Science can contribute to understanding of how people access government services.

Science can contribute to understanding of how people access government services.

Science of human behaviour informs tax system review

How can ‘doing your tax’ be made simpler? Science has some answers.

  • 7 May 2010 | Updated 14 October 2011

In Australia, more than 75 per cent of individual tax filers use a tax agent to lodge their taxation return.

Many fail to lodge a return even if they think they will get a refund.

A tax system needs to be efficient, fair and simple.

System complexity means that many people don’t lodge a tax return. Then they miss out on entitlements or have to seek paid advice, with socially disadvantaged people feeling the impact most.

System complexity means that many people don't lodge a tax return.

With the tax system being used to deliver welfare payments, the problem is compounded.

Science can contribute insights that can improve the taxation system.

Behavioural economics looks at how people make decisions. Combining this with expertise in information technology and services science, CSIRO was able to provide input into a review of taxation in Australia, Australia's Future Tax System Review.

Australia's Future Tax System Review

In 2008, the Australian Government initiated a review called 'Australia's Future Tax System Review' (The Henry Review).

The Henry Review examined Australian and State government taxes, and interactions with the transfer system in order to make recommendations that will position Australia to deal with the demographic, social, economic and environmental challenges that lie ahead.

CSIRO contributed a paper to the review about the science of simple and complex decision making and recommended ways to change taxation based on an understanding of how people behave.

This paper draws on CSIRO’s services researchers combined expertise in:

  • behavioural economics
  • logistics and optimisation
  • information and communication technologies
  • services science.

Real decisions

CSIRO reviewed the academic studies from economics, psychology and service delivery to gain some important insights about decision making in real life.

For example, when making decisions, people:

  • are much more concerned about possible losses than possible gains
  • are inclined to stick with the status quo
  • often settle for good enough, rather than search for the best option
  • sharply discount the future compared to the present.

By using this kind of information, much of it gained from laboratory studies of human behaviour, designers of systems and services can help people to help themselves.

The way forward

To remove the burden of complexity from most individual tax filers, governments could consider design changes like:

  • send people pre-filled, default tax forms they can modify
  • those with more complex affairs can add extra information or consult a tax agent.

Other recommendations include:

  • break down complex processes into a set of smaller steps (proceduralisation)
  • test proposed service delivery changes in laboratories and then in pilot trials to compare alternative approaches
  • investigate potential barriers for online tax delivery before committing to particular policy paths.

CSIRO has been granted permission to make the paper publicly available. Download the CSIRO AFTS Behavioural economics paper [PDF, 1.2 MB].