A Super Solution to a Super Problem

Look up in the sky!

It’s a bird, it’s a plane –

No, it’s public sector reform . . .

Ah, public sector reform. What a great set of three words. What does it mean? Anything you want. What can it solve? Any problem you have. Malleable, universally applicable – it is truly a Super-solution.

The Super-solution’s primary task is to confront the equivalent of the evil LexCorps: public sector workers and their trade unions. Let’s take a small example. Under the headline ‘Failure to collect tax from landlords criticised’, the Irish Times wrote:

‘Revenue’s arrangements for collecting tax from landlords who receive payments from the State are “haphazard and inefficient” a Dail Committee was told yesterday.’

Even the Revenue Commissioners’ chairperson, Frank Daly

‘. . . confirmed to the Committee that officials did not know if tax was paid on some €200 million paid by the State to landlords last year.’

What perfidy! What ineptitude! This sounds like a job for public sector reform. But before we start scanning the skies for salvation from these well-paid officials in their cushy jobs, let’s do some back-story.

The Department of Social and Family Affairs pays out hundreds of millions of Euros a year in rent supplements. Naturally, the Revenue Commissioners want to track this money to landlords to ensure tax is paid. But the Comptroller and Auditor General, John Purcell, revealed that Revenue could not ‘match-up’ the majority of these payments, which came to nearly €400 million in 2005.

The Dail Committee on Public Accounts wanted to find out why. What they discovered says less about the way the officials operate than about the ineptitude of their political masters who put obstacles in the way of a more efficient public sector.

The root of the problem was that landlords were not required by law to supply their PPS numbers. This had been omitted from legislation covering the scheme since its inception. For years, landlords have used this loophole to collect well over a billion Euros without identifying, for tax purposes, who they are. This loophole was put in perspective by John Curran, TD.

Deputy John Curran: Before I got elected here I was self-employed and if I was to get a contract with somebody who was financed by the State, perhaps a university, and if it was over a certain value, I would have to produce a taxpayer’s certificate or I would not get my cheque. If landlords do not produce the PPS numbers to the Department of Social and Family Affairs, they should not get paid. Is that too much to ask?

Mr. Frank Daly: The Deputy would have to ask that question of the Department of Social and Family Affairs.

Exactly. It’s not the public sector workers who set the rules; they have to do their best within them. The rules are set by the Government and the relevant Ministers. To compensate for this loophole, Revenue has to assign extra resources to identify and locate the landlords who receive these payments. If the PPS number were supplied, the process would require less resources and entail greater gain – resulting in a substantial increase in productivity (and tax monies from people who manage to evade taxes), freeing up resources for other activities, obviating the need for adding to the public sector payroll. All this for the want of a simple PPS number.

The situation has changed – in the 2007 Finance Bill landlords are now required to supply their PPS number. Years and over a billion Euro late, but better late than never. But there’s much more reform needed in this area.

All landlords are required to register with the Private Residential Tenancy Board (PRTB). It is well known this register woefully understates the number of rental properties. If you don’t believe me, look around your neighbourhood, identify the rented property and then go online at www.prtb.ie and see if that property is registered. I’ll give you generous odds.

There’s a two-fold problem here: first, there are those landlords who are not registered. Of course, without registering, such landlords cannot claim tax relief but it still may be worth it, earning money in the black economy. But the second problem is this: where landlords do register, how effective is such registration in ensuring tax compliance?

Deputy John Curran: In other words, if somebody rents a property and does not claim any reliefs but receives an income from it, Revenue has no means to investigate through the PRTB.

Mr. Frank Daly: That is true.

Deputy John Curran: Does Revenue see that as a significant weakness?

Mr. Frank Daly: I would like to get my hands on the PRTB register. It would be very useful to have it but it is not available to us under the legislation.

Of course it would be useful. The size of the black economy is difficult to measure,but there is no doubt that the rental market plays a significant role. But there is no automatic communication of that PPS number to Revenue. Therefore, Revenue has to assign a number of officials to engage in a laborious process of connect-the-dots trying to root out tax evaders. ‘Inefficient’ and ‘haphazard’ and totally caused by the failure of Government Ministers to act in an equitable and ‘reforming’ manner.

This is not the fault of public sector workers, or their trade unions. Yet we daily hear the clamour for public sector reform with the implication it’s all the fault of the employees. Even the Irish Times story suggests this:

‘Revenue’s arrangements for collecting tax from landlords . . . ‘

But it’s not Revenue’s arrangements – it’s the Ministers’.

And that’s one of the problems with the ‘public sector reform’ debate. It is, at times, so inexact, vague and amorphous – that one is rightfully suspicious of many of those who repeat the phrase like a mantra. If we are to raise the debate above its current desultory level, we need concrete and focused proposals. Here’s my small contribution:

• Resource the PRTB to ensure 100% compliance: this includes not only inspectors but powers of entry to premises.
• Enact automatic communication of PPS numbers of registered landlords to the Revenue Commissioners.
• Upgrade (substantially) the on-line published register of tenancies to include owners and management companies, reports of inspections if any, etc.

This exercise in resource allocation, communication and information would begin to put the rental sector on an above-board basis. It has the potential of using less public sector resources (i.e. taxpayers' money) while increasing the tax yield (thus increasing productivity) and instilling confidence in the tax code by ensuring that everyone pays what they owe. It would also bring into focus some of the real obstacles to public sector reform – political mismanagement.

If there is a case that reform is needed through negotiation with public sector workers – then by all means, sit down and start talking. But here’s another good starting point: Deputy John Curran is no doubt concerned about these problems of ‘efficiency’. Well, he’s a government backbencher. So when, in understandable exasperation, he says, ‘Is that too much to ask?’ he should, as Mr. Daly suggests, direct his question to the Ministers in his own party.

It’s as good a starting point for public sector reform as any – and we won’t have to strain our necks scanning the skies.

Comments

Good Tip