Revenue must work hard to maintain faith in tax system
Published 09/01/2012 | 05:00
The Revenue Commissioners and the Department of Social Protection finally got around to sharing information on people and managed to make an absolute mess of it.
Few other actions have created such a furore as the threats to pensioners, 150,000 of whom been told they will have to pay extra tax after Revenue received detailed information about pension payments for the first time.
In most cases, the tax authorities were unaware that pensioners were receiving state benefits in addition to their private pensions.
Pensioners are the big losers from the complexity of this system. For instance, they may be getting a state pension, a small private pension, a part-time job at the local supermarket, and extra benefits -- some of which are taxable, some of which aren't. But unless you fill in a tax return, there is almost no possibility that you will be paying the right amount of tax. The Revenue also identified some cases where 20,000 people overpaid on their pensions. No doubt they will get it back.
The crackdown on pensioners is expected to account for almost all of the €45m that the Government expects to save this year through closer data sharing between Revenue and the department.
While it's never popular to target pensioners, we need this sort of joined-up thinking -- it just a pity that Revenue went about it in such a clumsy way.
For years, we've been asking why departments don't share information to make the tax system and social welfare system more efficient. The taxing of child benefit is a case in point. Revenue and the Department of Social Protection have looked at this several times but have never come up with a method that would claw back over €300m annually.
The inability of the Revenue Commissioners and the rest of the state apparatus to perform such simple tasks beggars belief.
Our fair and honest tax collection system is one of the most important things that distinguishes us from Greece. It is important for international confidence that we are seen as being able to collect our taxes fairly. It is even more important for internal confidence.
The difference between what Greek taxpayers owed last year and what they paid was about a third of total tax revenue -- which is roughly the size of the country's budget deficit.
It isn't just a matter of lax enforcement, though. Greek citizens also have what social scientists call very low "tax morale"; while we're generally what the Swiss behavioural economist Benno Torgler calls "social taxpayers": we'll chip in as long as we have faith that our fellow citizens are doing the same, and that our government is legitimate.
Countries where people feel that they have some say in how the state acts, and where there are high levels of trust, tend to have high rates of tax compliance. That may be why Irish people, despite being virulently anti-tax in our rhetoric, are notably compliant taxpayers -- just look at the thousands of people who have already paid the €100 housing charge.
Greece, by contrast, is in a three-way tie, with Bulgaria and Romania, as the most corrupt country in Europe. The tax system had long confirmed this view. It is riddled with loopholes and exemptions, with some professions legally allowed to under report their income.
This happened here in the 1980s when politicians, developers, farmers and the self-employed all exploited the system. This was one of the reasons why Ireland felt dangerously like a Third World country back then. Since then, there has been a gradual but important improvement.
All the evidence is that the black economy is expanding once again. This is always the case in a recession but Revenue Commissioners must work hard to ensure that its actions do not undermine the confidence that most people still have in our tax system.