The Government's tax watchdog may yet turn out to be a poodle

It would probably be naive to expect the Government to embark on radical surgery of our hallowed monied institutions. After all, those groups call the shots in our society.

So when the Central Bank, the Financial Services Centre, the Associated Banks, the insurance industry, building societies, the Stock Exchange, non-compliant taxpayers and various financial institutions are all involved, it's a case of hasten slowly.

The Cabinet took that view yesterday when, pushed and prodded by Mary Harney to establish an independent regulatory authority to deal with all of our financial institutions arising from the crop of recent scandals, it decided to appoint an "implementation group".

The implementation group won't actually implement anything. Instead, it will furnish proposals to Government on the role and functions of a regulatory authority for financial services. Its membership will be drawn from the Government and from an industry beset by scandal. And it will not report for four months.

Whatever happened to all the work that was done by the Tanaiste and Charlie McCreevy following the unsavoury disclosures at National Irish Bank? Last week Ms Harney told the public she had been working on the problem for three months with the Minister for Finance and they had agreed on the need for an independent regulatory authority.

But from the way Mr McCreevy has been behaving, his Department may be unenthusiastic about severing the cosy relationship between big financial business and the various regulatory State agencies. Certainly, his officials have taken an unusually low profile.

And the Cabinet decision to have the Taoiseach's Department act as a kind of referee between Finance and the Department of Enterprise and Employment on the implementation committee seems to confirm that impression. Other members will be drawn from the businesses most directly involved, with an independent chairman.

For weeks now Ms Harney has been kicking over tables in her enthusiasm for joint action with Fianna Fail in cleaning up the financial system. Her zeal may have been popular with the PAYE sector. But others were less certain.

What were they to make of her assertion that investigations must "uncover suspected wrongdoing, no matter how important or powerful the alleged perpetrators may be"? Ms Harney had demanded "firm and decisive action . . . especially where that action affects very privileged people in our society". The State, she said, must purge the country "of any hint of political or corporate corruption".

Swallowing hard is something Fianna Fail has become accustomed to in recent years. But the party is no pushover in government. And while "informed sources" spoke of the need for a regulatory authority along the lines of the British model, yesterday's Cabinet decision by Ministers fell well short of that objective.

The role, functions and powers of the body are not agreed. And it seems unlikely it will be given the teeth or the level of industry funding enjoyed by the new British agency. The implementation body will look at "best international practice" and make its proposals to Government.

Even as Ministers wrestled with the intricacies of financial and taxation scandals, Jim Mitchell and the Dail Committee of Public Accounts were deciding on their next moves.

Following day-long private discussions, the members opted to seek the help of John Purcell, the Comptroller and Auditor General, in examining AIB's books in relation to its bogus offshore accounts and the massive avoidance of DIRT tax. He would also look at the role of the Revenue Commissioners. And the committee itself would be strengthened.

Legislation would be required to give Mr Purcell new investigative powers. But the Taoiseach had already promised to co-operate in response to a Dail motion from the Labour Party.

It was a cosy little arrangement that got up Fine Gael's nose. The idea of Bertie Ahern and Ruairi Quinn doing a deal didn't appeal to Sean Barrett or to Michael Noonan. They complained about a lack of consultation with the main opposition party.

Last night Mr Mitchell's committee applied its own pressure by suspending hearings on the DIRT scandal, pending the passage of legislation that would give it new powers.

It will need all the help it can get. And the experience of Mr Purcell's predecessor as C & AG doesn't augur well.

Back in 1993 and 1994, Mr P.L. McDonnell was so shocked by the way the Revenue Commissioners applied the 1993 tax amnesty that he criticised it in his annual reports.

The 1993 amnesty was designed to finally clear up the DIRT scandal of evaded taxes. The new law said that persons who had benefited from the 1988 tax amnesty could not qualify; that money could not be tainted by criminal activity; and that tax arrears then being pursued by the Revenue were excluded.

But Mr Ahern, as minister for finance, introduced an extra provision of secrecy. The Revenue section dealing with the amnesty could not communicate with any other tax enforcement section about known tax-evaders. Chinese screens were erected.

The dogs in the street were barking about criminals and former tax cheats availing of the tax amnesty. But when Mr McDonnell, as constitutional protector of the public purse, asked to do an audit of the Revenue books without identifying individuals he was refused on the basis of "client secrecy".

As one of his last public acts, the C & AG took a case to the High Court on constitutional and legal grounds. And lost. The secrecy clause was adjudged more important than those dealing with criminal acts. The shysters laughed all the way to their banks. And there wasn't a peep out of the political establishment.

All the hand-washing at Leinster House should not blind the public to the fact that a culture of tax evasion could not have evolved without the compliance, or wilful ignorance of, governments and politicians.

The electorate is now being assured that a new departure is at hand. But we have heard it all before. And long delays are still envisaged.

What did Mary Harney say about purging political or corporate corruption? The Coalition Government's answer will be in the fine print of future legislation.