compliance risk. Given that ATO staff operate according to ATO values and the ATO Integrity Framework,^[31] they are exemplars of tax compliance. Comparing tax staffs’ tax behaviour with compliant taxpayers will provide insights into whether tax values are shared and demonstrated.

Governments require legitimacy from their citizens: ideological, functional and moral legitimacy. Without support for political and economic principles, and effective institutions, Yankelovich concludes that ‘tax attitudes may reveal more about the declining functional and moral legitimacy of governments’.^[32] Taxpayer compliance operates as a component of fiscal policy, constantly being changed so that ‘the spirit of the law’ is observed and identified loopholes managed. Expectations of full compliance, however, might be impractical given the widely acknowledged complexity and ambiguity of tax law and policy. Nevertheless, compliance obligations constrain delinquent behaviour and also minimise the non-compliance revenue gap.

Compliance is recognised as multifaceted behaviour based on judgment of risk and consequences of tax avoidance, and remains a complex research area.^[33]

For example, while most taxpayers in the United States of America practised compliance, one in nine returns filed (by individuals) over-reported tax liability (over-compliance), and one in six taxpayers made simple mathematical or clerical errors.^[34] Although both errors were a numeracy issue, technically these were regarded as non-compliance. Tax return preparation, therefore, requires ‘reasonable care’ but taxpayers deem unplanned errors to be difficult to avoid, making it difficult to produce a totally correct tax return.

A socially responsible way for tax authorities to improve self-assessment and tax compliance would be to note that to date taxpayers have primarily been responsible for their own tax knowledge.^[35]

To taxpayers, the existing tax culture presumes potential non-compliance and deems guilt with no recognition of ‘good behaviour’. While the majority of Australian individuals are ‘good’ citizens, they exhibit a tendency to fear, resent and mistrust the ATO.^[36] Tax authorities readily identify that they need to avoid using primarily aggressive techniques and encourage enforcement via a hierarchical system of responses as prescribed by the ATO Compliance Model and ‘BISEP’.^[37]

Tax authorities have a responsibility to uphold the law, but they must also be seen to behave ‘fairly’, and demonstrate empathy with taxpayers’ individual situations and expectations. Flexibility in individual cases and improved communication are essential factors in engaging taxpayer confidence and cooperation if the ATO aims to achieve effective self-assessment and exemplary voluntary compliance.

1.2 Tax Compliance Behaviour

Similar to the ATO Compliance Model and ‘BISEP’, a ‘third’ way to explain why citizens pay taxes incorporates economic and socio-psychological perspectives.^[38] The determinism of analytical economics (utility) and social science (reality and humanism) provides a socially constructed view of a taxpayer’s reality and behaviour. The model recognises that the appeal of economic utility and analysis is not realistic. Compliance models need to incorporate an individual taxpayer-based approach and enforce laws according to their actual behaviours: minor v major non-compliance; education v penalty. Values, attitudes, perceptions and morals are the significant factors. Tax evasion is not merely a function of opportunity and detection, but of a willingness to either comply or evade. Tax authorities of the United States of America, the United Kingdom, Japan, Canada, New Zealand and Australia now construct their social reality by treating taxpayers as clients, addressing needs and improving fiscal consciousness to enable taxpayers and also manage compliance.^[39]

The client-based relationship, though a distortion, provides taxpayers with necessary support and information (consultation, guidance, examination and public relations) and tax officials with a benchmark for measuring client service. Strategic planning incorporates taxpayer behaviour and attitudes with agency efficiency, honesty and legitimacy of government and government institutions. The economic psychology model offers a means of explaining taxpaying behaviours in an economic framework that acknowledges individual taxpayer perspectives and circumstances.

Tax beliefs, behaviours, attitudes and values were consistently reported as key markers of non-compliance or intent in a study of the Determinants of Australian Taxpayer Compliance that was commissioned by the ATO (‘the Determinants Study’),^[40] which also showed that ATO staff were different to other research groups.^[41]

In order to better interpret what those differences were at a more detailed level and what their impact was, the current research compared a sample of taxpayers who were deemed to be exemplars of compliance with Australian Taxation Office staff in order to test whether both populations realised tax from the same perspective. That is, whether their identification with tax was significantly similar, whether they held comparable tax values orientation, and also whether parallel tax compliance attitudes, beliefs and behaviours were demonstrated. The study identified significant differences in taxpayers’ values orientation and compliance behaviours, attitudes and beliefs. For example, their tax attitudes, beliefs, values and behaviours as well as tax competence and knowledge were not identical to tax staff even though both samples were considered tax compliance exemplars. Where compliant taxpayers and ATO staff reported similar results for either agree or disagree, the degree of agreement or disagreement was significantly different. That is, there was a significant degree of separation between the two groups. In some instances, such as tax form preparation and tax knowledge, taxpayers reported results that were the reverse of ATO staff. In the main, results confirmed that compliant taxpayers and tax staff were distinct and separate segments of the total Australian taxpayer population^[42] and that the ATO needs to address issues according to their relationship with this taxpayer segment even though compliant taxpayers are not an immediate high risk group.

The following sections report results for ATO staff and taxpayer perceptions of client services and procedures, tax forms, tax behaviour, efficacy and fairness of the tax system, tax knowledge, competence and difficulty, the tax system (equity and tax rates), tax agents, lifestyle factors, satisfaction, seriousness of legal offences, and the working relationships between the ATO, tax agents and taxpayers.

2. METHOD

The original full research conducted for the ATO was the Determinants Study, which aimed to identify the determinants of tax compliance. All selected taxpayers received questionnaires several weeks before their tax lodgement was due (31 October) in order to promote both awareness of their obligations and potentially enhance response rates. A second copy of the questionnaire was sent out with a reminder letter about three weeks later, and a final reminder letter was sent two weeks after.

As indicated above, the data for this study was drawn from the Determinants Study that comprised compliant taxpayers, non-compliant taxpayers, ATO staff, tax agents and younger taxpayers. The selection of the taxpayers was based on ‘reported’, actual ATO recorded lodgement, debt and audit history of compliance. The focus of the present study is on attributes of compliant taxpayers and ATO staff only.

Significant steps were undertaken to guarantee the privacy and confidentiality of respondents. This included multiple de-identification and coding, invitation to participate letters, advance information that individual tax return data would be accessed and matched to survey responses, that involvement was voluntary and no ATO initiated action would result. All survey responses were received by the end of January 2001. During the three month period of survey mail outs and collection, a 24 hour hotline number was available for taxpayer enquiries. Generally, respondents’ main concern was privacy or possible ATO follow up action if they participated.

2.1 Participants

All potential taxpayer respondents were compliant in 1995 as far as the ATO could ascertain. This baseline taxpayer tax compliance behaviour provided the opportunity to compare groups and identify any differences in subsequent years. For the 1995 tax financial year approximately 6 000 000 Australian non-business taxpayers were potentially eligible for selection. The research design targeted seven specific tax compliance risk behaviours. To be eligible for selection, only taxpayers aged 21 to 65 who were deemed compliant in 1995, and were Australian residents with no bankruptcy, final return not necessary, or deceased indicators were included. The taxpayers were selected from this final pool.

The tax risks used in the study were non-lodgement, non-payment of debt, history of audits with risk probabilities identified as either medium, high and a combination of at least two non-compliant risks. Two thousand eight hundred compliant and non-compliant taxpayers, based on reported taxpaying behaviour, were selected at random to receive invitations to participate in the survey.

Selection of the taxpayers was based on ‘reported’ ATO evidence of tax compliance or non-compliance. These groups respectively exemplified either reported tax compliance or non-compliance, where tax compliance was ‘ATO identified and recorded’ tax compliance. Compliant taxpayers were behavioural exemplars (no risk or low risk) and also the theoretical control group against which all other groups were compared. Tax compliance was defined as reporting all income and paying all taxes in accordance with applicable laws, regulations and court decisions.^[43] Non-compliance in this study was any tax lodgement or debt behaviour that did not adhere to the ATO’s definition of tax compliance.^[44]

Tax evasion methods simply ignore or break the law, tax avoidance devices use the methods of law to neutralise its impact. A sample of 200 tax agents was randomly drawn from the pool of tax agents who represented the 2800 taxpayers to interpret the relationships within the research population.

Earlier published papers from the Determinants Study identified several scales such as intent to not comply, tax behaviours, beliefs, attitudes and values.^[45]

This article interprets information sourced from each of the 93 individual items so that all similarities and differences are systematically considered.

2.2 The Questionnaire

The authors developed the questionnaire in collaboration with key ATO officials, who played a significant role in the drafting of tax specific questions. The questionnaire consisted of 93 behaviour, beliefs, attitudes and values (‘BBAV’) items. The BBAV responses were measured using a 7 point Likert scale ranging from 1 for ‘Strongly disagree’ to 7 for ‘Strongly agree’, plus 8 for ‘Don’t know’ and 9 for ‘Not applicable’. The tax knowledge quiz required either a ‘Yes’, ‘No’ or ‘Don’t know’ response.

Draft survey questionnaires were developed and piloted during 1998 and 1999. The topics included tax related behaviours, beliefs attitudes and values, client experiences with the ATO, individual demographics, lifestyle factors, perceptions of the seriousness of legal offences, levels of satisfaction with various institutions and aspects of life, and knowledge about specific taxes and their fairness. The context of the survey reflected the philosophy and principles of the ATO Compliance Model and The Taxpayers’ Charter. Demographic details such as gender, age, income, education level, home ownership and occupation were collected. Measures of satisfaction, seriousness of legal offences, knowledge of taxes, a tax quiz and fairness of taxes were included to construct a holistic view reflecting the taxpayer’s business, industry-based, social, economic and psychological environment (‘BISEP’).

2.3 Representativeness

The response rate for taxpayers was 292 of 900 compliant taxpayers (32.4 percent), 547 of non-compliant taxpayers (27.85 percent), and 358 of 500 (71.6 percent) for tax staff. Because of the nature of the survey, it was not possible to assume with confidence that the responses obtained were random samples of the randomly selected target populations. Accordingly, the Australian Bureau of Statistics conducted power analyses and provided recommended sample sizes needed to ensure statistical confidence levels plus confirmation of the research design and methodology. An examination of the ‘representativeness’ of the responses was also carried out by the ATO using the demographic and tax characteristics of the responding taxpayers in each group and compared with the whole ATO taxpayer database. The records of responding taxpayers were compared with those for the total mail out sample for statistically significant differences in sample and whole population profiles. The response data appeared sufficiently representative to confirm confidence in the sample. No specific comparisons between early and later responses were conducted because the majority of responses were received early and less than five percent were either late or duplicate responses.

3. RESULTS

Previously published research identified several BBAV-based scales, but the current analyses specifically investigated differences at the item level to explore significant degrees of separation and the full implications of these findings. Lifestyle factors, perceptions of seriousness of legal offences, and satisfaction were included to further confirm whether ATO staff and compliant taxpayers identified with tax issues from the same perspective. In other words, are ATO staff typical compliant Australian taxpayers; do they and compliant taxpayers exhibit differences or similarities? Significant independent sample t-test results (Bonferroni corrected) were first identified, and then relevant items were grouped into key tax categories. Themed categories partially reflected in part the original scales generated in the Determinants Study, but exploration at the item level enhanced interpretation, and will better inform tax administrators and policy development.

Thirty five of the 93 BBAV items identified congruence between ATO staff and compliant taxpayers. In general, responses corresponded where items related to tax returns and tax advice, equity and fairness of tax, ethical tax behaviour and tax. Important differences were identified between ATO staff and compliant taxpayers for 58 of the 93 BBAV items.

The key divergence between compliant taxpayers and tax staff was tax knowledge and competence, and the use of tax agents and fear of tax audits. On the basis of tax knowledge, ATO staff were not typical Australian taxpayers. In part, this can be explained by the fact that ATO staff are continually immersed in tax issues and technical knowledge, have daily involvement with tax law and immediate access to vast in-house resources. Taxpayers’ involvement, however, is generally limited to completing annual tax returns with choices of access to tax resources limited to those on the ATO website, ‘TaxPack’, ‘TaxPackExpress’, tax agents or other professionals, and the ATO. The lower frequency and level of tax involvement and access to knowledge significantly affects taxpayer competence and confidence.^[46]

Whether due to reduced motivation, self-confidence and procrastination, or planned behaviour, taxpayers rely on accurate and timely advice from the ATO as well as their tax agents. This distal taxpayer relationship with tax does not accommodate continuous learning and reinforcement of tax knowledge, and increases dependence on expert advice.

3.1 ATO and Taxpayer Perceptions of Client Service and Procedures

Table 1: ATO Service and Procedures (1 = ‘Strongly disagree’, 4 = ‘Neutral’, 7 = ‘Strongly agree’)

Table 1 above shows that compliant taxpayers and ATO staff were both satisfied with the ATO client service levels and agreed that the ATO was professional and helpful. Nevertheless, tax staff reported higher levels of agreement than taxpayers. Independent t-test results showed that differences were highly significant with all but one p value less than .0001. The differences in perceptions of the ATO’s performance indicated that tax staff considered the ATO was more client oriented than did taxpayers. Nevertheless, taxpayers and ATO staff identified with tax from a similar perspective when considering the level of advice provided by the ATO. Whilst these results were unidirectional, not all significant reported differences were in the same direction. Perceptions of the ATO’s professionalism revealed differences and might explain why taxpayers comply.

There were noteworthy differences in how ATO staff and compliant taxpayers assessed ATO procedures. Taxpayers reported that tax reform would help the ATO do a better job in explaining how the system worked, whereas tax staff disagreed. Tax staff agreed more than taxpayers that the ATO was making a major effort to help taxpayers understand tax law, and disagreed that there was a strong chance that a taxpayer will be audited. Tax staff have some direct knowledge or experience of the actual effectiveness of enforcement and compliance strategies and the overall success of any change programs. Their perceptions might be affected by what could be interpreted as a continuous process of change that does not always produce major results such as full compliance and totally efficient tax administration. This appraisal might be unrealistic given that the tax environment is constantly evolving and challenging tax administration. Nevertheless, taxpayers recognised the ATO’s efforts to enable taxpayers, but also reported perceptions of a high potential for being audited. These perceptions are positive for ATO compliance strategies as this perceived potential might influence proactive compliance attitudes and behaviours with regard to lodgement.

3.2 Tax Forms: ATO Staff and Compliant Taxpayers

Table 2: Tax Forms (1 = ‘Strongly disagree’, 4 = ‘Neutral’, 7 = ‘Strongly agree’)

Results of independent t-tests with p levels less than .001 in Table 2 above confirm that taxpayers and tax staff differed in their perceptions about tax returns but agreed about issues related to tax laws. For example, tax staff disagreed that questions on tax return forms were difficult to understand and complete. Of particular interest, taxpayers and tax staff both disagreed that taxation law was straightforward, and agreed that tax agents found it difficult to understand tax rulings, that changes in tax laws made it difficult to know what were allowable deductions, and because of constant changes in tax laws that it was difficult to get a tax return exactly right. Taxpayers perceived tax from the same perspective as ATO staff at the macro level (tax laws), but differed in their perceptions at the micro level (tax returns). The results identified a major difference between taxpayers and tax staff. Findings confirmed that taxpayers believed they were less competent and confident in their ability to understand and complete fully correct tax returns and therefore relied on advice from tax agents. A lack of competence explained why taxpayers used a tax agent but not tax compliance or non-compliance.

3.3 Tax Behaviour

Table 3: Tax Return Lodgement Behaviour (1 = ‘Strongly disagree’, 4 = ‘Neutral’, 7 = ‘Strongly agree’)

Table 3 above shows results for independent t-tests with p values ranging between .05 and .0001. Compliant taxpayers and tax staff both agreed that tax returns should be lodged on time every year and exhibited similar tax values orientation. Nevertheless, taxpayers agreed that they promptly lodged their tax returns even if they did not expect a tax refund, whereas tax staff slightly disagreed. Tax staff results indicated a propensity towards an economic rational approach to tax.

Compliant taxpayers and tax staff strongly disagreed that it did not matter if people claimed either a little or a lot more in deductions than they were entitled to, but tax staff disagreed more than taxpayers. ATO staff and compliant taxpayers both strongly agreed that it was everyone’s responsibility to pay the correct amount of tax, but ATO staff agreed more. Although taxpayers and tax staff reflected similar responses, the difference in the strength of their conviction was statistically significant. Tax staff reported higher levels of tax values orientation and were more supportive of the tax system possibly because they directly worked within the tax system. The difference between tax staff and taxpayers could in part be explained by the ATO’s taxpayer relationships. The role of ATO staff was seen as one of detecting avoidance and evasion, and taxpayers saw themselves as suspected of avoidance. Whilst this level of enforcement is perhaps a proactive compliance tool, if these perceptions are skewed too negatively, tax anxiety might affect taxpayers’ confidence to meet their obligations.

A person was not entitled to ‘even things up’ according to most taxpayers and tax staff. Tax staff, however, reported more disagreement than compliant taxpayers that it was acceptable to withhold all information according to their view of fairness. Almost 4 percent of staff and 8 percent of taxpayers agreed that it was acceptable behaviour, and 23 percent of staff and 38 percent of taxpayers supported small tolerance levels of tax avoidance. There was a major difference in the level of what constituted appropriate taxpayer responses to perceived unfairness in tax. Tax staff perceived themselves as doing their job whereas taxpayers considered that there should be the possibility of tolerance for small amounts of avoidance.

3.4 Efficacy of the Tax System

Table 4: Tax System Efficacy (1 = ‘Strongly disagree’, 4 = ‘Neutral’, 7 = ‘Strongly agree’)

Results in Table 4 above with p values less than .01 indicate that taxpayers and tax staff agreed that unpaid taxes reduced the effectiveness of government operations, that they prepared their tax returns correctly to avoid being caught, and that people in the cash economy paid very little tax. Whilst both disagreed that the ATO was effective in dealing with the cash economy, tax staff disagreed more than taxpayers. Tax staff were perhaps in a better position to make that assessment. Nevertheless, tax staff agreed that there was a widespread belief that it was easy to claim more deductions than one was entitled to, whereas taxpayers disagreed, indicating taxpayers perceived tax staff were effective in administering tax law. ATO staff did not perceive themselves as fully effective in managing non-compliance possibly because they worked with non-compliance and would be aware of rates of evasion. The success rate may be perceived as high given that there is a continuous programme of compliance research and risk assessment.

3.5 Fairness of Tax System

Table 5: ATO System and Fairness (1 = ‘Strongly disagree’, 4 = ‘Neutral’, 7 = ‘Strongly agree’)

Table 5 above shows significant results for perceptions of fairness of the tax system with p values less than .001. Items considered the quality of the ATO’s client service and the fairness of the amount paid in income tax. There were noteworthy differences in how compliant taxpayers and tax staff perceived taxpayers’ treatment by the ATO and who was responsible for income tax policy. While both groups agreed that the ATO staff treated them fairly, tax staff agreed more than taxpayers that the ATO treated them fairly, and that the ATO was fair and considerate of someone being audited. Taxpayers strongly agreed that the ATO took more than a fair share of their income, even though the ATO is responsible for tax administration and not tax policy. While tax staff also agreed, the level of agreement was not as high perhaps because of cognitive dissonance due to differences between expected values and norms and personal beliefs.

3.6 Tax Competence and Difficulty

Table 6: Compliance Competence (1 = ‘Strongly disagree’ to 7 = ‘Strongly agree’)

Results in Table 6 show that significantly more tax staff than taxpayers reported that they knew tax law well enough to complete their own tax returns. The degree of separation in tax knowledge confirms a key major area of difference. Both groups reported that they did not guess the answer if they were not sure of something on a tax return, confirming that even if taxpayers lacked the knowledge they did not resort to non-compliance. Compliant taxpayers were, however, slightly worried about completing tax returns on their own, and tax staff were not. Lower tax competence and higher anxiety might explain why compliant taxpayers employed tax agents. Taxpayers are required to sign their completed tax return to confirm that the overall responsibility for the correctness of the return is theirs, yet both tax staff and taxpayers reported that it was the tax professionals’ responsibility to ensure that taxpayers paid the correct amount of tax. Despite taxpayers accepting their compliance responsibility, tax professionals as their agents ‘inherited’ their clients’ tax obligations. This requirement places significant pressure on tax professionals to balance not only ATO and tax law obligations, but client expectations as well. Tax professionals are the technical gatekeepers of ethical tax behaviour and when taxpayers transfer responsibility they may feel less responsible or anxious. Taxpayers might make these assumptions because they believe that tax professionals have greater technical knowledge, can manoeuvre through complex tax laws, expertly maximise tax refunds, and also potentially escape detection. The degree of separation between tax staff and taxpayers’ tax knowledge and competence indicated that they are not identical taxpayers.

3.7 Tax System: Equity and Rates

Table 7: Tax System Equity and Rates (1 = ‘Strongly disagree’ to 7 = ‘Strongly agree’)

Table 7 above shows results with p values less than .002. Taxpayers and tax staff both disagreed that welfare beneficiaries should pay tax on their welfare income, and that if everyone paid more tax there would be better government services. Tax staff were neutral about whether there should be changes to the tax system so that non-business taxpayers need not lodge tax returns, but taxpayers did not want tax returns to be discontinued. Taxpayers prefer to maintain access to their annual tax refunds, as they then remain active participants with some control of how much tax they pay in what they see as an ambiguous and unfair system.

ATO staff disagreed more than taxpayers did that there should only be a single tax rate, but ATO staff more so indicating that despite taxpayers’ low competence levels, they were socially engaged and supported existing structures for tax rates. As taxpayers’ responses were closer to neutral, it might also indicate that because of their low knowledge of tax, taxpayers might be fearful of change, and do not have a clear understanding of the technical or tax implications of a single tax rate. The degree of tax staff and taxpayers’ separation in knowledge and competence therefore extends to their understanding of other tax issues.

3.8 Tax Agents

Table 8: Tax Agents are Necessary (1 = ‘Strongly disagree’, 4 = ‘Neutral’, 7 = ‘Strongly agree’)

Table 8 above shows results for independent t-tests where p values were less than .0001. Taxpayers and tax staff agreed that tax agents gave good advice but differed in their opinions about the benefits and reasons for using their services. Compliant taxpayers perceived that tax agents received better service from the ATO, and that using them guaranteed no errors and all legitimate tax deductions. Unlike tax staff, taxpayers used tax agents because they did not understand all the questions on a tax return showing that the degree of separation regarding tax agents was substantial. ATO staff responses confirmed confidence in their own abilities, levels of tax knowledge and competence, but they might not be aware that taxpayers do not have the necessary skills or knowledge to cope with tax return lodgement. The differences between tax staff and taxpayers translate as taxpayers using tax agents to deal with their lack of tax competence, to reduce errors and maximise refunds, and in the main to be compliant by using someone else’s services.

3.9 Tax Knowledge Quiz

Table 9: Mean Frequency Scores for Six Basic Tax Knowledge Questions

Results in Table 9 above show that ATO staff and taxpayers reported similar correct response rates for two items, while tax staff reported more correct responses for three items and less correct for one item. Overall the results indicated that tax staff were substantially more knowledgeable about basic tax than compliant taxpayers. Given that the question items were basic facts offered to secondary school children (Years 11 and 12), the 23.12 percent of ‘Don’t Know’ taxpayer response results further highlighted the major degree of separation between taxpayers and ATO staff. The deficit in taxpayer knowledge could explain the problems taxpayers experience with tax obligations, and why they transferred tax competence work and compliance obligations to tax professionals.

3.10 Different Perceptions of Tax

The results identified a substantial degree of difference between ATO staff and compliant taxpayers in their perceptions of tax, and this was unexpected. The differences indicated that exemplary compliant taxpayers were not as tax competent or values oriented, nor were ATO staff typical Australian taxpayers. Results indicated that taxpayers were faced with high levels of complexity and ambiguity at the basic levels of tax, and exhibited lower levels of tax competency and tax knowledge. Compliant taxpayers and ATO staff did not identify with all tax matters from the same perspective, and where results were in accord, the degree of agreement or disagreement was significant. By identifying unexpected differences in tax related BBAV items, the study showed that although compliant taxpayers were technically exemplars of tax compliance, they achieved it by employing tax professionals. If tax staff and taxpayers reported similar profiles for demographic and general lifestyle factors, then the identified BBAV disparities would reflect true differences.

3.11 Demographics

Table 10: Demographics

The results in Table 10 above show results for independent t-tests with only two results with reported p values less than .01. Demographics for age, gender, income range, marital status and number of children were similar for taxpayers and tax staff. The education range for tax staff was higher, but given that the ATO recruits more graduates and has a high level of senior officers, this result was expected. Similarly, the ATO has a predominance of permanent full-time staff, and the private sector increasingly more part-time, casual and unemployed. These two differences aside, tax staff and taxpayers exhibited similar demographic characteristics and this confirmed that tax staff and taxpayers’ compliance behaviours were explained by factors other than demographics.

3.12 Lifestyle and Tax Environment

Table 11: Lifestyle and Tax Environment (1 = ‘Yes’, 2 = ‘No’, 3 = ‘Don’t know’; LifeQ: 1 = ‘Low’, 2 = ‘Medium’, 3 = ‘High’)

In Table 11 above scores reported closer to 1 mean ‘No’ and scores closer to 2 mean ‘Yes’. Exploration of lifestyle factors provided further insights and a more holistic view of the differences between tax staff and taxpayers. Nine items produced non-significant results and nine items significant results with p values ranging from .01 to .0001. Taxpayers and tax staff both reported that they would not have enough savings for their retirement and superannuation, and would vote in political elections even if it were not compulsory. Not all taxpayers were Australian citizens, but English was the main language spoken at home. Other than these items, all other significant results were related to tax. The vast majority of taxpayers did not lodge their own returns and used the services of a tax agent, had not seen or heard of The Taxpayers’ Charter or the Taxation Ombudsman, and were less aware of the necessity to keep tax file numbers confidential. Taxpayers agreed that tax evaders should be jailed but not as strongly as tax staff, and surprisingly agreed less that stressful life events affected compliance obligations. The only non-significant tax item was related to Australia’s tax level, where both groups reported it as medium.

Responses indicated that the two taxpayer groups were similar in general lifestyle factors and only differed significantly on tax related matters. The results confirmed that compliant taxpayers and tax staff did not identify with tax from the same perspective, and that differences were not due to demographic or personal lifestyle factors. Levels of satisfaction from personal and external factors and perceptions of the seriousness of legal offences were measured to check if other differences explained taxpayer compliance.

3.13 Satisfaction

Table 12: Satisfaction — Personal and External Factors (1 = ‘Very dissatisfied’, 2 = ‘Dissatisfied’, 3 = ‘Slightly dissatisfied’, 4 = ‘Neither dissatisfied nor satisfied’, 5 = ‘Slightly satisfied’, 6 = ‘Satisfied’, 7 = ‘Very satisfied’)

Table 12 above shows that compliant taxpayers and tax staff held similar levels of satisfaction for both personal and external environments, except for the ability to handle financial affairs where the significant p value was .01. Both groups reported only slight satisfaction with their ability to handle their financial affairs, but surprisingly compliant taxpayers were more satisfied than tax staff, possibly because the majority used tax agents. Both groups were only slightly satisfied with the quality of service from the police, welfare system or the public service. Satisfaction scores identified similarities and differences, and confirmed that BBAV differences were not due to personal life satisfaction.

3.14 Perceptions of the Seriousness of Various Legal Offences: Impact on Compliance

Table 13: Seriousness of Legal Offences (1 = ‘Not very serious’, to 7 = ‘Very serious’)

According to Table 13 compliant taxpayers and tax staff both reported similar results for shoplifting, driving under the influence of alcohol, driving an unregistered car, and evading taxes all being serious offences. Differences were found for doing illegal drugs, stealing and not having a proper licence, where tax staff reported them less serious offences than did taxpayers. Taxpayers ranked tax evasion as the fourth most serious offence, driving under the influence of alcohol the most serious offence, and not having a proper licence the least serious. Both groups held similar perceptions about tax evasion, but tax staff reported tax evasion as the third most serious offence. Results confirmed that taxpayers and tax staff identified tax evasion as serious, with no significant difference in the degree of perceived seriousness.

3.15 Taxpayer and ATO Staff Differences: Unapparent Degrees of Separation

ATO staff were not typical Australian taxpayers. Tax related differences between taxpayers and tax staff were identified by the degree of separation for BBAV items. The similarities and differences emerged as two unapparent taxpayer ‘deficits’: a ‘tax competence deficit’ and a ‘tax compliance responsibility deficit’. The tax competence deficit refers to taxpayers’ lack of tax knowledge and tax confidence resulting in their using tax agents. The tax compliance responsibility deficit refers to both taxpayers’ transfer of tax compliance obligations to tax agents, and the ATO’s management of taxpayer and tax agent tax compliance. Since 90 percent of taxpayers transferred their tax obligations to tax agents, the ATO technically manages tax compliance through tax agents not the taxpayers. Figure 1 below shows that tax agents function on two fronts, managing both the taxpayers’ tax competence deficit and the ATO’s taxpayer compliance responsibility deficit. Tax agents’ dualistic role has implications for both tax compliance policy and tax agent workloads.

Figure 1: Managing Taxpayers’ Tax Compliance Responsibility and Competence Deficits

Self-preparers constituted only 10 percent of the research population, and these taxpayers met their compliance obligations directly with or without ATO client support. Non-self preparer taxpayers formed 90 percent of the tax population, and dealt directly with their tax professionals. Tax consultants and tax agents supported taxpayer clients, dealt with the ATO on their behalf, and assumed taxpayers’ responsibility for tax competence and tax compliance. The ATO’s client support relationships were, therefore, primarily with tax agents. In other words, the ATO catered to tax agents and 10 percent of personal tax taxpayers, whereas tax agents or consultants catered to 90 percent of taxpayers and the ATO. Individual non-business, self-preparing personal tax taxpayers constituted a small proportion of the 2002–2003 taxpayers requiring direct ATO support; almost 840 000 of the 10.7 million Australian taxpayer population. Any changes in current tax administration directly affect only the minority of taxpayers’ competence and compliance, but affect all tax agents.

The ATO requires compliance from all tax agents, tax consultants, and self-preparers, but provides indirect client support to non self-preparers who transfer their tax competence and compliance obligations. Tax agents assume multiple client technical support roles for 90 percent of taxpayers. Therefore, the ATO needs to implement additional continuous, major and specialised support systems like the ‘Tax Agent Portal’. The ATO’s focus needs to be on tax agents and what they need to successfully support taxpayers and tax administration, as well as specific codes of practice.

Taxpayers to date also have had no direct opportunity to contribute to socially responsible fiscal policy (marginal rates), and this might explain why they transfer their tax competence and compliance, and tolerate some avoidance. Taxpayers reported that the tax system was complex, ambiguous and too difficult, so they safeguarded what was deemed rightfully theirs by using tax professionals. Although the ATO is technically apolitical, as a tax administrator it does provide government with tax information and is well placed to understand taxpayers’ behaviour and the consequences of fiscal and tax policy. The same strategic intelligence used to identify taxpayers’ non-compliance could also identify the consequences of tax agents’ dual tax roles; those of taxpayers’ tax competence, and administration of self-assessment and voluntary compliance.

4. DISCUSSION

The current study aimed to identify whether ATO staff and compliant taxpayers identified with tax issues from the same perspective. Perspectives of tax were not all similar, and those that were yielded otherwise unapparent differences; degrees of separation. Taxpayers and tax staff differed in their perceptions about whether the tax system was fair (Table 5), whether the ATO was fair and professional (Table 1), their experiences of client service (Table 1), and whether they knew enough about tax to meet their obligations (Tables 2, 3 and 8). Taxpayers put off completing tax returns because it was too difficult to do on their own (Table 3), and believed that they needed to use a tax agent (Table 8). Tax staff were more knowledgeable and tax competent (Table 9), reported that although tax was difficult, completing tax returns was not (Table 2), and that it was not necessary for non-business individuals to use a tax agent (Table 9). These results, two ATO, 11 tax and one tax agent-based categories, confirmed that ATO staff were not typical Australian taxpayers, and explained compliant taxpayers’ unapparent tax competence and tax compliance responsibility deficits.

4.1 Differences between ATO Staff and Compliant Taxpayers

Taxpayers and ATO staff held different views about the level of good advice given by the ATO (Table 1). Staff perceived that they provided higher levels of service than did taxpayers. The ATO should continue to administer community-based surveys (omnibus) or focus groups to determine how this perception formed in order to reduce it. Compliant taxpayers exhibited proactive tax values, attitudes, beliefs and behaviours, and there was no evidence of extreme counter-productive behaviour, responses to perceived unfairness that could be called ‘tax rage’, yet, the identified differences between taxpayers and tax staff highlighted reduced direct relationships between taxpayers and the ATO.

One major difference was that taxpayers adapted their compliance behaviours according to a perceived skills deficiency or tax compliance related difficulties. For example, they reported that tax returns were too difficult to understand and complete, so they engaged tax agents. This behaviour could be viewed as only a taxpayer’s preference and choice given that tax agents are more qualified to meet tax obligations and secure maximum tax refunds. The reality, however, is that taxpayers lacked tax competence and chose not to be responsible for their tax compliance obligations. Taxpayers understand the impact of taxes and marginal rates, and their need to successfully maximise their entitlements is best realised by using tax agents.

4.2 Tax Agents

Tax agents are responsible for the majority of personal tax returns and there is a realistic ATO expectation for higher tax agent compliance rates. Previous research, however, consistently reported that tax agent involvement was no guarantee for tax compliance.^[47]

Another area of concern is that despite taxpayers being held legally responsible for the contents of tax returns, any errors made or avoidance undertaken by tax agents on advisement by their clients is the taxpayers’ responsibility and not that of their tax agent (Table 6).^[48]

Taxpayers appear not to willingly accept full responsibility, despite any pressure exerted on their tax agents to act in their interest. Do tax agents face legal action from clients who refuse to accept responsibility for their tax returns? At present there is no formal code of ethics or professional code of conduct exclusive to tax agents.^[49] Tax agents operate using guidelines available on the ATO’s website and also established CPA practices. These are practical guidelines, but these do not adequately account for tax agents’ dual roles or any client and ATO policy conflicts. If taxpayers consciously assign their tax responsibility to tax agents, then tax agents require an explicit code of practice and guidelines that safeguard both tax professionals and taxpayers from legal action.

4.3 Compliant Taxpayers

Compliant taxpayers did not identify with tax matters from the same perspective as ATO staff, and other taxpayer populations and tax professionals might not share their perceptions either. Whilst the ATO’s focus remains on identifying non-compliance and promoting enforcement, the fundamental tax issues and problems experienced by the majority of taxpayers remain unresolved. The lack of specialised practical support affects not only tax compliance behaviour but also ATO, taxpayer and tax agent relationships. The reasons for compliant taxpayers’ tax anxiety were a lack of tax competence (Table 6) and knowledge (Table 9), and concerns about making errors and maximising entitlements (Table 8). An additional unapparent difference was that tax agents ‘inherited’ taxpayers’ tax compliance obligations (Table 6), and that tax agents were not supported by an updated code of practice.^[50]

Despite the difficulties in completing a tax return, taxpayers did not support their discontinuation (Table 7). This fact puts additional pressure on the ATO to better understand why taxpayers prefer to maintain the current system of reporting when they perceive it as too difficult to manage on their own. The ATO should explore further the impact of taxes, marginal tax rates, the culture of tax returns and refunds, taxpayers’ perceptions about the amount of tax they and others pay, and personal taxpayer opportunities to control and maximise refunds. For example, the ATO could investigate whether tax returns and lodgement documentation should remain primarily geared towards the minority of self-preparers or to tax agents who represent most taxpayers and need better options and support.

The results indicated that while the ATO improved client service by introducing The Taxpayers’ Charter and the ATO Compliance Model and by simplifying the tax system and tax refund forms, the majority of taxpayers transferred their tax responsibility to tax agents because they believed they needed to. Therefore, the key questions are how many actual personal tax taxpayers effectively benefit from tax simplification and reforms and compliance advice, and where should the ATO direct its administrative efforts? Tax agents work in two potentially conflicting spheres, one with the ATO to help reduce the ‘tax compliance responsibility deficit’ and the second with taxpayers to reduce their ‘tax competence deficit’ and maximise tax refunds. The critical detail is how tax agents ‘juggle’ the demands of taxpayer compliance obligations and tax client refund expectations, and cope with the substantial workload generated by representing the majority of Australia’s taxpayers. How do tax agents make complex decisions about how to best support each sphere without compromising their own and taxpayers’ obligations, and their professionalism? Even though taxpayers are legally responsible for the content of their completed tax returns, tax agents are expected to meet taxpayers’ compliance obligations, address their expectations of maximum tax refunds and favourably interpret any ambiguous tax laws.

4.4 Tax Compliance and Competence Deficits

The ATO monitors the behaviour of tax agents as well as that of self-preparer taxpayer clients to enforce tax compliance obligations. If using tax agents is no guarantee of tax compliance, then what is the strategic gain for the ATO given that they continue to monitor all taxpayers albeit via tax agents? The foremost benefit to the ATO is that there are less tax agents than taxpayers to scrutinize in relation to tax return lodgement and compliance, and it is more efficient to monitor tax agents’ behaviour and lodgement trends than those of individual taxpayers. It is therefore in the ATO’s interest to fully support tax agents. Can tax agents be representatives for compliant or non-compliant taxpayers’ tax compliance and competence obligations as well as act as the ATO’s tax compliance gatekeepers? Expectations for guaranteed tax compliance (with no errors) when tax agents have two major tax deficits to address, administer and manage is technically unrealistic and unreasonable given the level of taxpayers they represent. If, as most taxpayers suspect, tax agents are the ATO’s unofficial pseudo mediator, then the ATO is obligated to provide a formal code of practice^[51]

in the form of an ATO ‘Tax Agents’ Charter’, and more importantly, premium services and quality support. Tax agents require full and exceptional ATO support in order to meet all taxpayer and administrative tax compliance obligations.

The fundamental challenge for the ATO is to concentrate on how to adequately address the tax compliance and tax competence deficits. These technically prevent taxpayers from being proactive and competent, and place an incompatible double burden on tax agents. The current tax system has encouraged taxpayers to seek tax agent assistance in order to maximise their refunds and minimise tax. It is therefore unlikely that future tax restructuring or reforms will easily change or impact taxpayers’ current behaviour. The ATO is best served to consider the tax agents’ position and facilitate resolutions to the tax competence and responsibility for tax compliance deficits. The differences, degrees of separation, between taxpayers and ATO staff highlighted that taxpayers believed they operated in a system that provided little flexibility at the individual taxpayer level (unlike business and large organisations), but more options if they used a tax agent. Compliant taxpayers did not identify with tax from the same perspective to the same degree as ATO staff, nor were ATO staff typical Australian taxpayers. Of the nine tabled categories and 56 significant items, 39 of the results were similar but not to the same degree, and the other 17 results were not similar. Compliant taxpayers were compliant according to the ATO’s recorded historical data of taxpaying behaviour such as lodgement, debt payment and audit risk, but 90 percent of taxpayers elected to transfer all tax competence and compliance responsibility to their tax agents. Decisions to transfer were based on the need to maximise entitlements, reduce tax anxiety, and effectively deal with their deficit of tax knowledge and tax competence. Why compliant taxpayers complied was not explained by their shared tax values, but by degrees of difference. Taxpayers’ deliberate choice to avoid complex tax by transferring their tax compliance obligations and tax knowledge deficits to tax agents clearly indicated that compliant taxpayers and ATO staff were two discrete compliant taxpayer populations. These results potentially challenge the perception that compliant taxpayers are exemplars of tax compliance as they are not compliant in a direct or traditional way. The differences highlighted tax agents’ pivotal and multiple roles, and the ethical challenges they face in meeting taxpayer and ATO obligations. Due to tax agents’ important roles in tax compliance, the ATO needs to reconsider who is the primary target of tax simplification and reform, the value of an ATO ‘Tax Agents’ Charter’ and customised ‘Tax Agents’ Code of Practice’. In addition, will future tax reforms change the existing relationships between the ATO, taxpayers and tax agents, and how will taxpayer tax compliance and competence deficits be affected?

5. CONCLUSION

The aim of the current study was to re-analyse in greater depth data from the Determinants Study about tax attitudes compliance research, and to confirm whether compliant taxpayers and tax staff identified with tax from the same perspective. Differences and similarities were identified. However, there were more differences in how ATO staff and compliant taxpayers related to tax and how taxpayers met their obligations. The principle findings were that there were degrees of separation in how taxpayers achieved tax competence and tax compliance. In addition, since 90 percent of compliant taxpayers relied on external expertise and tax agents were identified as key to tax administration, tax agents would benefit from the introduction of an ATO ‘Tax Agents’ Charter’ and customised ‘Tax Agents’ Code of Practice’ in order to reduce ethical stress^[52] and any potential ATO and taxpayer-based ethical and legal conflicts, and to help the ATO’s progress towards a productive relationship of mutual dependency.^[53]

Research about Taxpayer Attitudes Survey Questionnaire: 93 Items

Likert scale: 1 = Strongly disagree, 4 = Neutral, 7 = Strongly agree, 8 = Not applicable

Lifestyle Question Items: 17 Items

Response range = Yes, No, Don’t know

Seriousness of Legal Offences: 7 Items

1 = Not very serious, 4 = Neutral, 7 = Very serious

Life Satisfaction: 11 Items

1 = Very dissatisfied, 4 = Neutral, 7 = Very satisfied, 8 = Don’t know

Tax Knowledge Quiz: 6 Items

Responses = True, False, Don’t know

^[*] Psychology Department, The University of Adelaide and Fellow of the Taxation Law and Policy Research Institute, Monash University.

^{[[**] ]} Psychology Department, The University of Melbourne and Fellow of the Taxation Law and Policy Research Institute, Monash University. Direct all enquiries to <apolonia.niemirowski@adelaide.edu.au> or <ajwe@unimelb.edu.au>. The authors wish to thank the anonymous reviewer for thorough and helpful comments.

^[1] Organisation for Economic Co-operation and Development, Economic Survey of Australia 2004 — Fiscal Policy: Short Term Issues and Long-Term Challenges (2004).

^[2] B Torgler, ‘Tax Morale in Asian Countries’ (2003) 15 Journal of Asian Economics 237; and I Wallschutzky, ‘Achieving Compliance’ (Proceedings of the Australasian Tax Teachers’ Association, Christchurch, New Zealand, 1993).

^[3] M Orviska and J Hudson, ‘Tax Evasion, Civic Duty and the Law Abiding Citizen’ (2002) 19 European Journal of European Economy 83.

^[4] Torgler, above n 2; V Braithwaite and E Ahmed, ‘A Threat to Tax Morale: The Case of Australian Higher Education Policy’ (2005) 26(4) Journal of Economic Psychology 523; and M Welch at al, ‘“But Everybody Does It …”: The Effects of Perceptions, Moral Pressures, and Informal Sanctions on Tax Cheating’ (2005) 25(1) Sociological Spectrum 21.

^[5] J Vogel, ‘Taxation and Public Opinion in Sweden: An Interpretation of Recent Survey Data” (1974) 27 National Tax Journal 499.

^[6] M Wenzel, ‘Motivation or Rationalisation? Causal Relations between Ethics, Norms and Tax Compliance’ (2005) 26 Journal of Economic Psychology 491.

^[7] I Wallschutzky, ‘Possible Causes of Tax Evasion’ (1984) 5 Journal of Economic Psychology 371.

^[8] R Tyler, ‘The Psychology of Procedural Justice: A Test of the Group-Value Model’ (1989) 57(5) Journal of Personality and Social Psychology 830; and R Worsham Jr, ‘The Effect of Tax Authority Behavior on Taxpayer Compliance: A Procedural Justice Approach’ (1996) 18(2) Journal of the American Taxation Association 19.

^[9] A Wearing and B Headey, ‘The Would-Be Tax Evader: A Profile’ (Compliance Research Conference, ‘Measurement, Evaluation and Risk Management’, Canberra, December 1995).

^[10] M Williamson and A Wearing, ‘Lay People’s Cognitive Models of the Economy’ (1996) 17 Journal of Economic Psychology 3.

^[11] P Schmidt, ‘On Perceptions of Fairness: The Role of Valuations, Outside Options, and Information in Ultimatum Bargaining Games’ (2004) 7 Experimental Economics 49.

^[12] L Grasso and S Kaplan, ‘An Examination of Ethical Standards for Tax Issues’ (1998) 16(1) Journal of Accounting Education 85.

^[13] S Kaplan, K Newberry and P Reckers, ‘The Effect of Moral Reasoning and Educational Communications on Tax Evasion’ (1997) 19(2) Journal of the American Taxation Association 38.

^[14] M Moscaritolo, ‘Black Economy Boom Despite GST’, The Mercury, 3 April 2005.

^[15] S James and C Alley, ‘Tax Compliance, Self Assessment and Tax Administration’ (2004) 2(2) Journal of Finance and Management in Public Services 27.

^[16] Kaplan, Newberry and Reckers, above n 13.

^[17] L Browning, ‘IRS Estimates “01 Unpaid Taxes Could Be As High As $353 Billion”’, The New York Times, 30 March 2005, 4.

^[18] I Wallschutzky, ‘Taxpayer Attitudes to Tax Avoidance and Evasion’ (Research Study No 1, Australian Tax Research Foundation, 1985).

^[19] K Murphy, ‘Aggressive Tax Planning: Differentiating Those Playing the Game from Those Who Don’t’ (2004) 25(3) Journal of Economic Psychology 307.

^[20] E O’Donnell, B Koch and J Boone, ‘The Influence of Domain Knowledge and Task Complexity on Tax Professionals’ Compliance Recommendations’ (2005) 30 Accounting, Organizations and Society 145.

^[21] Ibid; and S Klepper and D Nagin, ‘The Role of Tax Practitioners in Tax Compliance’ (1985) 22 Policy Sciences 167.

^[22] Australian Taxation Office, Taxation Statistics 2002–03: A Summary of Taxation, Superannuation and Industry Benchmark Statistics 2002–03 and 2003–04 (2005).

^[23] D Bobek, R Hatfield and S Kramer, ‘Professional Liability Suits Against Tax Accountants: Some Empirical Evidence Regarding Case Merit’ (2004) 16 Advances in Taxation 3.

^[24] R Borck, ‘Stricter Enforcement May Increase Tax Evasion’ (2004) 20 European Journal of Political Economy 725.

^[25] J Chang and C Lai, ‘Collaborative Tax Evasion and Social Norms: Why Deterrence Does Not Work’ (2004) 24(2) Oxford Economic Papers 344.

^[26] V Braithwaite and J Braithwaite, ‘The Evolution of the Australian Taxation Office Compliance Model’ in M Walpole and C Evans (eds), Tax Administration in the 21^st Century (2001) 215; and Australian Taxation Office, Compliance Model (2004).

^[27] Australian Taxation Office, Your Honesty and Complying with the Tax Laws: Overview (2004).

^[28] Australian Taxation Office, Listening to the Community (2002); and Australian Taxation Office, ‘The Art of Tax Administration’ (Address to the 5^th International Conference on Tax Administration, April 2002).

^[29] Australian Taxation Office, ‘Developments in Compliance: The Challenges for Research’ (Paper presented at the Third International Conference of the Centre for Tax System Integrity, ‘Responsive Regulation: International Perspectives on Taxation’, Canberra, 2003); and Jennie Granger, ‘Developments in Compliance: The Challenges for Research’ (Opening address at the Third International Conference of the Centre for Tax System Integrity, ‘Responsive Regulation: International Perspectives on Taxation’, Canberra, 2003).

^[30] Australian Taxation Office, Tax Evasion and the Community: Recent Results (2004).

^[31] Australian Taxation Office, Integrity Framework (2006).

^[32] D Yankelovich, ‘A Crisis in Moral Legitimacy’ [1974] Dissent 0526-33.

^[33] A Niemirowski and A Wearing, ‘Taxation Agents and Taxpayer Compliance’ [2003] JlATax 6; (2003) 6(2) Journal of Australian Taxation 166; and James and Alley, above n 15.

^[34] S Long and J Swingen, ‘Taxpayer Compliance: Setting New Agendas for Research’ (1991) 25 Law and Society Review 645.

^[35] Braithwaite and Braithwaite, above n 26.

^[36] A Niemirowski, S Baldwin and A Wearing, ‘Tax Related Behaviours, Beliefs, Attitudes and Values and Taxpayer Compliance in Australia’ [2003] JlATax 5; (2003) 6(1) Journal of Australian Taxation 132.

^[37] Braithwaite and Braithwaite, above n 26.

^[38] J Cullis and A Lewis, ‘Why People Pay Taxes: From a Conventional Economic Model to a Model of Social Convention’ (1997) 18 Journal of Economic Psychology 305.

^[39] James and Alley, above n 15.

^[40] The study was conducted in 2000–2001, with P Niemirowski as the principal researcher in collaboration with A Wearing of The University of Melbourne.

^[41] Niemirowski, Baldwin and Wearing, above n 36.

^[42] Ibid 35.

^[43] J Alm, ‘A Perspective on the Experimental Analysis of Taxpayer Reporting’ (1991) 66(3) Accounting Review 577, 577.

^[44] Australian Taxation Office, Your Honesty and Complying with the Tax Laws, above n 27.

^[45] Niemirowski, Baldwin and Wearing, above n 36.

^[46] Niemirowski and Wearing, above n 33.

^[47] J Becker, ‘Fostering Public Confidence in the Tax Profession: An Examination of Ethics and Legal Liability’ (1996) 14(1) Journal of Accounting Education 133; and Murphy, above n 19.

^[48] Australian Taxation Office, Warning on Unregistered Tax Agents, Press Release, Nat 02/88 (9 October 2002); and Niemirowski and Wearing, above n 33.

^[49] S Ross, Ethics for Tax Practitioners (1993); and Australian Taxation Office, Code of Practice Won’t Cause Delays, Press Release, Nat 97/25 (27 June 1997).

^[50] See the references cited at n 49, above.

^[51] Ross, above n 49.

^[52] G Miller et al, ‘How Financial Managers Deal with Ethical Stress’ (2005) 65(3) Public Administration Review 301.

^[53] Australian Taxation Office, ‘Future Directions in Tax Administration (A Relationship of Mutual Dependency)’ (Address by Michael Carmody, Commissioner of Taxation, Ballarat, 22 May 2003).