How the ATO use 'nudge' theory to get more people to pay their taxes
Image: Jeffrey Pioquinto on Flickr
The concept of ‘nudge’ theory – using subtle prompts to influence human behaviours – is being used by the Australian Tax Office (ATO) to encourage tardy taxpayers to make good on their debts.
Nudge theory entered the mainstream with the publication in 2008 of Nudge: Improving Decisions about Health, Wealth, and Happiness by behavioural economist Richard H. Thaler and legal scholar Cass R. Sunstein. The theory has applications across a range of disciplines including business, health and education, to encourage people to make choices that (in theory) better reflect their own interests.
Thaler and Sunstein provide the example of placing healthy food options in more prominent positions that junk foods in a school canteen to encourage healthier choices without actually stopping students buying less healthy alternatives.
Last year, the ATO trialled small changes to the wording of the letters sent to people who had failed to complete their tax return on time. As Shane Wright reported in The Age newspaper, the ATO sent two different messages to 20,000 individuals and businesses with tax debts who had failed to lodge a return.
One ‘soft’ message said ‘don’t get further behind – lodge now’ while a harder message told recipients that ‘not taking action to get up to date will be treated as a deliberate choice’.
People who received the letter with the stronger wording were 40% more likely to lodge their return and pay what they owed.
Governments around the world have embraced nudge theory as a means to influence citizen choices. They cite financial savings as well as improvements in overall health and happiness as key drivers. Indeed, the current Australian Competition Minister, Andrew Leigh, has written in the past how nudge theory might improve policy outcomes.
Of course, not all ‘nudges’ are necessarily positive, depending on your point of view. Consider the example of the ballot paper from the 1938 Austrian Anschluss referendum on the annexation of Austria into Germany. The size and placement of ‘yes’ and ‘no’ options clearly nudged participants toward an outcome. Less subtly, the poll banned political opponents of Hitler from participating, along with Austrian citizens of Roma or Jewish origin. Unsurprisingly the result was 99.73% in favour. The rest, as they say, is history.
