Australia's Future Tax System

Final Report: Detailed Analysis

Chapter G: Institutions, governance and administration

G4. Client experience of the tax and transfer system

G4–2 Desirable features of client experience

A citizen-centric design

Over the past decade, concerted efforts have been made in a number of countries to improve the relationship and interactions between government and citizens. A consistent theme in these reforms has been a move to more citizen-centric government (Briggs 2009). 'Old' government service delivery has been characterised as transaction-based service delivery systems built around, and aligned with, program boundaries. Citizen-centric government instead matches services delivery to the needs and preferences of the individual. The government would come to be regarded as approachable, services would be easy to locate and understand, and citizens would be able to choose from a range of service models based on their particular needs, without having to understand which agencies deliver what services (Briggs 2009). Authentication and personal information would need to be provided only once in order to access government services, and diverse transactions would be grouped and completed together (Briggs 2009).

In a European Commission report titled A vision of public governance in 2020, the characteristics of this new citizen-centric environment were outlined as fully joined-up open government administrations which are responsive to user needs and which empower citizens to participate in a democratic government (EC 2008). In Europe, this new environment has manifested itself in services such as web portals that allow people to access a range of government services in one place (for example the United Kingdom's Customer First Programme and the Netherlands e Citizen Programme). In Canada, Service Canada was created in 2005 to bring together a range of federal and local government services to make things easier for clients.

In Australia, improvements to client experience have included service delivery reforms to co-locate and combine services. Examples include the ongoing development of online government portals, such as australia.gov.au, vic.gov.au and brisbane.qld.gov.au (Brisbane City Council is the largest local government in Australia). Examples of co-location of services include making a range of municipal services available in local government shopfronts and making Centrelink services, particularly family assistance, available in Medicare offices.

Being more citizen-centric requires a better understanding of what people want and need. Results from surveys of peoples' attitudes and preferences indicate that Australians want streamlined, integrated service delivery. They are frustrated by interactions with many different agencies that require them to assimilate complex information from multiple sources and by the need to communicate with lots of people and fill out lots of forms to get their issues resolved (AGIMO 2008). For most simple transactions, they want an efficient service they can access at a time and using a channel convenient to them. This service should provide accurate, comprehensive information appropriate to their personal circumstances, and the service should be consistent regardless of how or by whom it is delivered (AGIMO 2008).

There are many opportunities to further streamline and integrate services by reducing duplication in websites, telephone lines and communication materials within and across agencies. However, rationalisation is only effective up to a certain point — people also value dealing with someone who is knowledgeable enough to handle their issues effectively. Rationalisation of all government call centres into a single number could result in reduced quality and increased levels of referral or escalation. Consolidation of too many government services in government shopfronts can lead to reduced responsiveness because counter staff cannot maintain expertise over a very broad range of services. So a critical issue for servicing clients is determining the right balance of service provision, integration and appropriate service channels.

In many cases people prefer to access services over the web, but they also value face-to-face interactions where they have complex needs or where they are in situations of risk.9 In those interactions, people want to be treated fairly and politely by competent and sympathetic staff. People would also like to provide their information to government only once, that is, they want to complete one application (or ideally pre-populate one form) and have it dealt with by any of the relevant agencies or service providers rather than sending separate completed forms to each agency or service provider.

The trend towards citizen-centric government has implications far beyond the Review's focus on the tax and transfer system. Nevertheless, citizen-centric design of the tax and transfer system implies that individuals should be presented with 'real-time' information about their whole relationship with government on taxes and transfers. People would interact at a time and in a way that suits their preferences and needs (but not always over the internet). They would provide their information once or have it provided by third parties such as employers, other government agencies or financial institutions. This information would be used to update their details with all agencies and to pre-populate forms, generate liabilities and confer entitlements.

Box G4-1: Example of citizen-centric design

Citizen-centric design starts with understanding the needs of citizens rather than the problems of service providers. Canada is often described as a leader in citizen-centric services.

Service Canada officially began operations in September 2005 but its origins date back to 1998 when the Government of Canada began developing an integrated citizen-centred service strategy based on detailed surveys of citizens' needs and expectations. Service Canada aims to provide a one-stop, single-window, multi-channelled service network, centred on the needs of Canadians. It provides a wide range of welfare services relating to families, employment and retirement as well as providing services on behalf of other agencies such as passport and boat licence applications.

Governments commonly use service integrators, but a design that merely connects citizens to services does little to resolve difficulties citizens have in dealing with multiple government organisations built around program or jurisdictional boundaries. Service Canada also has a mission to integrate services over time to minimise overlaps, reduce duplication and fill gaps in service.

Helping people make informed decisions in their best interests

People should have a right to readily see what identifying and financial information (from any source) is held about them by tax and transfer agencies. They would benefit from being able to receive immediate feedback about the impact of actual or hypothetical changes (such as becoming unemployed, starting a new job or having a baby) on their whole financial relationship with government. Providing clients with quick and accurate information on how such changes could affect (or have affected) their financial position makes it easier for them to make decisions in their best interests. Currently, people can test changes in circumstances against specific parts of the system, but then need to assemble these pieces of information to get an overall answer. This process requires people to be quite knowledgeable about the system and is prone to client error.

Choice defaults for complex decisions can help people to achieve better outcomes (Dunstall & Reeson 2009). Behavioural studies have shown that the more complex a decision is, the less well equipped many people are to handle it. When faced with complexity or uncertainty, people procrastinate about or avoid making decisions, stick with (less than optimal) defaults, or if they are confused about a decision, they can be prone to follow misleading advice. As a result, people often make decisions that are not in their best interests (Dunstall & Reeson 2009). A more client-focused system would apply insights from behavioural economics, behavioural finance and psychology, facilitated by advances in information technology and improvements to service delivery, to alleviate the burden of this complexity for individuals making such decisions. A future system would adopt defaults for complex decisions that would leave clients in a reasonable position. Carefully designed, such choice 'nudging' could significantly assist people while still giving them full control over the choices in question so they can easily make different decisions if they wish.

Box G4-2: Use of defaults — 'uplift' of Family Tax Benefit income estimates

With the introduction of A New Tax System in 2000, fortnightly Family Tax Benefit payments were paid provisionally based on a family's estimate of their income for the financial year. The family's actual entitlement was determined only once their taxable income was assessed at the end of the financial year. Initially, the complexity and uncertainty of estimating income for the next period led many people to underestimate their income. Many others did nothing and their previous year's estimate automatically 'rolled-over' to the next year, even where the estimate was inaccurate in the year it was given. Reliance on estimates that were too low meant that many people incurred debts once their fortnightly payments were reconciled with their actual entitlement.

To assist people, in 2006 the government introduced a default income estimate. The default is the previous year's estimate 'uplifted' by reference to the increase in average wages. The default is specified in a letter sent before the start of each financial year to each family assistance customer, requesting an estimate of their family income for the following year. It is open to the customer to provide their own estimate, but in the absence of further communication, Centrelink uses the default to calculate fortnightly payments.

Transparent and trusted in its operation

Another desirable feature of the client experience of Australia's future tax and transfer system is that the system be transparent and trusted in its operation.

Information held in agency systems and the flows of information between them should be visible to clients. The protections applied to information about clients (obtained from them or third-party information systems) and the circumstances in which information can be provided to others also need to be clear.

People need to know what information provided by third parties has affected their taxation position or their transfer entitlements. If they wish, people should be able to see the information from third parties that is being used. The calculations used to determine a client's position should also be available so they can easily understand the result.

To the maximum possible extent, third-party information should be obtained by agencies in advance of administrative decisions, for example to pre-populate tax returns, rather than as a check on the information provided by clients themselves. In order to assist clients, electronic systems should make it possible to minimise the risks of error or misunderstanding with them, and not test those clients' knowledge about, or the accuracy of, the records they provide.

Finally, creating client trust in the operation of the system requires a clear and effective review and complaints system. Where clients believe that a breach of their rights has occurred, they need a review mechanism which is convenient for them to use, efficient, inexpensive and which delivers results in which they have confidence.

Aligned with the 'natural systems' of individuals and businesses

Third parties have considerable obligations, risks and costs placed upon them in relation to providing information about people to government. For example, businesses need to provide information about their employees' Pay As You Go withholding details to the Australian Taxation Office (ATO) for tax purposes. They incur the cost of doing this, and must ensure the information is accurate and provided on time.

Therefore it is important that policy design is as simple and straightforward as possible, and that reporting obligations fit readily with established business systems.

'Natural systems' are those systems that individuals and businesses use, provide information to or interact with regularly for non-tax and non-transfer purposes. Examples of natural systems include payroll systems for businesses and bank accounts for individuals. By aligning with natural systems, the future tax and transfer system could operate seamlessly, drawing relevant information from the everyday processes and interactions of people and businesses. People and businesses would be able to comply with their obligations without doing anything additional that they would not have done in any case.

For example, a client receiving a family transfer (who currently needs to report changes in income to Centrelink as and when they occur) would no longer need to do this if information about their income (drawn from their employer's payroll system under the employer's control) were provided directly to Centrelink. This would avoid many problems for clients such as incurring a transfer system debt if they forget to report an increase in salary.

Another example would be the exchange of information between hospital systems, birth registries, Centrelink and Medicare on birth of a child. By drawing on information provided to the hospital at birth, the process of registering the birth, registering the child for Medicare and applying for family assistance could be automated.

Relying on the natural systems of business, such as their financial and payroll systems, can reduce compliance costs for business. These costs can relate to the assessment of tax liabilities for the business itself, as well as reporting and withholding requirements in respect of its employees. There would also be benefits for the integrity of the system as automated exchange of data would likely improve business compliance, reduce errors and enhance confidence in the system.

Principle

The tax and transfer system should allow individuals to engage with it in ways that meet their needs and preferences (a citizen-centric design). It should help people to make informed decisions that are in their best interests. It should be transparent and trusted in its operation, and be aligned with the 'natural systems' of individuals and businesses.


9 For example, people may be in situations of risk because they are disadvantaged, vulnerable or in urgent need because their personal safety is at stake.