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Smarter debt collection could lift local authorities by €200m

We have been told that it is necessary to raise €160m in property charges next year which will go towards funding local services because we have been 'forced' to impose local taxation as part of Ireland's obligations under the EU-IMF rescue plan.

Water charges are also in the pipeline (so to speak). These taxes are part of the €1.5bn revenue-raising package to which Ireland is committed.

There is an alternative solution to bridging this financing gap, which will cost nothing to compliant householders and businesses.

In summary, if the local authorities collected the debts owed to them there would be no need to raise the proposed additional local charges at least in the short term.

The introduction of professional collections and debt collection services could actually raise the revenue needed for local services.

Surprised? A few facts and figures from the Local Government Audit Service Activity Report (May 2011) might astonish you.

Rates arrears at year-end 2009 was €211m, which if collected, would bring in more than the proposed property tax. This figure excludes legacy debt.

Businesses owe a further €152m in commercial water charges with collection rates a mere 53pc. In 2009, the debt provision for development contributions was a staggering €453m; and this was pre-NAMA.

Some 15pc of those benefiting from a local authority housing loan had not paid what they owed by the end of 2009.

Because the accounts do not identify debt provisions and write-offs, the total amount of bad debts owed to our local authorities is not known, nor is the collective provision for bad debt write-offs in 2010.

A conservative estimate suggests local authorities are owed at least €1bn in unpaid taxes and charges every year.

Some local authorities have a woeful record at collecting monies owed.

For example, Limerick and Galway City Councils collected just 70pc of commercial rates due at year-end; only 27pc of the non-domestic water charges were collected in Wexford.

Some 21pc of what is owed to Dublin City Council for house rent was not paid; Westmeath County Council (at 57pc) has the worst record at collecting housing loan payments.

South Tipperary County Council wins the award for the local authority with the worst collections record for refuse charges (with some 24pc of households not paying their dues on time).

While these statistics reflect the position in 2009, the debt collections crisis facing local authorities has got much worse since then.

For example, with 29pc of local government revenue coming from rates, the average collections rate of just 84pc (a fall from 93pc in 2006) must be worrying.

Frankly, and based on this evidence, there is no point in introducing new local taxes unless and until it is demonstrated that the monies due will be collected on time and that the yield is maximised (allowing for an inevitable level of bad debts).

There needs to be a debate about outsourcing the collection of local authority taxes and charges and debt collection.

Why should a compliant household pay any additional local authority tax when many of their neighbours are brazen enough to ignore such charges knowing there is no penalty for civic non-compliance, and more importantly, some tax collectors (the local authorities) appear to take a lax attitude to the collection of bad debts.

Are some local authorities too facilitative when it comes to collecting payments?

There needs to be a better balance between successful collector-payer relationships and the centralisation of debt collections. The bottom line is that if 20pc of what is currently owed to local authorities was collected there would be no need for a property tax or indeed water charges.

If we had a centralised Debt Management Office (DMO) for high volume local authority collections there would be an improved yield and perhaps cost efficiencies could arise if the 100-plus separate collections units in our 34 local authorities were rationalised.

The Revenue Commissioners, ESB and Bord Gais Eireann also collect significant monies from households and businesses and do so in a flexible, caring and professional manner.

A business case for setting up a DMO for local authority debt should be undertaken as a matter of some urgency.

One way to do this quickly would be to issue a tender for expressions of interest from suppliers who would be asked to identify their proposed solution, resource plan and pricing model.

The EU-IMF wants Ireland to reduce the Exchequer deficit. A smarter debt collection regime should be part of the solution.

Once the debt collection situation is resolved to everyone's satisfaction then increasing local charges to pay for relevant and cost efficient local services to be delivered by a much reformed system of local government could be addressed in a comprehensive manner.

Peter Brennan is managing director of EPS Consulting and director of the Public Policy Advisors' Network (www.ppan.ie)

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