Why people avoided paying household charge

Mon, Apr 16, 2012, 01:00

OPINION:DESPITE BEING imposed by a Government with healthy polling figures, at a time when every Irish citizen is aware of the financial challenges facing the State, almost half of all Irish householders have avoided paying the €100 household charge to date.

Without any large-scale protests, a near majority quietly and almost peacefully failed to pay a tax. Even in the worst days of the 1980s, this level of tax avoidance was unthinkable.

Why the massive failure to comply? Are we witnessing a disaffected public flexing its combined “muscle” in response to a Government imposing more and more austerity measures on the average family?

Lessons from regulatory governance – the study of what makes people choose to follow or break rules – suggest otherwise.

First, discourage “free riders”. Seeing other people “get away with murder” can create a “coalition of the unwilling”. Behavioural economists have conducted experiments where individuals work together to win cash prizes. Participants could work together to build a bigger pot to divide, or free load on the work of others. In these simulated games they showed that most people are willing to go to great lengths to see cheaters punished – even to the point of giving up their own winnings just to make sure another person doesn’t get away with more than their share.

People preferred to join those not paying the household charge than to see others get away without paying it.

Second, be transparent about your figures – but do it afterwards. Being told that you’re the last person on your street not to pay the charge is very powerful, but knowing you’re the first doesn’t rush you. Everyone knows there is strength in numbers, and the Government kept telling us how big those numbers were. If you are going to give constant updates about your figures, you had better hope they are on your side.

Even if it was a little more expensive to administer, the household charge could have had a discount for quick and early online payment.

Third, social pressure matters. While many people pay their taxes because they think it is a patriotic duty or they wish to contribute to the State, others do so because of the social stigma attached to non-payment. The Revenue Commissioners figured this out a long time ago and started publishing lists of tax avoiders in newspapers.

Hearing your neighbours gossiping about your dirty laundry can be much more effective than a fine. By failing to make a strong case for why the charge was necessary, the Government failed to bring this social pressure to bear.

Fourth, identify the capacity to collect the payments. The most reliably paid taxes include those collected by employers and retailers. Even the simple step of facilitating payments at post offices would have assisted the willing, especially if supported by the kind of campaign mounted to promote payment of the TV licence.

Fifth, late penalty charges need to be meaningful. In their book Freakonomics, Stephen Dubner and Steven Levitt describe a case where day-care centres were having problems with busy parents picking their children up late. As an experiment, a number of childcare centres in Israel started a trial of fines to discourage this behaviour – but the trial misfired, and the number of late pick-ups doubled.

The parents had decided they were better off paying the fine and they no longer felt bad that they were turning up late. With the late penalty for the household charge amounting to €11 in the first instance, some households may not have paid attention to the cut-off date, and decided instead to “wait and see”.

Finally, a threat needs to be credible. When it was a week before the deadline and three out of four people hadn’t registered for the charge it was possible to believe that non-payers would not really be punished.

Whether the household charge is a good idea or not it’s clear that the Government really didn’t give it the best chance for success.

Government policy can benefit from being more responsive to how people think, especially when it comes to taxes. This is particularly significant for the current Government given that it needs to find ways effectively to levy further fees, charges and taxes.

While it’s important that people are taxed at fair levels, the response to the household charge shows that it’s equally important that money is collected in a way that makes people confident that everyone will pay their fair share and if they don’t that they’ll be punished for it. To mistake technical weaknesses for mass revolt would also be an example of policy failure.

Dan Hayden is IRCHSS Government of Ireland doctoral scholar in UCD school of law. Prof Colin Scott is director of the UCD centre for regulation and governance

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