Does New Zealand – despite our claims to egalitarianism and everyone being equal before the law – treat the people engaged in tax evasion more leniently than the people who commit welfare fraud? Yes, we do. (Why we do is the real issue.) Earlier research by Victoria University associate professor Lisa Marriott has shown that while both offences are of the same kind (financial crimes) and have the same victim (the government, and society) the two get treated very differently from a prosecution point of view.
Basically, you are far more likely to be criminally prosecuted for welfare fraud than for tax fraud, and are also far more likely to be treated harshly at the sentencing stage – even though the amounts involved in tax evasion cases are, on average, far larger. Scoop summarized Marriott’s earlier work here:
Tax evasion is not giving government the money one rightfully owes, while welfare fraud is taking money from government to which one is not entitled. Anecdotally, one could theorise that tax [evasion] is less likely to be driven by primal needs for food and shelter than in many instances of welfare fraud. Yet for some reason, the courts are usually far tougher on those who cheat on welfare than those who fiddle their tax obligations. As Marriott says: “For tax evaders, the average offending is about four times as much, but have about a third of the likelihood of receiving a custodial sentence.”
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.
Presumably, this crackdown on welfare fraud is meant to deter les autres. Belatedly, the courts now seem to be grasping the notion that it is important to deter tax [offences] as well – given that this kind of activity does more damage to the economy, compromises the ability of government to deliver adequate social services, and feeds public cynicism…
This week, Marriott released the next stage of her research findings, which are entirely consistent with what went before. Apparently, the government agencies involved also treat tax offenders more leniently than they treat welfare offenders. For example: a helping hand is extended to enable tax offenders to get financial relief while paying off their debts, and/or to enable their obligations, penalties and interest on debt to be written off entirely. Relatively little of this kind of assistance is available to welfare debtors and their families:
Associate Professor Marriot’s latest research found that taxpayers can apply for financial relief from the IRD, but this is not an option for welfare debtors. In the most recent period (1 July 2011 to 30 June 2012) IRD wrote off nearly 50 percent of interest and penalties applied to overdue tax, amounting to $374 million. Furthermore, IRD wrote off $435 million in core debt (11.6 percent of collectable debt) while MSD wrote off just $8.7 million in core debt (2.1 percent of collectable debt).
Perversely, this assistance is being extended to offenders in the area where the sums involved were bigger, and constituted a bigger drain on the resources of government overall, and on the agencies involved in particular:
…in the 2011/12 period, the average value of outstanding tax debt was $14,479 per taxpayer in debt, while the average value of outstanding welfare debt was $2,523 per beneficiary in debt. In addition, tax debt represented approximately 10 percent of total tax revenue while welfare debt amounted to 4.1 percent of total social welfare expenditure.
Why do these patterns exist? Marriott seems as bemused (and disturbed) by her findings as anyone. Her best shot at an explanation: “There appears to be no basis for treating debtors to the two government agencies differently. However, these findings indicate that tax debtors get off more lightly…The more punitive approach to managing the debts of welfare recipients appears to reflect the underlying view of those on welfare as less deserving, while taxpayers—even those who do not pay their taxes—are viewed as providing a greater contribution to society and therefore worthy of preferential treatment.”
Beneficiaries are taxpayers too, of course. Many are trying to raise children on constrained budgets and with no capacity to access the Working for Families scheme (available only to low and lower-middle class earners) much less to write off their operational expenses against tax. As Marriott indicates, we appear to treat firms as being socially productive units that need and deserve a helping hand, and this compassion extends even to tax offenders who evade their responsibilities, break the law, and incur large debts to society. We do not treat beneficiary families who break the rules (with respect to what are, on average, far smaller amounts) anywhere near as humanely. Perhaps this is because we don’t regard them (or their children) as being potentially productive members of society. If some of the children involved react as if they’re being excluded from society, it is because they are.
BTW, a brief Youtube interview with associate professor Lisa Marriott about her work and motivations can be found here.