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How tax policy-making could be fixed

09 March 2012

Ralph Cunningham

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Governments could do a lot more to improve how they formulate tax policy, including putting in place a recognised process of consultation with taxpayers.

Tax policy-making around the world is under-resourced and undervalued; it is controlled by a narrow group of people, often to the exclusion of other government departments and external organisations, and politicians have failed to engage the public in serious discussion about the subject.

These are the key conclusions of "Structures, processes and governance in tax policy-making: an initial report", which was compiled by Christopher Wales and Kit Wales under the auspices of the Oxford University Centre for Business Taxation.

The draft report looked at how tax policy was formulated in 10 jurisdictions: Australia, Finland, France, Germany, Ireland, Jersey, New Zealand, Sweden, the UK and the US

Christopher Wales said the aims of the study were to raise the profile of tax policy-making; develop a benchmarking process; create a knowledge base; highlight differences between countries; explore concepts of good practice and inform those involved in the process.

"We found it difficult to find anyone with anything positive to say about the role of politicians in tax policy-making," Christopher Wales said, when presenting the study’s findings at international conference of tax administrators, executives and advisers, trades union representatives and non-governmental organisations in Oxford on March 8 and 9.

The authors were not critical of the tax policy-making process in all of these locations, but could not name any where they thought the approach was completely successful.

"There are several examples in our subject-countries of good structures and governance around some aspects of the tax policy-making process. However, there are no countries in our sample where the process is strong in all its parts," the report states.

When unveiling the draft report, Christopher Wales said ideally the study would have looked at more countries in Eastern Europe, developing countries such as the Brics (Brazil, Russia, India and China) and jurisdictions in Asia. He said he hoped the report would only be the start of research into tax policy-making around the world, including an examination  of the role of intergovernmental organisations, such as the EU and the OECD.

In a speech to the conference, David Gauke, the minister responsible for the UK tax system, highlighted the multi-stage consultation that took place before the Finance Bill in 2010 and 2011. "The relative lack of changes to the Finance Bill in 2011 shows the benefit of early engagement," he said.

Gauke said, however, that the government would always need to retain some flexibility on tax policy: "For example, we wouldn’t consult on tax rate changes or where there is a risk to the exchequer."

Different points of interest
The report, which was put together through desk-based research and a series of face-to-face interviews in the 10 jurisdictions, looked at four elements of the tax policy-making process: the part government plays; how external institutions, such as academia and think-tanks, are involved; the role of the legislature and the steps taken to seek the consent of taxpayers to changes in the law.

The authors make 26 recommendations, though none are specific to any jurisdiction. These cover, for example, better inter-departmental coordination, including between the tax policy and tax administration departments; post-implementation review of tax changes; the creation of a parliamentary committee on taxation and a formal process of consultation with taxpayers.

"Many of the recommendations are inter-connected and some of them would be liberating, in the sense that their implementation would allow a cascade of benefits to flow down through different parts of the process, achieving a significant step-forward in quality," the report states.

Christopher Wales said there were possible reasons why external bodies were not more involved in tax policy-making in some countries: "Business tax doesn’t tend to be what trades unions are expert about. And where there is no role for academia and government, theoretical ideas are seen as value of academics and nothing more."

The report will be finalised and published after the Oxford conference.

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