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Understanding New Zealanders' attitudes to paying tax

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We are pretty good about paying our taxes here, so why would we willingly go along with avoiding GST?

Hong Kong online seller UDS Mart, which is the subject of complaints to the New Zealand Customs Service, the Commerce Commission and Customs Minister Kris Faafoi, is to all intents and purposes a good Trade Me seller. Listed since August 2016, the company has sold about 4000 items on the platform and has 3690 positive ratings, 94 neutral ratings and 25 negative ratings.

But tucked in the middle of feedback such as “a good trader, prompt delivery, highly recommended” is an interesting comment from November 2018.

“Lens algud so far. What irks me is that the listing states, ‘The Buy Now price … is inclusive of all costs of applicable import tax and duty.’ Don’t want to say too much, but the declared customs value was significantly different from the actual value. The seller was not honest and probably didn’t pay the ‘applicable import tax and duty’. No matter, it is a good lens. Thanks.”

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So, the buyer appears to believe UDS is rorting the tax system and is niggled by it. But in the end “No matter … Thanks.” The lens works, so the buyer doesn’t even give a negative Trade Me rating. Just a neutral face.

This is interesting, says University of Auckland economics professor Tim Hazledine. New Zealand is a country with high “tax morale”, he says, which means we tend to pay the right amount of tax, without cheating.

If you take (as some economists do) the baseline for people’s likelihood to pay tax as the chance of being caught multiplied by the fine, Kiwis pay more tax than we rationally should. It’s something to do with morality (it’s the right thing to do), reciprocity (we get something in return, such as roads, schools and hospitals) and the fact that everyone else is doing it.

Tim Hazledine. Photo/Supplied

“If tax avoidance is widespread, it’s bad for tax morale,” Hazledine says.

And because GST is so comprehensive in New Zealand and supported by double-entry bookkeeping, most people just cough up. “Most tax evasion is income tax,” he says.

The Heritage Foundation’s 2019 Index of Economic Freedom, which tracks government policies and economic conditions, shows New Zealand is one of the higher countries in terms of “tax burden as a percentage of GDP” – 32.1%. In Australia, it’s 28.2%; in the US 26%. In some developing countries, where people might feel less of their tax would reach its intended target, the number is considerably lower. It’s 10.4% in Indonesia, for example. But New Zealand’s ranking indicates we’re generally okay with paying our taxes.

So, why would an otherwise law-abiding Trade Me buyer in a country with high tax morale give a “no matter” comment and a neutral rating for a seller they reckon has cheated on GST?

Sanna Ganglmair-Wooliscroft is a senior lecturer at the University of Otago business school, specialising in, among other things, consumer psychology. She has a few ideas. The first is called attribution theory. “There is considerable research that people have a tendency to attribute negative events to external sources, while positive events are attributed to themselves. A bad test grade is the teacher’s fault, but a good grade is due to the student having studied effectively.”

In terms of tax avoidance, consumers might blame the seller, who is, after all, the expert on import regulations.

Sanna Ganglmair-Wooliscroft. Photo/Supplied

“External attribution helps us regain emotional balance. We might feel bad about not paying tax, but have an innate need to get back to our equilibrium, so we shift the blame and feel better,” says Ganglmair-Wooliscroft.

Her second theory involves the sense of satisfaction people can feel from “beating the system” – in this case the New Zealand Government. “The disadvantage to the system is rather abstract and they got a reward or benefit – a cheaper lens.”

A third possible reason is our inbuilt preference for doing nothing, particularly when making a decision is hard. “It’s not immediately obvious what to do if one should have paid GST but didn’t,” says Ganglmair-Wooliscroft. “Who would you contact? If it is complicated, we know people generally do nothing, especially if the result of the action is that they get punished and have to pay the tax.”

Finally, she says, there might be a feeling of solidarity with the group. “If I complain, not only do I have to pay tax from now on, but others will have to pay, too.”

This article was first published in the June 22, 2019 issue of the New Zealand Listener.