The Revenue, the politics and the consequences
When the 1988 tax amnesty brought in approximately £500 million, it surprised and disheartened staff in the Revenue Commissioners, according to a trade union source.
"Staff in the collector general's office always had the view that they should be doing more than they were doing and they knew there was money out there uncollected, but I think they were taken aback at the extent of it," adds the source. He says a meeting was called for by the staff and held in Buswells Hotel.
"People had voluntarily walked in off the street with £500 million (€635 million) and staff felt it reflected badly on the Revenue Commissioners as an institution. That was £500 million that they hadn't got and was now being handed over without penalties or interest. They felt that the organisation was let down and seen not to have done all it could be doing."
The unions met with the three commissioners then on the board and discussed demands for more resources. However, at the time the MacSharry embargo on public service recruitment was in place and there was little that could be done. Meanwhile, according to another source, the then Taoiseach, Mr Charles Haughey, wrote personally to the then chairman of the Revenue Commissioners, Mr Phil Curran, congratulating him on the amount of money which had been raised. It was during this period, of course, that hundreds of thousands of pounds from offshore accounts controlled by Mr Ben Dunne, were being lodged in the Ansbacher deposits for Mr Haughey's benefit.
The 1988 amnesty was part of an initiative aimed at transforming the Revenue. "In the old days all the resources were targeted on the compliant taxpayer, checking everything, going after every penny. Whatever came in was checked and dealt with; there were very limited resources used on people who were paying nothing," according to the union source.
"That £500 million was there because the Revenue administration up to then was poor, old-fashioned, reactionary, badly structured, caught in a bit of a time warp," says a source who was close to the top of the Revenue at the time.
For instance, he says, up to 1988 almost all Revenue audits of taxpayers' businesses took place in the Revenue offices rather than in the taxpayers'. The "forensic skills" which were then available to the Revenue, were no match for some of the tax evasion schemes which then existed.
The demand for change came from the OECD, the trade unions and even business groups. A white paper was produced in 1986 by the then Minister for Finance, Mr John Bruton. Mr Haughey was Taoiseach two years later when a new system of self-assessment was introduced. By that time change was inevitable.
The theory of self-assessment was that it would be easier for taxpayers to make their payments and more Revenue resources would be freed up to allow the pursuit of non-compliant persons and companies. "It is based on the principle that you cannot police all of the people all of the time, that public voluntary compliance is needed," says a source. "The view was that if it was made easier to comply, people might find it easier to pay."
Another part of the picture was that tax rates were being lowered. In 1988/89, the top income tax rate was 58 per cent. (It was 60 per cent 10 years earlier, and 80 per cent in 1974/ 75.) By 1992/93, the top rate had been reduced to 48 per cent. By 1992, the lift-off in total annual Revenue receipts was just about to begin. Then came the 1993 tax amnesty.
"Albert Reynolds personally and exclusively drove the second tax amnesty," says a senior source who was directly involved with the amnesty's introduction. "He drove it through cabinet. He would not take no for an answer. All three revenue commissioners objected to it but once the decision was made they had to abide by it."
According to Mr Fergus Finlay, the former Labour Party adviser, in his book Snakes and Ladders, the then Minister for Finance, Mr Bertie Ahern, was "strongly and consistently against the amnesty from the start". The Labour Party, according to Mr Finlay, decided not to take sides because it believed Mr Ahern would win the argument at cabinet. However, when it did come to cabinet, there was no argument. The amnesty went ahead.
"It was very different to the 1988 amnesty," says the senior source. In 1988, those who took part evaded interest and penalties. In the 1993 amnesty, those who took part were only being asked to pay 15 per cent of what was due. Furthermore, they were given certificates showing they had taken part in the amnesty, and could use these to block Revenue officials from examining their tax affairs in the period covered by the amnesty - up to April 5th, 1991.
Mr Ahern, introducing the Bill in the Dail, said a waiver of just interest and penalties would not be enough to attract the kind of people the Bill was designed to attract, as they had already successfully evaded tax. A large reduction was needed to "draw them in", he said.
During the debate in the Dail the then opposition TD, Mr Des O'Malley, said the amnesty would declare that an act that was and is a crime, would be retrospectively declared not to be a crime. The law offended some of the basic principles of a republic. "I would hope that some of those sitting opposite me in this House would for once stand by that Republic, rather than stand by the sleazy associates of some of those who lead them."
Says a Revenue source: "The second tax amnesty was the one which really upset because we had been given the powers and the opportunity to go after the tax and we were doing that and then along came the amnesty; the first one was seen as clearing the decks before the new regime but the second one seemed to jar with the new regime."
The motivation for that amnesty remains unclear. It was stated at the time that it was aimed at bringing "hot money" lodged abroad back into the State. However, informed sources say they are convinced the bulk of the approximately £260 million which the amnesty brought in, came from accounts in domestic banks. Ignoring the foregone interest and penalties, the total amount of uncollected tax represented by £260 million is £1,733 million.
The introduction of self-assessment did free up additional resources for the pursuit of taxes. The introduction of the Single Market in 1992 did likewise. The Revenue improved its forensic skills and began on-site audits. It adopted a policy of examining particular sectors and drawing up profiles of them which could then be used when considering the affairs of, say, an individual publican or farmer. By 1997, total taxes collected, at £12.8 billion was twice the figure for 1988, when £6.1 billion was collected. The boom in the Irish economy had, of course, developed in the meantime but some observers have argued that the changes in the Revenue Commissioners, and the resultant increase in taxes collected, was itself one of the developments which helped created that boom.
Unfortunately for the Revenue, the various tribunals into payments to politicians and planning corruption, have served to blacken its name just when it might otherwise have found itself being showered with praise. As well as its pre-1988 failings, observers say there are two matters which have created public resentment. One is the use of special tax reliefs by wealthy people to reduce their tax rates to well below those paid by ordinary PAYE and other workers. "Rich people can even reduce their tax liability to zero. People often feel that it is a bad thing but there is often public benefit from the tax allowances. That is the whole point of them." The improvement of formerly derelict urban areas is an obvious example.
Another problem is identified by a source with experience of the highest levels of the Revenue. "There was a shift [after 1988] to customer service from a policing role and the view was that if it was made easier to comply, people might find it easier to pay. But so much focus was on developing this approach that maybe Revenue didn't equally focus on pursuing wrongdoers."
There are good reasons for this, according to the source. Encouraging voluntary compliance by ordinary taxpayers is always going to be a more efficient use of resources than using highly skilled staff to pursue individual wealthy tax evaders. It is also more efficient to accept a settlement than to try to force full and complete payment of taxes due.
"Pursuing some people can be very inefficient in cost benefit terms. But that is ignoring public perception," says the source who believes what the public need now is evidence that the more wealthy and powerful are being pursued. "They have been saying that criminal prosecutions are coming but they've been saying it for five or six years."
What is needed now, according to the source, is for some otherwise highly respectable person to be sent to jail for non-payment of taxes. "Someone like a doctor."
Another problem for the Revenue is the disclosure that from the mid-1970s to the summer of 1997, a number of Irish business figures had millions of pounds in the secretive Ansbacher deposits, presumably because the funds were being hidden from the Revenue. If it had not been revealed that Dunne Stores had paid for an extension to the home of Mr Michael Lowry, with that disclosure leading eventually to the establishment of the McCracken tribunal, it is probable that the Ansbacher deposits would still be in operation, despite all the changes in the Revenue's operations over the past decade.