Australia's Future Tax System

Final Report: Detailed Analysis

Chapter G: Institutions, governance and administration

G4. Client experience of the tax and transfer system

G4–1 Simplicity and client experience

The current tax and transfer system is complex. It combines individual-basis annual tax assessment with household-basis 'real-time' means testing of income, family and other assistance.8 It requires detailed client information to deliver finely tailored results, with different programs using different measures of client circumstances. It involves income-linked arrangements for child support, tertiary education funding, superannuation, health insurance and other programs. Not surprisingly, individuals may have very complicated experiences in dealing with the system.

In many different ways and at various times, the tax and transfer system affects every person in Australia. For example, almost all individuals interact with the income tax system (11.8 million individuals lodged a return in 2006–07), and many individuals deal with the transfer system (in June 2009 for example, around 1.77 million families received Family Tax Benefit A in respect of 3.44 million children, 1.36 million families received Family Tax Benefit B, while 356,000 people received Youth Allowance). Other interactions with the system are less frequent; for instance, 55,199 Australian government disaster recovery payments were granted to provide assistance and support to survivors of the Victorian bushfires, while 85,065 grants had been paid under the Australian government's LPG Vehicle Scheme (as at 30 June 2009, for the 2008–09 financial year).

Submissions provided to the Review and meetings with the general public have highlighted concerns that the tax and transfer system is difficult to understand, laden with inaccessible jargon and inconsistent in its use of terms. Complex rules and the different ways in which various elements of the system are administered create costs and risks for people.

The Review has recommended policy reforms that would lead to a simpler system, such as abolishing many State taxes, and rationalising tax offsets and tax deductions. Simplification will have many benefits for clients, including greater transparency, less information to collect, and forms and processes that are easier to understand.

Nevertheless, the complex objectives of the tax and transfer system, the world in which it operates, and the desire to tailor its impacts to the diversity of people's lives mean that even a simpler system has the potential to be complex, costly and risky for the people interacting with it. The Review has referred to this interaction as the client experience of the system and believes that improved client experience is an important element of Australia's future tax and transfer system.

8 Eligibility for transfers is means tested in 'real time' because recipients have to provide up-to-date income information on a fortnightly basis.