Professor Kirchler mapped the overall tax take along these two dimensions as a “slippery slope” that looks like this:
You can see how the ability of a country to raise taxes falls away if the power of the authorities, the trust in authorities or both are reduced.
Voluntary compliance is very a delicate thing, requiring a public understanding of the role of taxes in maintaining society. It’s very difficult to foster, particularly in a post-colonial society. In Ireland, only a few generations ago, to avoid your taxes was seen as a patriotic act of rebellion, and to pay was seen as funding the oppressor. We have an emerging maturity about taxes, visible in the way in which tax evaders are publicly criticised now, but this new understanding is shockingly easy to damage.
In Ireland, the fact that the household charge became the focus of the protest against austerity indicates that it has been damaged here. Since there is no sign that people believe the authorities have less power than before, it follows that trust in the system has been lost somehow, in a way that relates to the austerity measures, and the public discourse around them.
Some questions around this:
- If taxes in Ireland are seen as being used primarily to repay banking debts which are seen as unfair, does this diminish the overall trust people have in the tax system?
- How much does the artificial divide which has been created in the public mind between the public and private sectors degrade this trust?
- If the social norm becomes non-payment, even as part of a protest, will we reach a point on that slippery point beyond which it will be difficult to recover?
by Sheila Killian
Source of graph: Journal of Economic Psychology, Volume 29, Issue 2, April 2008
13 comments:
A few other issues that need to be remembered.
- People cannot afford a property tax(adjusted for wealth or not).
- We should not be sucking billions out of the economy mid-depression.
Hi Anonymous
Certainly, both the hardship imposed by the tax, and the economic error of austerity are real issues. My point is mainly that there is also a trust aspect to the sustainability of the tax system, which can easily be damaged
Good points but the household charge is something in between motor tax and the TV licence. The biggest flaw in the household charge appears to be the registration phase: surely the best way to collate data on household ownership is from multiple sources, not voluntary registration, which begs noncompliance?
Secondly, unlike the TV licence, which is paid by the occupier who might not be the owner, there may be nobody to "catch". What it really brings up is the severity of the lack of data around land and property ownership in Ireland, and you can see how this was readily manipulated and exploited by property barons during the boom. If nothing else, the government needs to be developing a reliable register of ownership, for proper data analysis as much as tax compliance.
Taxation requires democratic consent and democratic accountability at a number of levels. It also needs national and local common bonds - and the extension of moral sentiments to support these. In Ireland there is a great big black hole where a properly functioning parliament, effective local governance, full accountability of all public administration and effective representation of the collective interests of consumers should exist.
Taxation should not be levied to finance the inefficient provision of services that could be provided by the private sector subject to effective regulation and competition. Nor should taxation be levied as a substitute for effective competition.
So, instead of posing leading questions, perhaps you should state your position:
- that the ongoing costs of bank resolution should not be honoured;
- that the public (and semi-state) sector should be spared any further requirement to contribute to compensate for the ravages of unemployment visited on many in the private sector or to seek to reduce the excessive costs it imposes on all and be allowed to 'reform' itself as it sees fit and at its own pace;
- that taxation should be levied ireespective of the extent of democratic consent or accountability - or indeed of the fragility of the local and national common bonds.
Shoe, very good points on the mecahnics of implementing the household charge, and indeed property taxes generally
Paul, I agree about the democratic consent and accountability needed for taxation, and that tax shouldn't be used to support the inefficient provision of services by either public or private sectors.
You lose me at the end, however, with your speculation on what you call my position. I'm not sure where you are getting those three points, or whose position they might represent.
My command of the English language must be failing - or perhaps you are just being disingenuous.
Your questions are both leading and rhetorical. The expected answer to all three is 'yes'. Why not address them directly to the relevant people in government and opinion-formers?
For example:
When will you stop (a) allocating public funds to pay ongoing bank resolution costs, (b) drawing attention to the relative experiences of private and public sector workers since the bubbles burst and (c) forcing people to protest against fiscal adjustment because all three are reducing the willingness to pay tax.
There is one big issue missing - the financial cost of not paying and getting caught - which in the case of property tax is inevitable when you go to sell.
The time to introduce extra property related charged was in the boom, not when people are on their knees with negative equity and huge property related costs. And the user should pay
Sheila, a very interesting post.
It is odd that power or enforcement should be an issue in Ireland. At the extreme enforcement does not rely on democratic consent or indeed transparency. Neither am I convinced that tax collection should be any more difficult in developed post colonial societies - Hong Kong - a post colonial socieity with arguably less democratic consent - has an efficient tax system enabling it to provide a wide range of public services from housing to health.
Part of the answer may be in how we chose to collect tax. OECD data indicate that Ireland has had a very high VAT take relative to income and corporate tax. The question is therefore why does the government believe it necessary to continually resort to regressive taxes (such VAT and now a household charge) and continue to charge fees for point of access public services (such as health)? Surely this does not help the question of trust?
Trust requires governments to convince the public that it can deliver an appropriate level of service (which societies demand as they become more affluent) and are often not immediately provided by the private sector. Ireland doesn't seem to be very good at this. The government failed to convince the public about NAMA. It could have given countless examples of how asset management companies have played a role in resolving non performing loans in other countries – but the public perception is that this is a bailout for developers. On the household charge it has failed to convince that it can even collect!
Hi Paul
There's the soruce of our mutual misunderstanding - my questions are not intended to be rhetorical with an assumed answer of yes. They're genuine questions which I think merit debate. If I had immediate answers, I'd give them.
And yes, anonymous, my post didn't cover the very real economic rationale on taxpaying.
Damian, I agree with you on the impact of regressive taxes on trust. And you raise a really interesting point on the impact of the different collection methods on trust also - that's well worth looking into more. I still think the post-colonial issue is a real one, although your point on Hong Kong is well made. I'm not familiar with their tax collection stats. It could be the exception though. Certainly it's hard to disentangle the impact of the post-colonial status of a country from the fact that many former colonies were left with a lot of poverty, little industrialisation and a consequent informal economy. So it's difficult to isolate the effect on taxpayer attitudes.
Well, that's a relief. So I'm not losing my grasp of the English language and you are being disingenuous. That's fine. It's a well practised art in these parts and you're perfectly free to pursue it while you can get away with it.
Paul, I'm an academic. I like questions, especially those which don't as yet have predefined answers. It's not disingenuous - it's curiousity.
Peace :)
I am well aware that you are an academic. Indeed, very fine it must be seeking to satisfy your curiousity while drawing from the public purse. Indeed we seem to have no shortage of academics, quite a few listed on the side panel here who must be putting a lot of effort in to satisfying their curiousity, because they rarely contribute here. Except, of course, when a horde come together to advance an economically illiterate Plan B in an open letter to Government.
Of course I accept that many may have a heavy teaching and administrative workload, but I worry about what their students are being fed when I see this economic illiteracy.
The trust issue at the core of housecharge non-payment is not trust in the government to do the right thing with the money collected, but rather the lack of trust that one's neighbours and co-citizens will pay their fair share.
We all know there are far too many in this country who will seek to game the system while playing the beal bocht, using the fine words of Joe Higgins or whomever as a fig leaf.
The same noisy proponents of non-payment would find their web-phobia melting away if the government was offering free money via a web registration.
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