Overcoming tax complexity through tax literacy – an analysis of financial literary research in the context of the taxation system

Abstract

[Abstract]: The complexity of Australia’s taxation system is an often published area both academic and professionally . In the past, studies have attempted to determine whether this complexity has an effect on the level of taxpayer compliance. In this paper, the issue of overcoming tax complexity will be explored from the perspective of financial literacy research. In 2004, the Australian Government provided funding to establish a Consumer and Financial Literacy taskforce and in June 2005, as a result of research from this taskforce, the Financial Literacy Foundation was launched. This priority of government spending was as a result of research which suggested that improving financial skills and providing education was central to overall economic prosperity and that low levels of financial literacy act as a barrier to participation in the financial system. It will be submitted that taxation draws parallels to financial literacy in that it affects all members of society and that it potentially impacts on an individual’s overall financial position. This paper will therefore explore financial literacy research in the context of the Australian taxation system and whether low levels of tax literacy act as a barrier to participation in the taxation system. This paper will argue that in a similar manner to the complex world of finances, the complexity of the taxation system can be combated through tax literacy. Unlike many other skills, taxation is an area which is not directly taught at any stage in the educational system (unless being undertaken as part of a specialised degree), yet is an area which will impact with certainty on each individual. It is therefore imperative, that this issue of tax literacy be explored.