Assessing taxpayer response to legislative changes: A case study of ‘in-house’ fringe benefits rules

On 22 October 2012, the Australian Federal Government announced the removal of the $1,000 in-house fringe benefits concession when used as part of a salary packaging arrangement. At the time of the announcement, the Federal Government predicted that the removal of the concession would contribute additional tax revenue of $445 million over the following four years as well as an increase of GST payments to the States and Territories. However, anecdotal evidence at the same time indicated that the Australian employer response was to immediately stop providing employees with such in-house fringe benefits via salary sacrificing arrangements. Data presented in this article, collected from a combination of interviews with tax managers of four Australian entities as well as a review of the published archival data, confirms that the abolition of the $1,000 in-house fringe benefits concession was perceived as a negative change, whereby employees were considered the ‘big losers’ despite assertions by the Federal Government to the contrary. Using a conceptual map of tax rule change developed by Oats and Sadler, this article seeks to understand the reasons for this fringe benefits tax change and taxpayer response. In particular, the economic and political factors, and the responses of the relevant taxpayers (employers) are explored. Drawing on behavioural economic concepts, the actions, attitudes and response of employers to the rule change are also examined. The research findings suggest that the decision by Australian employers to cease providing the in-house fringe benefits as part of a salary-packaging arrangement after the legislative amendment was impacted by more than simple rational behaviour.