As an economics and finance commentator, I make a good living telling other people what to do with their money. But when it comes to my own tax affairs, I’m as disorganised as the rest. I’m like the psychologist who cries into their pillow every night, or the recently divorced marriage counsellor.
Just like you, the prospect of having to give up one of these increasingly glorious and sunny weekends to wrestle with the tax pack and oh about a gazillion receipts leaves me cold. But the tax man waits for no one, and the October 31 deadline for submitting returns is fast approaching.
The good news is that most people who file a tax return end up with a tax refund, rather than a tax bill. In which case, hurry up and remember the “time value of money”. You want that money in your bank earning you interest, or paying off your debts, as soon as you can.
Only those expecting a tax bill - because you did extra work on which tax was not withheld, for example - can sensibly put off doing their tax return until the last minute. If you owe tax it’s better to keep the money in your bank account for as long as you can, potentially earning interest or using it to paying off other debts, until the taxman takes it away.
A tax return enthusiast I may not be, but I do, however, take it as something of a badge of honour that I continue to fill out my own tax return.
About three in four taxpayers will hire a tax agent this year to do theirs, either because it’s just too much of a hassle or because a later deadline is available for people who file through an agent. But a trip to the tax agent still costs time and money.
More than a million Australians will simply fail to lodge a return at all. Some of these will be rich, tax-dodging cheats. But they will be the minority. Most of these “non-lodgers” will be students or people on low incomes who would have little tax to pay, in fact, they might even get a refund if they did file, but who just find the process too overwhelming.
These people represent only a tiny proportion of tax collections but will get to go around feeling like criminals for no good reason for the rest of the year just because the tax return process is so onerous.
It has been estimated that the total cost of taxpayer compliance with the tax system is as high as 2.1 per cent of our annual economic production.
As a report for the Ken Henry tax review put it: “The time and resources individuals devote to complying with the requirements of the law could be allocated to more productive or satisfying activities and therefore represent a significant cost to the economy.”
Geeze, you’d think that someone in government really ought to do something about it, right?
Well, they did. And then, they didn’t.
In May 2010, delivering his budget night speech in parliament, Treasurer Wayne Swan promised to liberate families from the hassle of keeping show boxes full of receipts by introducing a standard deduction for expenses.
Instead of laboriously going through receipts to claim expenses, millions of families could just “tick and flick” a standard deduction of $500 rising to $1000.
Swan said it best: “The families I speak to right around the country don’t just want more financial security; they also want more time with each other…This [standard deduction] means less time with the Tax Pack, more time with loved ones, and for 6.4 million Australians it also means a bigger tax refunds.”
The measure was supposed to apply from 1 July this year. But in the May 2011 budget, the measure was delayed to save money.
Come this year’s budget, the proposal was scrapped entirely, a casualty of the Gillard Government’s dogged pursuit of a budget surplus this financial year.
The government tried to defend its backflip by pointing out that, under its carbon tax household assistance package, the tax free threshold will increase in the coming year from $6000 to $18200. This will reduce the number of people who pay tax. But even if your income is below the new threshold, if your payment summary from your employer shows tax has been withheld, you still have to fill out a tax return.
So think of that precious budget surplus as you’re filling out your tax return, because your right to a fast and efficient tax return was sacrificed to achieve it. Given the cost to the economy of tax compliance, the decision seems a false economy. Any incoming government would do well to consider reinstating it.
And while we’re at it, let’s mark the death of another Ken Henry tax reform measure: a 50 per cent deduction on tax payable on interest earned on bank deposits. This measure, also announced in the May 2010 budget, would have given a boost to savers and low income pensioners with money in interest-earning deposits. But it too was sacrificed in this year’s budget to save the government’s surplus.
Some days it seems all we have left to show from the Ken Henry tax review’s more than 100 recommendations for tax reform is the shriveled and mutated tax on mineral resources. Otherwise, progress towards delivering Australians a more efficient tax system has stalled.
Annoyed at having to give up a weekend to rifle through shoe boxes of dusty receipts? You should be.
Email: jessica.irvine@news.com.au. Twitter: @Jess_Irvine
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