Consultation in the Tax Policy Process

Abstract

Stakeholder consultation can play a constructive role in the process of developing and implementing tax policies. Tax experts in particular can improve the process by providing objective input on the consequences of overly broad legislation, reducing the risk of unintended consequences. Drawing on specific examples of consultations—some positive and some negative—the author articulates a series of recommendations, including: (1) governments should consult as early and widely as possible about potential legislative changes; (2) governments should avoid prematurely committing to a particular legislative design and should remain open to modifying the legislative approach where consultations show the chosen approach to be flawed; (3) stakeholders and governments alike should adopt a respectful and professional tone, and avoid provocative, divisive, or politically charged language that demonizes anyone; and (4) the Department of Finance should be provided with the resources necessary to provide feedback on why reasonable and cogent submissions were rejected in appropriate cases. An enhanced and open consultation process could improve the tax policy development process, including by mitigating the risk of last-minute policy reversals, such as the abrupt changes in recent years to bare trust reporting, the underused housing tax, and the digital services tax, as well as the manipulative and ultimately cancelled proposal to increase the capital gains inclusion rate. These policy about-faces tend to erode confidence in the system. Enhanced consultations can help governments avoid these errors in the future.