DESIGNING THE AUSTRALIAN TAX SYSTEM, by Dr Alan Preston, formerly Second Commissioner of Taxation, The Australian Taxation Office
Dr. Alan Preston, the former Second Commissioner of Taxation in the Australian Taxation Office, wrote a piece about an initiative that took place over the past 15 years — of redesigning the Australian Tax System.
The Office took on design & innovation Professor Richard Buchanan as a ‘design mentor’ to lead it in how design could change how the Office operates & performs. The project was one of system design, with multiple levels of the tax system involved.
Revenue authorities typically have a small number of core functions related to their respective tax systems: for the ATO, these functions have comprised revenue collection and protection, revenue distribution, tax law interpretation and tax system design. ‘Tax design’ as used here comprehends the design of tax policy along with the associated design of tax law and the design of supporting tax administration (for example, collection systems, tax forms, paper-, voice- and e-based information) to implement that policy. While one of the ATO’s core functions is centrally about design, the performance of the other three is also vitally influenced by the quality, efficacy and coherence of tax system design.
The ATO first began its Design project with a design conference in February 2000.
In response to key recommendations of a review of Australia’s business tax system (the Ralph Review, 1998-99), the ATO initiated in December 1999 a project called Integrated Taxation Design under my leadership as Second Commissioner of Taxation…
The accent was far less on design expertise per se, and much more on the writing of tax law as an expression of the technical skills of the drafter. The complementary tasks of administrative design – encompassing the myriad of products that support the tax law and make it operational – had always been, and were widely recognized as, the poor cousin of law design.
As the first organizationally visible step in refocusing the ATO’s tax design practice, we convened Design Conference 1 in February 2000, enlisting Professor Richard Buchanan as our design mentor. Its purpose was to sensitize around eighty of our key internal opinion makers to the integrating role of design as ‘the art of shaping arguments about the artificial or human-made world, arguments which may be carried forward in the concrete activities of production in each of these areas, with objective results ultimately judged by individuals, groups, and society’ [Richard Buchanan, Rhetoric, Humanism, and Design, 46].
The project entailed ATO trying to build a design culture inside of its organization, and then also considering how design could lead them to new types of services to citizens. They defined a purpose statement to guide their redesign work.
An integrated tax design capability is one in which
- tax design professionals operate creatively and collaboratively
- within an articulated and disciplined design process
- to implement tax system products that coherently connect policy intent with user needs.
To this end, the ATO established a User Advocate position in its Integrated Tax Design (ITD) Project, to represent the interests of users while the ATO made decisions.
As a device to assist in distilling ‘the central idea, thought, or value that expresses the unity of any balanced and functioning whole’, the ITD Project has defined the role of pathway custodian for major tax design regimes that affect key groups of users. The pathway custodian is charged with capturing and holding the evolving vision for the defined group of users, creating a blueprint for the overall implementation of change affecting that group and ensuring implementation takes place in accordance with the blueprint and faithfully delivers on policy intent – but above all, the pathway custodian role deliberately emphasizes design leadership from a user’s perspective.
The ATO also began reconsidering its offerings as products, which gave them a new lens on where dysfunction or opportunities for change may be. One of the main realizations was that the ATO had been designing for itself, and not for user’s needs.
In concert with the dominance of the revenue collection and protection function, our tax design practice had been too inward-looking, too closed off from user needs, reinforcing the perception of an ATO-centric design practice. While the political process is of its nature controlling and hence less open, we had failed as tax designers to demonstrate to the government of the day the net benefits of a much more open design process. Our design culture, although constrained by government requirements, was essentially closed rather than open.
It also led to a consideration of how individual products can be strategically linked into a family of products, with a service that ties them together — even if, as a government agency, there was no market pressure to improve either the product or service offerings.
If product design refers to the process of making individual products, then strategic product design deals with higher level considerations stemming from families of products. Individual product design cannot proceed in a vacuum: the role of strategic product design is to provide strategic guidance for individual product design. The case for an explicit product strategy is all the more compelling where, as is true for the Australian tax system, the product range comprises literally thousands of products. Strategic product design seeks leverage from the architecture and core capabilities distinctive to the product families constituting the ATO’s product portfolio.
Moreover, because key tax system products have their consumption supported by government mandate, the ATO has traditionally operated as a monopoly supplier of most of its products with only a very limited degree of market contestability. This absence of competitive pressure weakens the market incentives for product innovation in our tax design practice, compared to the private sector, and renders strategic product design capability of even greater importance for tax system products.
The ATO worked to apply design strategies to their own work, and come to clearer definitions of what they were offering, to whom, nad why.
At the outset of the ITD Project, we found we lacked an articulated product strategy. Surrounded by individual trees, we were unable or had not thought to agree on what types of forest we found ourselves in. Borrowing directly from the product design literature, we defined product families as groupings of related products, along with their successive generations, built on common or related product platforms. We defined our primary product family as the Australian Tax Code, comprising all Commonwealth tax law including treaties. The tax law is the source of authority for all that we do as a revenue authority. It is the major repository of policy intent, and thereby a key driver of administrative design. Other major product families comprise interpretational products, information products, transactional products and compliance products. None of those other product families can be designed independently of the tax law, but must be consistent with that law. Each product family nevertheless poses distinctive challenges for managing as designing and each must be supported by distinctive organizational capabilities.
With agreed definitions of product families for the tax system, our tax system designers become more accountable for design quality and for intentionally designing product platforms. They begin to think more strategically about how the myriad of individual products fit together and should be evolved over time into new generations. And they begin to question more systematically how the voice of the user should be heard in product design.
In terms of deliverables, the ATO produced the following while engaged in design.
- Our design leaders have given around eighty talks internally on integrated tax design in the past two or so years.
- We have run three design conferences reaching out to the organization, each led by a design mentor (Dick Buchanan, Jim Faris, Darrel Rhea), and have distributed video material from them.
- We have published material covering the broad conceptual framework for integrated tax design, more practical guidance on doing it, and specific ‘how-to’s’ in areas like user-centered design.
- We have insisted that the Integrated Taxation Design (ITD) Project Team itself invariably model the design values it is sponsoring to the organization.
- We have created a service arm of the ITD Team to work, either intensively or more broadly, with the scores of individual tax design projects under way – both to disseminate ITD principles and to capture design learning from those teams.
- Pushing against an organizational context that is highly text-bound (think of law design – or the public service generally), we have stressed the need for design conversations built around concrete design artefacts, with maximum use of prototyping and visualization.
- Against the imperative need to ensure our designers deeply understand our extensive product range – and so invariably stand in the user’s shoes when designing – some initial steps need more sustained effort.
- We have put a major effort into building a collaborative team-based design ethos, bound to an overall design blueprint and integrated across all design sub-teams.
The ATO also reflected on the design process: coming to decide that it wasn’t a two step process: first, analyze the problem situation, and then carry out the mission you have set. They did not want a linear process — contrary to most governmental processes.
A constant temptation in developing a practical ITD capability has been to conceptualize the design process as falling linearly into two distinct phases (again paraphrasing Richard Buchanan, Wicked Problems in Design Thinking, 15): an analytic sequence of problem definition followed by a synthetic sequence of problem solution. To put that linear model of design in terms of ITD ‘placements’, the formulation of policy intent under advice to government would represent the analytic outcome of problem definition and the execution of intent in law design and administrative design would represent the synthesized problem solution.
However beguiling the linear two-stage model of design – formulate intent and then execute it – we have continually resisted its charms when applying the ITD stacker and the wheel. Let me admit that our resistance has been no easy matter. Process redesign, for example, inevitably has a strong linear component to it: the challenge is not to discard the benefits of that analytic capability but to ensure it is supported by additional capability addressed to the inherent nonlinearity of the tax design problem.
The further aspect of the element of purpose typifies that nonlinearity in the ITD context. If the ATO ‘knew’ organizationally the policy intent of a tax measure, then a soundly based design process should have faithfully executed that intent. Examining why we were not able to do that consistently as an organization disclosed that we had allowed design sub-teams to interpret intent from their perspective and to optimize their own part of the overall design (itself not comprehensively specified or shared), again from their own perspective. Inadequate decision gateways and quality assurance mechanisms had operated to assess, before implementation, whether the fragmented and sequential sub-designs gelled together to deliver overall policy intent. And too often they did not, imposing unnecessary compliance costs on taxpayers and requiring costly redesign after implementation.
Divorcing itself from the temptation to a linear, simple design process — the ATO sought to figure out a new way to get its services implemented, but with a way that allowed for more evolution in purpose & guiding intent. This can be instructive for other organizations that tend to fully scope & plan a project before trying to implement it — and once they enter ‘implementation’ phase, they do not return to the critical or analytical work that had occurred in the first phase.
Putting some process discipline around the creativity of our on-the-ground designers to ensure that intent is both known and shared is an obvious strategy and the ITD process has given that priority. But nonlinearity intrudes very strongly right at this point. In practice, intent is not fully determinate. It is not rendered whole but wrought iteratively; it is emergent rather than immediately concrete. The complexity of long-lived systems such as the Australian tax system is such that policy intent, even for relatively simple measures, has a provisional quality: it is continually adduced and evolved as the design process proceeds. So the problem is not merely sharing intent, but first knowing and sharing intent (an interactive process itself) and then doing so repeatedly as intent evolves through the design process. Often enough this will require revisiting earlier stages of the ITD Wheel, typifying the nonlinearity of the design process.
Professor Buchanan has stated this more generally: ‘In actual practice, the designer begins with what should be called a quasi-subject matter, tenuously existing within the problems and issues of specific circumstances. … For example, a client’s brief does not present a definition of the subject matter of a particular design application. It presents a problem and a set of issues to be considered in resolving that problem’ [Wicked Problems in Design Thinking, 17].
Avoiding the trap of believing a determinate policy intent is available from the outset, and remains available throughout the course, of a design exercise has proved to be a crucial lesson for integrated tax design.
Design purpose also juxtaposes thought and action: conceiving and planning on the one hand and realizing, or making, on the other. Professor Buchanan’s emphasis on forethought and deliberation as the essential characteristic of the architectonic art of design pointed us towards a key deficiency in our tax design practice. Our existing fragmented, sequential design practices had combined with the dominant operational or ‘doing’ character of our culture to emphasize the making of products, at the expense of forethought in design. Almost universally, design projects proceeded in the hands of separated sub-teams without benefit of an overall design blueprint, critically reducing the scope for achieving coordinated design outcomes. A key contribution of the ITD Project, via the ITD Wheel, has been to insist on the development of design blueprints following an initial clarification and sharing of policy intent and, at subsequent gateways in the Wheel, to require QA against those blueprints.