If our tax system was a pricey Formula 1 car it would seize up

Revenue is a glorified debt collection agency but it needs a shake-up to fulfil its potential, says James Fitzsimons

IT'S BEEN five Christmases, six budgets and two governments since the global economic crisis took hold. There will be no Christmas carols for some this year as they struggle under the financial burden they still carry. This time last year Revenue targeted pensioners for not paying enough tax on their State pensions. The losses were estimated at €40m to €50m a year. Leinster House is full of clowns and their advisers are no better.

Public administration is costing billions of euro that we cannot afford. It's like owning a Formula 1 car that you can't take out for a spin. It is capable of more than you need. What's the point if it’s not maintained and you don't have a track to run it on? Get something you can use.

There are three things that need to be done to get back on track. Balance the Budget, reform the public sector and make the tax system fair. The first is on the way, but it is destroying everything else. Public sector reform is a joke. The tax system is crucial to sustaining what we can afford, but those in charge are shooting what fish are left in the barrel when they should be plugging the holes.

They are glorified debt collectors. Just like the Department of Finance, they are capable of much more, but not without radical reform. In fact all our public services need to change and public servants need to accept that they are accountable. If we cannot justify the benefit, eliminate the cost.

It was justified in asking for a social contribution from big companies, but it taxed the vulnerable instead. It had the right to ask the rich to pay more, but it backed off for fear they would run away and take their money with them. This suggests that capitalists have no moral compass.

Eric Schmidt, the chairman of Google, recently defended his company's tax minimisation strategies as simply being part of capitalism. It pumped nearly €10bn through Bermuda, a known tax haven. Even income tax on employees can be given back to R&D companies that don't pay any corporation tax. Recently it was reported that Starbucks, the coffee chain, paid only €35,000 in tax in Ireland since 2005. Multinationals don't like to pay tax, we get jobs instead. Without the multinationals, and job security in the public sector, there would be a lot more claiming the dole. This in turn would be less if there were too few left to pay tax.

The system is propping up a bloated public sector that will not give up what it has, even though the economy is in tatters. Nearly all public spending goes on basic needs. Almost 90 per cent goes on social protection, health and education. Well-paid professionals in health and education distort the figures for the rest. But there is no doubt that the majority have a better deal than their private sector counterparts. Our tax revenue cannot sustain what we have.

The tax system may be the key to turning things around. But it needs to be more than a glorified debt collection agency. The private sector generates the wealth and the tax on which the country survives. The Government can provide the infrastructure to help. But it is not the driving force in our recovery. Maybe capitalism is.

The tax system could target those who have the most, including companies, to pay a social dividend to help those in need. While the welfare system consumes 60 per cent of all tax revenue, capitalists will not contribute. They are only protecting their own interests. But that needs to change and that is the job of Government. If this means breaking into trust funds that have no moral justification, then do it in the national interest. The Government didn't think twice about taking €2bn from private pensions.

Public servants have a job for life. They even have the prospect of outrageous pensions paid for by the general public. The Croke Park Agreement protects them and we don't even know if they deserve it. In the private sector you must be tax compliant to get a public sector contract. There is no such requirement for public servants, with the possible exception of politicians, and even that is full of holes and exceptions.

A PAYE system that doesn't regularly check and confirm the tax compliance status of its members is inefficient. When the need arose it couldn't even tell who should or could pay property tax. The system can't even distinguish between those who need child allowance and state benefits and those who don't. The lack of integration between welfare entitlements and the tax system is criminal and public servants are responsible. But old-age pensioners were blamed because their State pensions were not taxed properly with the loss of hundreds of millions in tax revenue.

The current government split the Department of Finance in two. That was a waste of time. It should have split the Department of Social Protection to separate dependents of the system and those with entitlements. The rich could support the poor as they did before the welfare system and the rest could pay for themselves. It's inevitable that more entitlements will be cut.

The authorities don't know what they are dealing with. It's about time they found out. If, instead of shooting what fish are left in the barrel, the Revenue Commissioners profiled what there is, then they could work out who should pay. Everyone in the country should complete a tax return over the next two to three years. Not the 25 pages of mumbo jumbo that Revenue likes, but a simple twopage profile to establish where we are and what we've got. Then public servants and welfare recipients could establish their compliance too. Let their jobs and entitlements depend on it.

If in the end it didn't increase our tax yield by at least 10 per cent I would be astonished. This is not taking into account evasion, just the holes in the system, such as emerged for pensioners last year. In spite of all the resources that we pump into the system, it is not as effective as they claim.

The structures and resources are there, but they are misused. It's like the Formula 1 car. It's state-of-theart, not everyone can drive it and few can afford one. There is no point in wasting money on it if you cannot use it as intended.

Even the EU now accepts we may have gone too far with austerity. The IMF has called again to write off some of our debts. Is the Government deaf or stupid? It's time to undo the austerity and rebuild the system. From now on we should all pay less and get a whole lot more. If they haven't solved the problems by this time next year, they should give someone else a chance.