The Government should be wary of using the tax system to collect deferred tuition fees for students in England, soon-to-be published research in Australia suggests.
The research shows that Australian graduates who repay their tuition fees via a tax surcharge are more likely to cheat the tax system than other citizens. This evasion is especially pronounced among those graduates who are unhappy with the university teaching they received.
Researchers at the Australian National University found high levels of tax evasion among graduates who repay over time the debt they incur under the Higher Education Contribution Scheme. The scheme allows tertiary students to repay their fees through the tax system once they enter the workforce and their income exceeds a certain threshold. Graduates who paid their fees when they enrolled - and got a 25 per cent discount for their prompt payment - were no more liable to cheat than other taxpayers.
From 2006, students at English universities will be charged university fees of up to £3,000 a year to be repaid through the tax system under Government proposals in the Higher Education Bill passing through Parliament. Graduates will pay according to what they earn only after their annual income exceeds £15,000.
The researchers, Valerie Braithwaite and Eliza Ahmed of the ANU's Centre for Tax System Integrity, found that graduates on relatively low incomes were among the most likely to cheat "as they did not believe the tax office could be trusted".
Dr Braithwaite and Dr Ahmed say the survey of more than 2,000 people provides a representative cross-section of the views of Australians about their tax system.
They note that Hecs was politically controversial when it was introduced in 1989, and it remains so because it in effect shifts the costs of higher education from the Government to the individuals who are expected to gain from it.
"When Government behaves in a way that is not in accordance with expectations, citizens can retaliate by cheating on the tax system," the researchers say in the report.
"Many individuals caught up in making payments through the Hecs are resentful at being caught in this web: they see themselves as the 'unlucky'
ones, paying their way twice - first paying for particular kinds of services that others have had free of charge and, second, paying the same amount that others do into the communal pot for the benefit of all."
The researchers conclude that the Government may be endangering the collection of income tax revenue by taking on debt-collection functions.
"In a global world where individuals can so easily step outside their tax system, the implications of substantial numbers of citizens regarding their tax authorities as hopelessly untrustworthy are disturbing," they write.