You see, Alan, Australians enjoy filling out the Tax Pack

Michael Duffy points to a truly bizarre quote by the PM, speaking to Alan Jones this week:

“I yesterday made some inquiries about this issue of not having tax returns [in Britain and New Zealand at least 70 per cent of people don’t even have to file a return] and I have been informed that there was quite a lot of research carried out on this and it indicated that a surprisingly large number of people like the idea of putting in their own returns because they felt they could get deductions that they might otherwise not get …

“People like getting a cheque from the government. They like that cheque, that Reserve Bank cheque made out in their favour giving them a tax refund, and a lot of people I talk to say, ‘I get my tax return done by a tax agent, it doesn’t cost an enormous amount and he makes sure that I get all of the deductions that I am entitled to, and if I didn’t have it done by him then I wouldn’t get as much back’.”

Most economists, left and right, understand that marginal tax rates have a deadweight cost, and therefore that a tax-and-churn system must impose an excess burden on the economy. This burden could be pretty big – one study in 1982 estimated it at 25-65 cents in the dollar, while a 1997 study suggested 19-24 cents in the dollar. I had always assumed Howard implicitly understood this, but his quote implies that if he does, he puts much less weight on it than on the politics of cutting cheques for the voters.

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8 Responses to You see, Alan, Australians enjoy filling out the Tax Pack

  1. spog says:

    I think Howard played an interesting line in respect of churning and Family Tax Benefit. In effect he resurrected the old “wallet to purse” approach, suggesting that although there was obviously a good deal of churning at the household level, this was okay because it was really an enforced transfer of money from men to women within those households.

    He’s right, in the sense that this was indeed the motivation for the changes to family payments last century (I love being able to say last century!).

  2. spog says:

    Oops, I should have said “… a motivation…” not “…the motivation…”.

  3. Sinclair Davidson says:

    There is some confusion here. Voters DO like getting a cheque from the overnment, but not for the reason often thought. Paying too much tax and then getting a refund is inefficient, but voters might prefer an inefficient tax system to an efficient one because they don’t trust the government not to fleece them under an efficient regime. (See James Buchanan in The Power to Tax on this point. Also see some Sci-Fi by Frank Herbert who creates a Bureau of Sabotage to prevent society from collapsing after governments become efficient).

  4. Sinclair Davidson says:

    Happy Tax Freedom Day – 25 April this year.

  5. Andrew Leigh says:

    So be it. As Oliver Wendell Holmes said, tis the price we pay for a civilised society.

  6. Sinclair Davidson says:

    True. Homes paid 7c in the dollar for his civilisation (although I’m not usre he would have been in the top bracket – so less than 7c). I too am happy to pay 7c in the dollar 🙂

  7. Andrew Leigh says:

    Homer: Woo-hoo! A perfect day. Zero bears and one big fat hairy
    paycheck.
    [opens it up]
    Hey! How come my pay is so low? … Bear patrol tax! This is
    an outrage! It’s the biggest tax increase in history!
    Lisa: Actually, Dad, it’s the smallest tax increase in history.
    Homer: Let the bears pay the bear tax. I pay the Homer tax.
    Lisa: That’s home-owner tax.
    Homer: Well, anyway, I’m still outraged.

  8. derrida derider says:

    Well, Howard happens to be right politically – people actually do seem to prefer to pay too much tax during the year and get it back in “lurks”. You’ve only got to see what the reverse pattern (paying too little and being billed for it later) did with FTB reconciliation in 2001-02. In effect the government was giving people interest-free loans, but the punters certainly didn’t see it that way.

    This illusion by people doesn’t seem to be limited to tax. Look how many cars and whitegoods attract “Factory Rebates” – that is, you pay more now and the manufacturer will send you a cheque.

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