Estonia, a small nation with 1.3 million citizens, has overcome its fear of Orwellian dystopia and ubiquitous surveillance in order to become a digital society.
In 2003, the government moved nearly all of its services online with the State Portal. The innovative digital governance of the country was not a result of a master plan. It was a cost-effective and pragmatic response to budget constraints.
After Estonia gained independence in 1991, the citizens trusted their politicians more. The politicians, on the other hand, trusted the engineers of Estonia, who were not bound by legacy hardware and software systems.
This formula has proven to be successful and can now be used by all European countries.
The principle of once-only use
Estonia’s digital governance introduced the “once only” principle. This means that it is forbidden for the state to ask the same question twice.
Governments must always be thinking outside the box. For example, if a government agency requires this information, then who else could benefit? What insights can we gain from these data beyond the need?
When founding Metro Bank UK, financier Vernon Hill came up with an interesting rule: “One person can say yes, but two must say no.” You need to have a second check if you are going to refuse business.
Imagine what a simple and powerful policy would be if the government learned this lesson. Imagine if all the information that is collected from businesses or citizens had to be used at least twice. Or by at least two agencies to be deemed worthy of requesting them?
It is surprising, given the negative reputation tax offices have that the Estonian Tax and Customs Board could be an example of such a paradigm change. In 2014, it introduced a new strategy to combat tax fraud. It required that every business transaction over EUR1,000 be declared by the parties involved.
To minimize the administrative burden of this, the government introduced an application programming interface that allows information to be automatically exchanged between the company’s accounting software and the state’s tax system.
The system has been a huge success despite some initial negative press from companies. Former president Toomas Ilves vetoed an early version of the Act. Estonia’s original estimate of EUR30m in reduced tax fraud was more than doubled.
Latvia, Spain, and Belgium have all taken similar steps to control and detect tax fraud. The real potential lies in analyzing these data beyond imitation.
Predictive models and analytics
Big data, analytics, and prediction models will dominate the next wave of innovation in e-government. If single-transaction data puzzle pieces were put together to create a map of broader national business contexts, it would be possible to see the complex interdependencies of companies visualized below.
The Estonian Tax Office collected data on a complex network of transactions in 2014.
This raises another interesting question: Could a government use the same digital tracking system in order to gain insights into the health of an economy and its general trends?
Visualization of the interdependencies among sectors in Estonia
This is the direction in which it appears that the Estonian Tax and Customs Board is moving. The 2020 Strategic Plan ( here in Estonian) shows a change in mentality, as it has moved from focusing solely on controlling and punishing taxpayers to advising them.
Could tax offices become management consulting agencies, advising companies on how they can capture growth in similar sectors, mitigate risks from bankruptcies of peers, or improve profits? All based on the analysis of all of the data collected by them?
Tax data could automate the process of collecting, analyzing, and cleaning such data. In this scenario, taxes are a fee for providing valuable business insight.
Privacy is the main problem with Estonia’s brilliant idea. It is easy to imagine how giving advice on a specific industry (or advice that spans several industries) using data from business transactions could cause companies to lose trust.
OECD guidelines on the protection of privacy states that data must only be used to achieve the stated purpose and for no other reason. Since then, the so-called “purpose limit” has been incorporated into many modern data protection laws. This includes EU data privacy rules.
As the idea of “ask for information once but use it at least twice” shows, data can be and should be used beyond its original purpose. It should also never be processed for one single goal. Some legal experts are in agreement and state that data can be used “within carefully-balanced limits” for purposes other than their original intention.
It is a tall order to ask for a visionary, innovative tax office that serves the business sector of society instead of controlling it. If any country could do it, Estonia would.
