The Australian Nonprofit Sector Legal Almanac 2015

Collected summaries of court cases involving nonprofit organisations, from Australia and overseas, during 2015, along with updates of legislative changes in all Australian jurisdictions. Significant Australian cases included several disputes with State Revenue Authorities about exemption from payroll taxes.

What shapes attitudes toward paying taxes? Evidence from multicultural European countries

Objectives. Considerable evidence suggests that enforcement efforts cannot fully explain the high degree of tax compliance. To resolve this puzzle of tax compliance, several researchers have argued that citizens' attitudes toward paying taxes, defined as tax morale, helps to explain the high degree of tax compliance. However, most studies have treated tax morale as a black box, without discussing which factors shape it. Additionally, the tax compliance literature provides little empirical research that investigates attitudes toward paying taxes in Europe. Methods. Thus, this article is unique in its examination of citizen tax morale within three multicultural European countries, Switzerland, Belgium, and Spain, a choice that allows far more detailed examination of the impact of culture and institutions using data sets from the World Values Survey and the European Values Survey. Results. The results indicate the tendency that cultural and regional differences affect tax morale. Conclusion. The findings suggest that higher legitimacy for political institutions leads to higher tax morale.

On inequality tax evasion and progressive taxes

This paper proposes a simple variation of the Allingham and Sandmo (1972) construct and integrates it to a dynamic general equilibrium framework with heterogeneous agents. We study an overlapping generations framework i n which agents must initially decide whether to evade taxes or not. In the event they decide to evade, they then have to decide the extent of income or wealth they wish to under-report. We find that in comparison with the basic approach, the ‘evade or not’ choice drastically reduced the extent of evasion in the economy. This outcome is the result of an anomaly intrinsic to the basic Allingham and Sandmo version of the model, which makes the evade-or-not extension a more suitable approach to modelling the issue. We also find that the basic model, and the model with and ‘evade-or-not’ choice have strikingly different political economy implications, , which suggest fruitful avenues of empirical research.

The impact of taxes on optimal portfolio choice : an Australian study

Taxes are an important component of investing that is commonly overlooked in both the literature and in practice. For example, many understand that taxes will reduce an investment’s return, but less understood is the risk-sharing nature of taxes that also reduces the investment’s risk. This thesis examines how taxes affect the optimal asset allocation and asset location decision in an Australian environment. It advances the model of Horan & Al Zaman (2008), improving the method by which the present value of tax liabilities are calculated, by using an after-tax risk-free discount rate, and incorporating any new or reduced tax liabilities generated into its expected risk and return estimates. The asset allocation problem is examined for a range of different scenarios using Australian parameters, including different risk aversion levels, personal marginal tax rates, investment horizons, borrowing premiums, high or low inflation environments, and different starting cost bases. The findings support the Horan & Al Zaman (2008) conclusion that equities should be held in the taxable account. In fact, these findings are strengthened with most of the efficient frontier maximising equity holdings in the taxable account instead of only half. Furthermore, these findings transfer to the Australian case, where it is found that taxed Australian investors should always invest into equities first through the taxable account before investing in super. However, untaxed Australian investors should invest their equity first through superannuation. With borrowings allowed in the taxable account (no borrowing premium), Australian taxed investors should hold 100% of the superannuation account in the risk-free asset, while undertaking leverage in the taxable account to achieve the desired risk-return. Introducing a borrowing premium decreases the likelihood of holding 100% of super in the risk-free asset for taxable investors. The findings also suggest that the higher the marginal tax rate, the higher the borrowing premium in order to overcome this effect. Finally, as the investor’s marginal tax rate increases, the overall allocation to equities should increase due to the increased risk and return sharing caused by taxation, and in order to achieve the same risk/return level as the lower taxation level, the investor must take on more equity exposure. The investment horizon has a minimal impact on the optimal allocation decision in the absence of factors such as mean reversion and human capital.

Integrating organisational design with IT design : the Queensland Health payroll case

Most existing requirements engineering approaches focus on the modelling and specification of the IT artefacts ignoring the environment where the application is deployed. Although some requirements engineering approaches consider the stakeholder’s goals, they still focus on the IT artefacts’ specification. However, IT artefacts are embedded in a dynamic organisational environment and their design and specification cannot be separated from the environment’s constant evolution. Therefore, during the initial stages of a requirements engineering process it is advantageous to consider the integration of IT design with organisational design. We proposed the ADMITO (Analysis, Design and Management of IT and Organisations) approach to represent the dynamic relations between social and material entities, where the latter are divided into technological and organisational entities. In this paper we show how by using ADMITO in a concrete case, the Queensland Health Payroll (QHP) case, it is possible to have an integrated representation of IT and organisational design supporting organisational change and IT requirements specification.

Tax evasion, inequality, and progressive taxes : a political economy perspective

The standard approach to tax compliance applies the economics-of-crime methodology pioneered by Becker (1968): in its first application, due to Allingham and Sandmo (1972) it models the behaviour of agents as a decision involving a choice of the extent of their income to report to tax authorities, given a certain institutional environment, represented by parameters such as the probability of detection and penalties in the event the agent is caught. While this basic framework yields important insights on tax compliance behavior, it has some critical limitations. Specifically, it indicates a level of compliance that is significantly below what is observed in the data. This thesis revisits the original framework with a view towards addressing this issue, and examining the political economy implications of tax evasion for progressivity in the tax structure. The approach followed involves building a macroeconomic, dynamic equilibrium model for the purpose of examining these issues, by using a step-wise model building procedure starting with some very simple variations of the basic Allingham and Sandmo construct, which are eventually integrated to a dynamic general equilibrium overlapping generations framework with heterogeneous agents. One of the variations involves incorporating the Allingham and Sandmo construct into a two-period model of a small open economy of the type originally attributed to Fisher (1930). A further variation of this simple construct involves allowing agents to initially decide whether to evade taxes or not. In the event they decide to evade, the agents then have to decide the extent of income or wealth they wish to under-report. We find that the ‘evade or not’ assumption has strikingly different and more realistic implications for the extent of evasion, and demonstrate that it is a more appropriate modeling strategy in the context of macroeconomic models, which are essentially dynamic in nature, and involve consumption smoothing across time and across various states of nature. Specifically, since deciding to undertake tax evasion impacts on the consumption smoothing ability of the agent by creating two states of nature in which the agent is ‘caught’ or ‘not caught’, there is a possibility that their utility under certainty, when they choose not to evade, is higher than the expected utility obtained when they choose to evade. Furthermore, the simple two-period model incorporating an ‘evade or not’ choice can be used to demonstrate some strikingly different political economy implications relative to its Allingham and Sandmo counterpart. In variations of the two models that allow for voting on the tax parameter, we find that agents typically choose to vote for a high degree of progressivity by choosing the highest available tax rate from the menu of choices available to them. There is, however, a small range of inequality levels for which agents in the ‘evade or not’ model vote for a relatively low value of the tax rate. The final steps in the model building procedure involve grafting the two-period models with a political economy choice into a dynamic overlapping generations setting with more general, non-linear tax schedules and a ‘cost-of evasion’ function that is increasing in the extent of evasion. Results based on numerical simulations of these models show further improvement in the model’s ability to match empirically plausible levels of tax evasion. In addition, the differences between the political economy implications of the ‘evade or not’ version of the model and its Allingham and Sandmo counterpart are now very striking; there is now a large range of values of the inequality parameter for which agents in the ‘evade or not’ model vote for a low degree of progressivity. This is because, in the ‘evade or not’ version of the model, low values of the tax rate encourages a large number of agents to choose the ‘not-evade’ option, so that the redistributive mechanism is more ‘efficient’ relative to the situations in which tax rates are high. Some further implications of the models of this thesis relate to whether variations in the level of inequality, and parameters such as the probability of detection and penalties for tax evasion matter for the political economy results. We find that (i) the political economy outcomes for the tax rate are quite insensitive to changes in inequality, and (ii) the voting outcomes change in non-monotonic ways in response to changes in the probability of detection and penalty rates. Specifically, the model suggests that changes in inequality should not matter, although the political outcome for the tax rate for a given level of inequality is conditional on whether there is a large or small or large extent of evasion in the economy. We conclude that further theoretical research into macroeconomic models of tax evasion is required to identify the structural relationships underpinning the link between inequality and redistribution in the presence of tax evasion. The models of this thesis provide a necessary first step in that direction.

Taxes and decision rights in multinationals

We examine how a multinational's choice to centralize or decentralize its decision structure is affected by country tax differentials. Within a simple model that emphasizes the multiple conflicting roles of transfer prices in multinational enterprises (MNEs)—here, as a strategic precommitment device and a tax manipulation instrument—we show that centralization is more profitable when tax differentials are large. When tax differentials are small, decentralization can be performed in two different ways each providing the highest profits in a particular range of the tax differential. Hence, the paper emphasizes the organizational flexibility that MNEs have in pursuing tax optimization.

The public management issues of access to electronic gaming machines (EGMs) : a case study of policy in Victoria, its effects and requirements for evaluation

Wynne and Schaffer (2003) have highlighted both the strong growth of gambling activity in recent years, and the revenue streams this has generated for governments and communities. Gambling activities and the revenues derived from them have, unsurprisingly, therefore also been seen as a way in which to increase economic development in deprived areas (Jinkner-Lloyd, 1996). Consequently, according to Brown et al (2003), gambling is now a large taxation revenue earner for many western governments, at both federal and state levels, worldwide (for example UK, USA, Australia). In size and importance, the Australian gambling industry in particular has grown significantly over the last three decades, experiencing a fourfold increase in real gambling turnover. There are, however, also concerns expressed about gambling and Electronic Gaming in particular, as illustrated in economic, social and ethical terms in Oddo (1997). There are also spatial aspects to understanding these issues. Marshall’s (1998) study, for example, highlights that benefits from gambling are more likely to accrue at the macro as opposed to the local level, because of centralised tax gathering and spending of tax revenues, whilst localities may suffer from displacement of activities with higher multipliers than the institutions with EGMs that replace them. This also highlights a regional context of costs, where benefits accrue to the centre, but the costs accrue to the regions and localities, as simultaneously resources leave those communities through both the gambling activities themselves (in the form of revenue for the EGM owners), and the government (through taxes).

New insights into rebound effects : theory and empirical evidence

The main objective of the thesis is to seek insights into the theory, and provide empirical evidence of rebound effects. Rebound effects reduce the environmental benefits of environmental policies and household behaviour changes. In particular, win-win demand side measures, in the form of energy efficiency and household consumption pattern changes, are seen as ways for households and businesses to save money and the environment. However, these savings have environmental impacts when spent, which are known as rebound effects. This is an area that has been widely neglected by policy makers. This work extends the rebound effect literature in three important ways, (1) it incorporates the potential for variation of rebound effects with household income level, (2) it enables the isolation of direct and indirect effects for cases of energy efficient technology adoption, and examines the relationship between these two component effects, and (3) it expands the scope of rebound effect analysis to include government taxes and subsidies. MACROBUTTON HTMLDirect Using a case study approach it is found that the rebound effect from household consumption pattern changes targeted at electricity is between 5 and 10%. For consumption pattern changes with reduced vehicle fuel use, the rebound effect is in the order of 20 to 30%. Higher income households in general are found to have a lower total rebound effect; however the indirect effect becomes relatively more significant at higher household income levels. In the win-lose case of domestic photovoltaic electricity generation, it is demonstrated that negative rebound effects can occur, which can potentially amplify the environmental benefits of this action. The rebound effect from a carbon tax, which occurs due to the re-spending of raised revenues, was found to be in the range of 11-32%. Taxes and transfers between households of different income levels also have environmental implications. For example, a more progressive tax structure, with increased low income welfare payments is likely to increase greenhouse gas emissions. Subsidies aimed at encouraging environmentally friendly consumption habits are also subject to rebound effects, as they constitute a substitution of government expenditure for household expenditure. For policy makers, these findings point to the need to incorporate rebound effects in the environmental policy evaluation process.’

Incorporating an economic model in the health impact assessment approach

The current policy decision making in Australia regarding non-health public investments (for example, transport/housing/social welfare programmes) does not quantify health benefits and costs systematically. To address this knowledge gap, this study proposes an economic model for quantifying health impacts of public policies in terms of dollar value. The intention is to enable policy-makers in conducting economic evaluation of health effects of non-health policies and in implementing policies those reduce health inequalities as well as enhance positive health gains of the target population. Health Impact Assessment (HIA) provides an appropriate framework for this study since HIA assesses the beneficial and adverse effects of a programme/policy on public health and on health inequalities through the distribution of those effects. However, HIA usually tries to influence the decision making process using its scientific findings, mostly epidemiological and toxicological evidence. In reality, this evidence can not establish causal links between policy and health impacts since it can not explain how an individual or a community reacts to changing circumstances. The proposed economic model addresses this health-policy linkage using a consumer choice approach that can explain changes in group and individual behaviour in a given economic set up. The economic model suggested in this paper links epidemiological findings with economic analysis to estimate the health costs and benefits of public investment policies. That is, estimating dollar impacts when health status of the exposed population group changes by public programmes – for example, transport initiatives to reduce congestion by building new roads/ highways/ tunnels etc. or by imposing congestion taxes. For policy evaluation purposes, the model is incorporated in the HIA framework by establishing association among identified factors, which drive changes in the behaviour of target population group and in turn, in the health outcomes. The economic variables identified to estimate the health inequality and health costs are levels of income, unemployment, education, age groups, disadvantaged population groups, mortality/morbidity etc. However, though the model validation using case studies and/or available database from Australian non-health policy (say, transport) arena is in the future tasks agenda, it is beyond the scope of this current paper.

AITPM Email Newsletter Volume 0907, July 2009 : President's Message

President’s Message AITPM President’s Message, July 2009 Hello fellow AITPM members, It’s now very early July so many Australians are going to experience a range of new, or increases in, fees, charges, and perhaps taxes by State and local governments. For example, Queenslanders are to be hit at the petrol pump, no longer living with the luxury of the State’s previous 8c per litre fuel subsidy, bringing general motorists’ fuel costs into line with the other States. A consolation is that they now don’t have to live with the real or perceived “price gouging” that has appeared in the past to make Queensland prices much closer than 8c to those in other States. Environmental lobbyists argue that this Government’s decision brings public transport costs closer to parity with private transport. However, my sense from sloppy petrol price elasticities is that the State’s motorists will get used to the reversal of what was a reverse tax pretty quickly, an amount which can be less than day-of-the week fluctuation. On the other hand, withholding this State revenue may help in some way the funding of the several major public transport infrastructure projects in progress; not to mention some of the cost of running the Transit Authority’s expanding service commitments. Other policy actions, such as a Federal Government review of taxation on employees’ package vehicles, which might discourage rather than encourage excess kilometres travelled, may have a greater environmental benefit. Of course, a downside is that many vehicles used so are Australian built, and discouraging fleet turnover may damage an industry which faces ever increasing uncertainty, and particularly at the present, is in need of some care and attention. I for one hope to this end that the new 4 cylinder (1.8L petrol or 2L diesel) so called “true Holden” Cruze and Toyota’s pending Camry Hybrid are both roaring successes, and will be taken up in droves as fleet and employee use vehicles. I’m not sure what drive-trains Ford and Holden plan to drop into their next full sized models but even if they’re not Australian sourced, let’s hope they coordinate the requisite performance expected by the “Aussie Battler” with suitable green credentials. I am also encouraged to see that already many Government fleet vehicles are smaller in size, but still fit for purpose. For instance, my local police station uses the Camry based Aurion as a district car. I close again in reminding everyone that AITPM’s flagship event, the 2009 AITPM National Conference, Traffic Beyond Tomorrow, is being held in Adelaide from 5 to 7 August. www.aitpm.com has all of the details about how to register, sponsor a booth, session, etc. Best regards all, Jon Bunker

Economic issues in funding and supplying public sector information [Presentation slides]

PowerPoint presentation by Dr John S Cook at the Spatially Enabled Government Summit 2009, Mapping the Future of Interoperability, Data Collection & Data Management for Operational Excellence within Australian Government, held on 24-27 August, 2009 at the Marque Hotel, Canberra, ACT