Chapter 2: Tax Consultation Processes in Other Countries

2.1 International approaches to tax consultation can provide a useful guide and offer an insight into what might be desirable and achievable in Australia. However, countries have different histories, political processes, norms of behaviour, systems and capacities. Therefore, a particular system of consultation may work well in another country, but not be fully transferable to Australia.

2.2 Overall, the evidence from overseas suggests that Australia’s tax consultation arrangements are performing well relative to most other comparable countries. Nevertheless, some elements of tax consultation arrangements in other countries may point to directions in which the Australian system could be improved.

2.3 The review considered information on tax consultation practices from Canada, France, Germany, Ireland, Korea, the Netherlands, Norway, Sweden, the United Kingdom (UK), New Zealand and the United States (US). The Australian Treasury also provided similar information on Australia.

2.4 In addition, representatives of the review visited New Zealand as it was identified as a best practice model on several occasions, and one representative met with officials in the UK. Further information on tax consultation arrangements in New Zealand is in Box 2.1 at the end of this chapter.

2.5 The review also researched the websites and documentation of those countries most like Australia from the perspective of their legal system and values.

2.6 Drawing on this information, the key components of a sustainable system of community consultation on tax matters are identified below.

Key components of tax consultation processes in other countries

Leadership and management of the process

2.7 Leadership and management of consultation is not often mentioned on public websites or in publications, yet the evidence, particularly from New Zealand, strongly indicates that these factors are critical to an effective and efficient system of consultation. Without a mandate and pressure from leaders to ensure best practice is aimed for and then maintained, opportunities for improvement may not be taken up and sufficient priority and resources may not be given to consultation.

The scoping of issues and the clarity of objectives

2.8 There is very strong international evidence of the importance of having thought through what the consultation process is aiming to achieve. It is best if the scope and objectives for the consultation are clear and concise. This may require input from external advisers (in confidence if necessary) to clarify and focus an idea into a workable concept prior to public consultation.

2.9 New Zealand, Germany, Sweden and Norway use external expertise in different forms and structures quite early in the policy development process. They believe this assists government and officials to get a better view of what needs to be achieved and how government decisions may be implemented.

Stakeholder spread and interaction

2.10 A priority for good consultation is to identify the stakeholder groups best suited to the scope and objectives of the consultation. The aim is to involve a suitable spread of qualified people with backgrounds and experience who, collectively, understand the issues being consulted on. These will tend to be people with specific expertise in policy implementation, legislation, tax administration, and commercial and other experience in the general community.

2.11 Peak industry bodies can be a very useful way to harness relevant experience and knowledge. International experience suggests that minority groups, particularly small and medium enterprises (SMEs) and not-for-profit organisations, have difficulty participating in consultation processes.

2.12 It is essential that databases of stakeholders who have the qualifications, experience, motivation and time available are developed and maintained, including through regular review of their contribution and currency. Different projects are likely to require selection of a different set of external stakeholders that will provide a ‘best fit’ to fulfil the scope and objectives.

2.13 It is important that key personnel in each stakeholder group be regularly engaged in order to build relationships, trust and motivation for the consultation processes.

Transparency of information and process

2.14 Transparency requires the transfer of information and the system to be open to all participants in a way that develops trust, sharing and open dialogue.

2.15 The key factors influencing transparency are the accessibility and type of information made available, the degree of openness and trust in the process and the perceived sincerity of the process. Trust is engendered by an absence of hidden agendas and all stakeholders being open and honest.

2.16 Effective consultation systems aim to build an ongoing relationship that affords government access to reliable information and advice on political, economic and technical issues to avoid unexpected responses and unintended consequences after government takes decisions. Those open relationships also lead to external stakeholders placing value on having the confidence of government and being able to assist in a meaningful way to achieve better outcomes for the taxation system.

2.17 Some other countries (particularly New Zealand) have shown that given the right conditions, stakeholders are prepared to place a higher priority on national or community interests than on their own self or sectional interests.

2.18 Swedish and German consultation models appear to be quite transparent and seem to be achieving this through public structured enquiry processes. In contrast, New Zealand has achieved transparency using trusted advisers and closely networked key stakeholder groups working with officials who advise government. The New Zealand model seems closer to what currently generally occurs in Australia.

Feedback to external stakeholders

2.19 All effective consultation processes require regular and timely feedback to maintain engagement and to concentrate energy to efficiently develop solutions. The importance of the feedback loop is mentioned in all international comments considered by the review on best practice in consultation. Feedback can take various forms and can be handled very efficiently with technology.

2.20 Effective feedback requires a relationship of openness, transparency and trust to be developed between all stakeholders. This requires government and officials to be open to providing transparent and timely feedback, for example on how submissions were evaluated and the process for taking decisions. Something more than just letting stakeholders know their submission was received is generally required, particularly where significant time and resources have been devoted to preparing the submission. What is required is sufficient feedback to indicate to stakeholders that their efforts were worthwhile.

2.21 There are many methods for providing effective feedback and not all need be formal. The key is for there to be sufficient trust and freedom within the system to allow officials to provide the feedback most suitable to a particular situation and stakeholder.

Early access to the process

2.22 The evidence from overseas is that being able to access the consultation process at an early stage motivates external stakeholders to engage in the process and improves its effectiveness and efficiency.

2.23 There is a trend in New Zealand (in particular), Ireland, the UK, Sweden, Norway and Germany to move to consultation as early as possible in the policy development process. This has the potential to improve the quality and clarity of the policy and its implementation, particularly where complex issues are involved. In these countries it is a given that consultation will take place at the implementation stage and the emphasis appears to be on achieving appropriate involvement also at the policy development stage.

Sufficient time and resources

2.24 A balance needs to be struck between ensuring that changes to the tax system are implemented in a timely and efficient manner and that stakeholders’ views are sought to ensure that they are implemented effectively. Allocating sufficient time and resources (technical, interpersonal and project management) to participate in consultation within the constraints of time and budget is important to achieving this balance. Project management techniques are used in other countries to ensure that projects are delivered on time and to the required standards.

2.25 In several countries considered, periods of between one and three years were not uncommon to complete the consultation and various parliamentary committee processes. For complex issues this is not surprising and is similar to experience in Australia. The commitment of time in these countries suggests they believe the consultation process is beneficial and is time well spent in terms of improving tax system outcomes.

Monitoring the effectiveness of the process and its outcomes

2.26 As with most evolving systems and processes, monitoring the effectiveness and efficiency of tax consultation processes and whether they are achieving the desired result should be an important part of the process of improvement. Results can be monitored in both formal and informal ways.

2.27 Several countries (the UK, Ireland and New Zealand) regarded monitoring as an important part of the consultation process, although the methods used are different in each country. New Zealand obtains feedback using informal methods, but is moving toward a more formal approach. European countries do not generally engage in monitoring or seeking feedback on effectiveness.

Minor policy and technical amendments

2.28 International evidence indicates that all of the key components of effective tax consultation processes apply equally to minor policy and technical amendments. In addition, evidence from New Zealand in particular suggests that clarity and simplicity of process, appropriate resourcing and political and community support for addressing such issues are vital. In New Zealand the Inland Revenue Department has a standing mandate to identify, consult on, analyse and prioritise issues for government decision. There is a commitment, within available resources, to address issues and such amendments are not politically contentious. Processes are also assisted by the small number of tax professional bodies in New Zealand.

2.29 There can be a tendency for such measures to be given a lower priority when compared with new initiatives. However, the care and maintenance of existing provisions has a significant impact on the overall credibility of the tax system.

Relevance of the international processes to Australia

2.30 The international consultation processes considered by the review reflect the particular histories, political processes, norms of behaviour and systems and processes of those countries. In particular, New Zealand’s tax consultation process reflects many factors that are not evident in Australia including an earlier period of difficult economic and social conditions, a significant concern about a lack of consultation and changes that were constant and often not properly announced and understood, and a much smaller tax community including a very small number of influential external stakeholder groups. Consequently, it is unlikely that its approach could be introduced in its entirety into Australia.

2.31 However, what has emerged from consideration of international arrangements is a set of common themes, and the aims of providing early access to the policy development process, developing trust and relationships and providing transparency (including using technology as an aid to knowledge distribution and process transparency) seem to be equally appropriate to Australia.

Box 2.1: Tax consultation In New Zealand


New Zealand’s tax consultation processes and the community attitude to taxation generally are very heavily influenced by economic and social developments since the 1980s.

In very broad terms, the arrangements grew out of a period of significant economic and social upheaval. An economic crisis of the mid to late 1980s was followed by a period of rapid and extensive economic reform from the mid 1980s to the early 1990s. By that time there were growing differences of public opinion (that were reflected within government and the bureaucracy) about the direction and pace of changes which were often unexplained.

A review in 1994 of the then existing structure and processes by which taxation reform was achieved made sweeping recommendations that covered structural as well as process change. The review was critical of a number of aspects of arrangements that existed at that time. These included that the tax policy process was not clear (and neither were accountabilities for the stages of the process) and there was insufficient external consultation.

A key recommendation was to establish a ‘Generic Tax Policy Process’ (GTPP) with the objectives of:

  • encouraging early, explicit consideration of key policy elements and trade-offs;
  • providing an opportunity for substantial external input into the policy formation process; and
  • clarifying the responsibilities and accountabilities of participants in the process.

Operation of the New Zealand system

The key issues that appear largely to explain the operation of the New Zealand system include:

  • a near consensus, particularly amongst people with influence and decision makers who experienced the 1980s and 1990s, that the national interest should have a higher priority than sectional interests;
  • a view shared by key officials and external stakeholders that they all need to contribute constructively in the best interests of the New Zealand tax system and economy. This leads to cooperation, assistance and frank dialogue both on parties’ contribution to consultation and other processes;
  • senior officials with main responsibility for policy development and implementation having experience spanning government and the commercial sector, and their skills being widely respected by politicians, other officials and external stakeholders. This reflects active recruitment of key personnel with commercial experience when the policy development and implementation division was established. Consequently, ready use is made of external contacts and ideas, and there is a high degree of trust and some interchange between government and the commercial sector (the latter has been facilitated by geographic proximity);
  • the small size of the tax community, including a very small number of peak bodies, with the New Zealand Institute of Chartered Accountants being the main participant in the consultation process;
  • a predisposition towards public consultation processes, transparency, feedback, and limited if any use of confidentiality deeds (confidentiality is very actively upheld by the private sector as being necessary for effective consultation). The small number of participants partly explains this tendency. However, also important is a view from the public sector that open processes produce better outcomes (this view may partly reflect that tax legislation is often subject to a parliamentary committee process that allows stakeholders to raise issues if they have not been considered or resolved in the consultation process);
  • a predisposition to include external stakeholders early in the process, generally before legislation is drafted (via a range of processes ranging from submissions after position papers have been issued by government or officials through to informal white-boarding to scope policy options), and an acknowledgement that stakeholder analysis and timely feedback are important;
  • a more positive approach taken by the financial press to tax matters; and
  • government remaining able to decide what should be consulted on and the level of consultation. However, government appears to be very comfortable with the consultation process being conducted slightly at arm’s length from government by officials. Officials meet very regularly with ministers, with the progress of consultation often high on the agenda. Government indicated the consultations conducted by officials provide them with political, economic and technical tax information, which is useful to their decision making.