Behavioural insights in tax collection: getting the legal settings right

Abstract

There has been a growing appreciation of the potential of behavioural insights (BI) to improve tax payment and collection. We examine the Australian federal tax payment regimes, especially for individuals and small to medium enterprises (SMEs). The legal regime for tax collection is still largely focused on debts after they are due, with mechanisms ranging from payment plans to garnishee notices, interest and penalties. This contrasts with the highly effective Pay-As-You-Go (PAYG) withholding system that ensures payment of anticipated tax in real time. We discuss BI as applied to tax payment and then canvass important limits on BI approaches including procedural fairness and taxpayer rights. We then examine existing rules and consider whether they are suitable for BI-influenced approaches. Finally, we propose directions for reform indicated by BI payment thinking to support easy, fair and timely tax payment for individuals and businesses.