Gordon Campbell on the different treatment of tax and welfare cheats

Hidden in amongst the usual holiday weekend filler stories – the road toll, the weather, the disgrace of Lance Armstrong etc – was a fascinating piece of research from Victoria University about the different way the courts treat tax cheats, compared to how they treat offenders who fiddle their entitlements to welfare. Even though the amounts involved tend to be much higher with tax evasion, the legal system treats welfare fraud far more harshly.

First, consider the amounts involved:

Tax evasion, that’s the deliberate act of not giving money to the Government that you should give to them,” says Dr Lisa Marriott at Victoria University. “And benefit fraud is the act of deliberately taking money from the Government you’re not entitled to.” Last year, tax evaders cheated the country of between $1 and $6 billion, while welfare fraud cost $39 million.

“The problem of tax evasion is at best case scenario 25 to 50 times the financial amount of welfare fraud, and at worst case scenario potentially 100 to 150 times the amount,” says Dr Marriott.

OK, and how do the courts respond in punishing the offenders?

The numbers tell the story. For tax evaders, the average offending is $270,000, and those found guilty have only a 22 percent, or one-in-five chance, of being jailed.

For welfare fraudsters, the average offending is $70,000, and those found guilty have a 60 percent chance of being jailed.

Or to put that another way: for tax evaders, the average offending is about four times as much, but they have about a third of the likelihood of receiving a custodial sentence. Clearly, it seems that beating up on errant beneficiaries is rife, and not only among politicians. The judiciary appears to be regarding cheating on tax as a more morally grey area, while treating the theft of far smaller amounts (on average) from the welfare system as a more serious crime with fewer mitigating factors. Thus, they seem more willing to jail welfare culprits – presumably, pour encourager les autres.

Is anything likely to change this situation? Hardly. Not, perhaps, when politicians and judges are themselves likely to be availing themselves of legal tax avoidance vehicles in order to minimize their own tax liabilities – in ways that, sometimes, only a Jesuit tax expert could detect as notably different in design and intent from a few of the more ingenious tax evasion mechanisms. Basically, welfare fraud is what poor people do, and thus seems easier for people on six figure incomes to demonise. Tax evasion, on the other hand, appears the sort of white collar criminal lapse that people more like themselves are prone to, which appears to render it easier for the judiciary to find grounds for compassion, even though the amounts involved are far higher, on average. It is otherwise hard to explain the startling disparity between the average amounts involved in the cheating, and the typical sentencing outcomes.

For obvious reasons, the Victoria University study deserves to be at the forefront of the ongoing public debate on welfare reform. Yes, Revenue Minister Peter Dunne has set aside more money to chase down tax cheats in the last couple of Budgets, but there has been nothing like the same public fanfare and allocation of resources that Social Development Paula Bennett has had at her disposal to wage the government’s current jihad against welfare dependency. That’s the real difference. Cheating on tax is being treated as a technical matter requiring a technical fix by IRD, without any related campaign of social stigmatization.

In stark contrast, cheating on welfare (and reliance on welfare per se) is being treated as a significant moral lapse, arising from bad social attitudes that are to be identified and openly deterred. In the process, the poor are being stigmatized, for political convenience. The judiciary should not be buying into the process. Yet until tax evasion is treated with the same (or greater) moral repugnance, the judiciary will remain locked in a 19th century time-warp when it comes to their different sentencing practices in these two realms. Welfare fraud is a crime, but it should not be the one that gets treated, relatively speaking, as a hanging offence.