• Better communication to improve payment compliance

    We are using behavioural insights in our communications with taxpayers to positively influence their voluntary payments. Behavioural economics principles recognise that people do not always make decisions on a purely rational basis and that we can make it easier for them to choose well.

    One of our focus areas is to change the language, structure and layout of a number of debt letters to increase payment compliance by being clearer about:

    • what the taxpayer needs to do
    • the consequences of not paying.

    We also aligned the messages to our strategic themes, encouraging willing participation in the tax system and supporting taxpayers when they engage with us. Specific changes to the letters included pointing out that the majority of taxpayers pay in full and those with a debt are not fulfilling their obligations to the community. We also made bills look like bills, included more overt messages of support and repositioned or changed phrases, such as ‘Please disregard this letter if you have paid this debt in full in the last seven days’ to better focus on the key messages.

    We tested our new approach with groups of taxpayers and tax professionals, by inviting them to participate in our simulation centre to read through a letter and give feedback. We tested three letters this way and the response was positive, indicating taxpayers would be more likely to contact us in response to one of the new letters.

    We also tested three letters in a series of pilots. In the first pilot, an updated warning letter was sent to a random sample of 1,000 taxpayers. At the same time, a control group of 1,000 taxpayers was sent the existing letter to allow comparison of the effect of the letters on behaviour. After 60 days we found that, of taxpayers who had received the new letter, there was an increase in those making payment in part or in full or entering into a payment arrangement. There was also a decrease in those leaving their debt unpaid and those allowing their debt to increase.

    Figure 1.1: Improved taxpayer compliance from warning letter pilot

     Figure 1.1 shows the improved taxpayers compliance from those who received the new letter with an increase of 4.3% who entered an arrangement and an increase of 6.8% who paid in full. This is compared to those who received to original letter where there was a decrease of -2.6% where the debt was unpaid and -4.2% where the debt increased.

    Another pilot was designed for taxpayers with aging debt (over two years). A new letter was issued to a pilot group of 1,000 taxpayers, while the control group of 1,246 taxpayers received no extra action. The pilot group was more than six times more likely to enter into a payment arrangement than the control group, and contributed 52% more to reducing their debt.

    Following the positive results demonstrated through the testing of revised letters, we are now applying behavioural insights more broadly to communications with taxpayers, making it easier for taxpayers to choose well and therefore comply with the tax system. Our objectives are to enhance overall taxpayer payment compliance, leading to a more positive attitude towards payment on time in the community, and to support more effective and efficient collections outcomes.

    See also:

    Last modified: 07 Mar 2016QC 39634