BTW, the refund is a super-cool thing about the Australian system that may not be super-widespread. The Icelandic system is a very similar pay-as-you-go tax system, so tax is predicted and withheld from your wages over the course of the year.

But Iceland errs on the side of under-withholding, if they don't know what your income is going to be. As a result, come tax time, most people get a letter saying "you owe us 60,000isk"[1], and they pay it back as extra money garnished from their wages over the next year.

The Australian government errs on the side of over-withholding, which sounds bad, but it's more like a mandatory saving scheme. Most people discover the tax office has over-charged them by at least $800 over the course of the year, and you get it paid to you in a lump sum after they process your tax return. After deductions are filed, it's not unheard of for people to get 4-6k back.

As a result, for most people in Australia, tax season has a bit of a party atmosphere to it. You'll find people talking about what they're going to buy with their return, and there are sometimes tax season sales on things like TV's etc.

It's a really great example of a small and seemingly unrelated implementation detail making or breaking the whole experience.

[1] about $600, figure example only :P

The US is similar, and this is part of why few people know how much they pay in tax.

Ask a person what their refund was, and they'll know, but total tax? Few do.

I view over-withholding as an interest free loan to the government. No thanks. I'd rather underpay by 1% than overpay. For me 1% is over $100/mo. I'd rather earn interest, dividends, whatever on that and then pay the balance.

They seem to over-withhold in Canada as well, and I disagree with it for similar reasons.

On the other hand, it is likely a huge benefit to the poor and those who are poor at managing their money. Come tax time, they could easily face a bill that exceeds their paycheck and paying interest on top of their taxes. It would also cost the government more since they would have to pursue collection more aggressively.

They tend to overwithhold in Denmark as well, mostly because it avoids having to chase down people for payments later (giving people refunds is easier and fully automated). However they do pay interest on the overwithheld amount.

On the otherhand, it accounts for earnings that your employer doesn't know about - e.g. interest on investments. Which is useful for people who aren't great a money management.

Does the Australian government pay interest on the over withheld amount? If not, then it is nothing to rejoice to get a refund. If you are getting a tax refund it means that you not only paid the money you shouldn't have paid in the first place but you also loaned it to the government interest free. The government hands you your money back a year later with no interest and in a depreciated form (because of inflation). Over withholding is financially sub-optimal decision for the tax payer.

In the US, lots of stores have promotions specifically around tax returns.

I would feel less opposed to over-withholding if the government were required to pay interest along with your refund.