Journal of Australian Taxation
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DESIGNING THE DELIVERY OF LEGISLATIVE MEASURES[*]
By Michael D’Ascenzo[**]
Think about the comment quoted below – from the point of view of Government or the policy maker – the aim is to change an existing situation into a preferred one, at least from someone’s perspective. From the point of view of an implementer – the task is to change an existing situation to one preferred by the policy maker, and to do so in a way that satisfies the legitimate expectations of the use. So my thesis is that effective consultation and dialogue; flexible, collaborative and user centred processes; and iterative evaluation and review are fundamental for the development and implementation of good design. In a disciplined process with defined checkpoints, these features allow implementers of tax measures to optimise the alignment between policy legislation and user needs.
Everybody designs who devises courses of action aimed at changing existing situations into preferred ones.[1]
By way of introduction, taxation legislation continues to be a significant part of the Government’s legislation program – somewhere between 50 and 100 measures per year. For example, there were 61 tax measures contained in Budget 2004 including 37 new tax measures.
Of course, these Bills are not simply pure tax measures – our tax system impacts on many parts of Australian life – through health, education, family matters, environment and industry support. The challenges for the Australian Taxation Office (“ATO”) to successfully implement these legislative decisions are obvious.
To set the context it is important to note the respective roles in relation to tax measures.
The Government determines tax policy and the level of consultation in respect of a proposed tax measure. The Treasury has the primary responsibility for advising Government on tax policy and designing the tax laws. The Office of Parliamentary Counsel (“OPC”) drafts the law. A Bill becomes an Act – a law – only after it has been passed by Parliament and receives Royal assent.[2] The Commissioner of Taxation is then responsible for the administration of the taxation laws.
This was not always so. In May 2002, the Treasurer announced the relocation of responsibility for the legislative design function from the ATO to Treasury.[3] In doing so, he said:
The new legislative arrangements will see policy and legislative development brought together within the Department of the Treasury, providing maximum opportunity for legislation to be developed in a manner consistent with the policy intent set by Government. Working arrangements between the ATO and the Treasury will ensure that the administrative, compliance and interpretive experience of the ATO fully contributes to the policy and legislation process.
[The] new working arrangements between the agencies in developing future tax measures should build on the progress to date in ensuring a high level of integration across the policy, legislative and administrative aspects of change.
In the same announcement the Government agreed in-principle to community consultation in the development of tax laws. It was noted that processes of community consultation could not be mandated for every change to the tax system, particularly in cases where there is market, revenue or tax avoidance sensitivities. However, subject to these considerations, there would be consultation on substantive tax legislation initiatives.[4]
In addition, the Board of Taxation was asked to undertake an ongoing role in monitoring the processes of consultation, and in reviewing post-implementation reviews of major pieces of tax legislation to ensure that government policy intent has been effectively translated. Such reviews were envisaged to be in addition to, or complementary to reviews undertaken within the Treasury and the ATO.[5]
The “progress to date” referred to by the Treasurer in his May 2002 announcement related to the work initiated by the ATO in conjunction with Treasury, OPC and other stakeholders to develop an integrated tax design capability.[6] This work itself was derived from recommendations of the Review of Business Taxation for process reforms to ensure that legislation and administration reflect
policy and that the policy is informed by the practicalities of law and administration.[7]
The integrated tax design project also drew on insights provided by product design literature and was mentored by international design experts.[8] The following design principles therefore provide powerful guides for policy design and implementation.
The hallmarks of a good design process[9] include:
• Intention – to provide direction and purpose and to constrain scope.
• Collaboration – to tap into, via dialogue and workshops, the expertise, experience and unique perspectives of different stakeholders.[10]
Iteration – to allow design to be truly integrated in all the dimensions sought. Design is iterative rather than linear and allows for progressive refinement of the concept or product.
Imagination – to allow design to be user-centred, outside-in.
Visualisation – to make design ideas concrete and open to constructive dialogue. Rapid prototyping as much of the system-in-use as possible to expose problems and otherwise unforseen, unintended consequences.[11]
Invention – to bring the creative instinct to bear. Design is all about possibility.[12]
Judgment – to discern what is “good” in terms of usefulness (efficiency in taming complexity), usable (physical and cultural fit for users) and desirable (product motivates individual identification with it).
Design is inherently collaborative, grounded in what can be learned from close encounters with users, and measured by the quality of user experience (subject to policy intent). Good design has one eye on intent and the other on the user’s experiences. “If these experiences are engaging and productive, people will value them”.[13]
A good designer is flexible – able to adapt to a constantly changing environment, alert to ways of harnessing new ideas and technologies, and keen to provide innovative solutions to design problems. A good designer is collaborative and empathetic – able to optimise the alignment between the policy intent and user needs.
How then do these design principles play out in the world of tax policy design and implementation? Let’s first take the situation prior to legislation.
As mentioned previously, tax policy design is a governmental function, and ultimately the extent of consultation and the shape of the policy design are matters for the Government.
The framework and parameters of tax administration is the tax law.[14] The ATO has responsibility for the detailed design and development of administrative and compliance (both help and regulatory) systems to give practical effect to the tax law, including the implementation and on-going administration of those systems.
Nevertheless there is general recognition that the tax law is not merely words but translates ultimately into behavioural responses, and requires the perspective of how practical and easy it is for people to comply with the law.[15] At its heart integrated tax design is driven by the following insight:
that policy and its corresponding legislative and administrative reflexes are, or should be, one and the same – with legislation and administration faithfully reproducing policy intention, and with that policy intention capable of being faithfully reproduced. Both principle and practicality must feature together, and be mutually consistent and reinforcing.[16]
At an agency level an integrated tax design capability requires that the feedback loops between policy and legislation on the one hand and administration on the other, work as effectively and as contemporaneously as possible in both directions. In order to do this the ATO has developed processes to ensure good governance and practical working arrangements both within the ATO and with Treasury so as to give life to the Treasurer’s 2 May 2002 announcement. For the ATO, the aspirational goal is to develop a more powerful modelling capability to ensure that administrative impacts including taxpayer compliance costs better inform the policy vision and legislative design.
In terms of the Treasurer’s reference to “working arrangements” between agencies, the relationship between Treasury and the ATO is monitored by a high level Tax Policy Co-ordination Committee
chaired jointly by Treasury and the ATO. We have also developed a Treasury/ATO Protocol which outlines the responsibilities of respective agencies in relation to tax law design and implementation. In short the Protocol adopts the in-principle approach that tax policy and legislation should take administrative issues fully into account. The ATO’s voice of administration should ideally include compliance issues (for both taxpayers and the ATO), and the ease and cost of compliance for taxpayers. In this way the ATO is able to champion the “user’s voice”.
The ATO provides a range of advice to Treasury on policy proposals including revenue costings and early advice of administrative impacts. To the extent practicable, the ATO’s advice covers issues which might for example be addressed in a Regulatory Impact Statement. The form of ATO advice is usually presented as an “administrative impact statement” which focuses on who is affected by a proposal and how they might be affected. As a proposal gets firmer, more detailed information is provided on taxpayer and other community impacts (eg impact on tax agents, or other intermediaries). Similarly in the Cabinet liaison process, the ATO’s coordination comments on new measures with tax implications take a similar form.
The ATO advice to Treasury follows a formal minute process, governed by a practice statement and assurance processes.[17] Both ATO and Treasury staff have templates and guidance tools to support them in the exchange of information and advice between the agencies.
The ATO also provides advice to Treasury on interpretive issues as the law develops, and on the operation of laws already passed. In administering the tax system situations are sometimes found where the tax law gives rise to anomalies or unintended consequences or impacts which may not have been anticipated at the time of enactment, or which appear out of step with the achievement of the original policy intent. These are drawn to the Treasury’s attention in order to enable Treasury to provide advice to the Government. This is another way the ATO, on behalf of the community, injects the “voice of experience” into the policy arena.
Up-streaming the voice of administration and of the user, benefits policy development and legislative design. However, once the tax laws are enacted, the ATO’s role is to implement tax system products that coherently connect legislative intent with user needs.
For many organisations the paradigm shift is from a deadline driven culture that jumps from an assumed intent to build without a blueprint for change, to a quality driven culture that uses “outside-in thinking”. Approaches, processes and governance need to be dynamic, and implementation designs progressive and elegant rather than an extrapolation of the existing systems. Implementation should not only reflect the intent of the measure, but also take into account the tools, practices and systems used by the community. In considering implementation approaches, there is a need to nurture a more empathetic understanding of the practical business and other natural systems used in the community.
The quality attributes of the administrative products designed in this way include:
• Adherence to legislative intent – Ideally the policy intent is reflected in the law, and the administrative systems should preserve that policy intent.
• Holistic – taking a whole-of-system perspective and seamlessly align the interactions of different parts of the system.
• User-Centred – taking the perspective of the user and designing for their needs. Taxpayers, their advisers and other intermediaries have to work with the tax system and its products. It makes sense for the ATO to fully understand their needs, values and expectations in order to make changes to the system which are seen by them as useful, useable and desirable. This approach involves users at all stages – from concept options to prototyping to building and testing. User input at the end of the process can be helpful to refine minor design features but will only confirm a failure if the product design has been based on flawed assumptions.
This level of quality requires a disciplined process with defined checkpoints which nevertheless provides scope for flexibility – looking ahead or revisiting stages as required.
So how does the ATO approach the implementation of a legislative measure?
The implementation of a tax measure is a process that is subject to careful management and scrutiny within the ATO. The governance process is overseen by a high level committee – the Policy Implementation Forum (“PIF”), chaired at Second Commissioner level. The PIF is supported by a division within the ATO – the Policy Management Division (“PMD”) which, amongst other things, is responsible for monitoring all the processes concerning the implementation of new tax measures by the ATO. The mission on PMD is “to lead the relationship between the ATO and Treasury so that the Government’s change program is implemented in a way that instils community confidence in the efficient operation of the tax system”.[18]
The first stage of the ATO’s implementation process is the scoping stage. This stage involves an initial assessment of the measure from an administrative perspective.
Measures are scoped by bringing together representatives from the ATO who may be involved in bring a measure to life and Treasury staff. A report is prepared, a “scoping brief”. These scoping briefs are necessarily very short – you could liken them to an initial design brief prepared between a client and an architect – specifying at a high level the nature of the change or design. Scoping briefs attempt to forecast the nature and extent of administrative effort that is likely to be necessary to implement the measure.
Facilitated by PMD, the scoping brief provides:
• Background to the legislative proposal, and an outline of the current state.
• Details, at a strategic level, of the Government’s proposal.
• Design issues and hot spots – including technical (such as impacts on other parts of the law), political, administration and resourcing issues, as well as compliance risks.
• Client Profile and Impacts – from a user’s point of view.
• Compliance Framework – covering the level of marketing and education necessary as well as active compliance strategies.
• Administrative Impacts – covering system and other transactional impacts on the ATO and other government agencies.
• Project Accountabilities, including sponsorship at division head level.
• Resource Estimates for the interdisciplinary core design team.
• Revenue Impacts – described in terms of forward estimates.
In addition, the scoping brief outlines an ABCD Model plan which articulates, Where are we now?; Where do we want to be?; What do we need to do to get there?; and How will we make it happen? So the questioning is not about whether the ATO thinks a policy is good or fair, but more about the impacts of the measure on the community or sectors within it, and how it can best be implemented in a way that achieves the legislative intent as naturally as possible for taxpayers.
Seen alone, a measure may look relatively straightforward, but scoping briefs need to make an early assessment of what impacts there may be on other parts of the law. For example, a measure concerning the treatment of various groups as charities for income tax purposes may impact on their GST and FBT treatment. We call this part an assessment on the “building blocks in the law”.
Scoping briefs also focus heavily on “who” is impacted. This is a very important step given the emphasis on user centred design.
The scoping stage also identifies “design hotspots”. For example, the features of a measure that are likely to have significant impacts on taxpayer compliance costs or impose administrative difficulties are considered under this heading. Early action here, for example better alignment with the ATO’s change program, or advice to Treasury to influence law design, may significantly improve the practical delivery of the measure.
A key area of focus in scoping is the intended start date of the measure. Some measures are intentionally retrospective to align with start dates for other aspects of a legislative package, or with regulations from other policy portfolios. Some become retrospective when they move slower than expected through Parliamentary processes.
The ATO’s implementation strategies need to take note of retrospective commencement dates – taxpayers seek certainty from the ATO about how to act in Australia’s self assessment environment where it is known that a matter will be considered by the Parliament. It is also necessary to build into the implementation of retrospective measures (where this is possible) some steps (and space) to enable taxpayers and the ATO to amend their actions should a measure not pass, or as a consequence of the later than expected enactment of the law.
Scoping briefs identify likely “measure custodians” and project leaders. Measure custodians have a key accountability in bringing together the design of implementation – taking account of the impact of the measure on other parts of the tax law and administration. Accountability for measures rarely fits into one business unit of the ATO and delivery of new measures usually requires a concerted effort across the organisation. For this reason, measure custodians are normally business line leaders (Deputy Commissioner level) supported by project leaders at SES Band 1 level; and project teams are interdisciplinary with members from across the organisation.
Scoping briefs are prepared for all measures programmed for introduction in each session of Parliament, whether those measures have been announced or not. Sometimes measures are grouped up to enable ease of discussion – for example a range of measures concerning Charities, may be considered by Parliament in different Bills, but may be grouped within the ATO into one head project for implementation purposes.
Scoping briefs are therefore an important initiation step in the implementation of a proposed tax measure – the earlier they are prepared, the more the ATO is able to bring the voice of administration and experience to the law design and drafting processes.
The scoping brief is presented to the Policy Implementation Forum which provides guidance to the measure custodian and project leader about implementation.
The Forum also determines the ATO’s strategy in respect of legislative measures whose commencement date precedes its date of enactment. A detailed process has been developed to assess whether taxpayers are able to take a particular announcement into account in determining their tax position in a self assessment environment. This process deals with each such announcement on a case by case basis and takes into account s 83 of the Commonwealth Constitution, agency responsibilities under the Financial Management and Accountability Act 1997 (Cth) and the powers of the Commissioner in relation to the proper administration of the tax laws. A “Risk Analysis Model: Commissioner’s administrative options, if any, before law is enacted” has been developed, to guide decision-making.
All new measures projects must follow corporate guidelines on project management. PMD provides project leaders with guides and kits on the project management of new measures, and access to ATO design experts.
The methodology outlines a number of key stages:
• Ensuring there is shared understanding of the policy intent (therefore the project leader must engage with the other members of the ATO’s interdisciplinary project-team and with the relevant Treasury officers).
• Preparing a Blueprint for implementation (which will be signed off by the measure custodian). A Blueprint is a picture of how the legislative intent will be delivered in practice. This encompasses the community impacts of the measure as well as the associated administrative delivery mechanisms, both transitional and on-going. The work is intensely practical, modelling what the change will look like when implemented, especially from the perspective of those who will be affected by it. Relevant community involvement forms a key ingredient in the development of blueprints. However, while extensive consultation and user involvement is the preferred strategy, this may not be possible in relation to a proposed measure which is not subject to public consultation.
• Designing and implementing the products and processes that will support the implementation of the new measure (for example, educational material, call centre scripts, public rulings, administrative procedures, systems changes, and compliance strategies). This includes the technical specifications of what needs to be built (for example, information technology products), and the building of these systems.
• Validating the products, including prototyping and testing. Obviously there are a range of system tests as part of any systems build and user testing regime. A newer development is the ATO’s Simulation Centre which brings taxpayers, tax practitioners and ATO staff together to use prototype products. This has proven to be enormously helpful in the delivery of new products and services through the ATO’s Change Program (such as the Tax Agents’ Portal) and provides a user-based methodology for validating products supporting the implementation of new legislative measures.
• Implementing and Evaluating.
Design is an iterative process. It is important to learn by experience and to use that knowledge to refine administrative processes and/or to advise Treasury of possible improvements to the system in operation. Accordingly, the project methodology includes process reviews and requires a post implementation review.
In addition, the PIF selects a small number of projects for more detailed post implementation reviews (independent of any review undertaken by the project team). In selecting measures for review, we take account of what others are doing – the Board of Taxation,[19] the Treasury, the Cabinet Implementation Unit in the Department of Prime Minister and Cabinet, other agencies, the ANAO and other review bodies such as the Inspector-General of Taxation and the Commonwealth Ombudsman.
Project leaders are required to report to the PIF at least once every four weeks – reporting may be more frequent for a sensitive project or if there are a number of implementation issues to be resolved (such as the start date management issues described earlier).
Project leaders contribute to a Readiness Report which focuses on four key areas of implementation:
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Policy and Law
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Administration–Transactional Products
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Administration–Compliance Products
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Client Readiness
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Rating
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For example, status of policy approvals, legislation
drafting, and Parliamentary processes
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System readiness; Processing readiness for transactions; and
Resourcing issues
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Training and skilling for staff, resourcing issues, call
center scripts, provision of advice and compliance assurance strategies
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External readiness, education activities and products,
consultation, forms and instructions
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A rating is given as to readiness – green, amber or
red
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A red status may emerge for example when a Bill does not have a smooth run through the Parliament and becomes retrospective, or when a Bill is subject to Parliamentary amendments which need to be reflected in administration products and approaches.
Measures at risk from a transaction or product perspective may reflect short implementation timeframes – for example, the Bill to provide a legislative basis for the tax cuts announced in the Budget take effect from 1 July 2004. There is a range of transactional products which have to be ready by that date. These include, for example, instalment schedules and calculators (both electronic and paper based), systems changes to those systems within the ATO which apply rates to determine liability, and specifications for providers of software which calculates tax instalment deductions. I should reflect here that this was an example of a relatively easy change to implement. Some legislative changes, for example the introduction of a New Tax System, have a gestation period that is properly counted in years.
Another important step in the ATO’s governance process for the implementation of proposed tax measures is a “process level review” of all tax measures scheduled for introduction in a Parliamentary sitting. The review looks at each tax measure to consider whether the project is progressing in accordance with the ATO’s directions on integrated design and project management. The process level review reports are provided to the PIF.
Tax policy, legislation and administration are integrally related and interdependent. By strengthening the links between policy development, legislation design and measure implementation we can better align policy and user needs.
At the delivery end, the aspirational goal for the ATO is to develop products that, whether directly or indirectly, incline specific user groups to accept their rights and obligations under the tax law. What people think of the tax system – and potentially their willingness to voluntarily comply with it – is coloured in part by their experiences of its products and the ease of compliance. It is only by anticipating the experiences of users as they navigate their pathway through the tax system – and designing administration products that are useful, useable and desirable to them – that we can achieve a high level of quality that they can easily recognise. For example, we would like to collect revenue in a way that serves the community. For the ATO, the design concepts that underpin the successful delivery of legislative measures express a transformational rather than a transactional vision.
[*] This article is based on a paper presented at the International Quality and Productivity Conference: Strengthening the Links Between Policy Development and Implementation – Strategies to ensure the successful delivery of government policy decisions (Canberra, 17 May 2004).
[**] Second Commissioner of Taxation.
[1] H Simon, “The Sciences of the Artificial”.
[2] House of Representatives infosheet, “Making Laws” (No 7 of 2002) www.aph.gov.au/house.
[3] The Hon Peter Costello MP, Federal Treasurer, (Press Release, No 22 of May 2002) http://treasurer.gov.au/tsr/content/pressreleases/2002/022.
[4] Ibid.
[5] Ibid.
[6] The Integrated Design Project (“ITD”) was championed in the ATO by former Second Commissioner Dr Alan Preston, and supported by an ITD Sponsors’ Group which consisted of Mr Dick Warburton representing the Board of Taxation, Mr John Ralph AC, representing the business community, and senior representatives from Treasury, OPC and the ATO. Major ITD products included: “Reforming the Tax Design Process – A Blueprint for Building an Integrated Tax Design Capability” (ATO, December 2000), and “The Guide – Applying an Integrated Approach to Tax Design” (ATO, April 2002).
[7] Review of Business Taxation, A Strong Foundation – Applying an Integrated Tax Design Process (1998) 103-108 and A Tax System Redesigned – An Architecture for Reforming Policy Processes (1999) 95-101.
[8] Professor Richard Buchanan of the Carnegie Mellon University Design School, Jim Faris, principal of DesignElement (USA) and Darrel Rhea, principal of Cheskin (USA).
[9] See generally, above n 6, “The Guide – Applying an Integrated Approach to Tax Design”.
[10] See RI Sutton and TA Kelley, “Creativity Doesn’t Require Isolation: Why Product Designers Bring Visitors Backstage” (1994) 90 California Management Review 1; and L Alben and J Faris, The Interdisciplinary Dance (Shall we?) (1994).
[11] See M Schrage, Serious Play. How the World’s Best Companies Simulate to Innovate (1998).
[12] R Buchanan, “Wicked Problems in Design Thinking” (1992) 8(2) Design Issues 5.
[13] L Alben, “At the Heart of Interactive Design” (1997) 8(3) Design Management Journal 9.
[14] Sir Anthony Mason, “Opening Address” (ATAX 6th International Conference, Sydney, 2004).
[15] Costello, above n 3.
[16] Reforming the Tax Design Process, above n 6, 12.
[17] ATO Practice Statement PS CM 2003/13.
[18] PMD Business Plan 2003-04.
[19] Board of Taxation, “Post-implementation Reviews” http://www.taxboard.gov.au/content/post_imp_reviews.asp (14/5/2004).
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