One of my earliest memories of current affairs in Ireland is the 1993 tax amnesty, which essentially gave a blank slate to anybody who came forward and admitted tax evasion during the 1980s or earlier. Those receiving the amnesty still had to pay the taxes that were due and owing, but they were excused from any interest payments or criminal penalty for their evasion. It was immensely controversial at the time, and ferociously opposed by the Revenue Commissioners who felt that it was wrong to reward tax cheats with leniency.
But of course, one of the major reasons for widespread tax evasion in the 1980s was that Irish income tax policy was brutal and unfair. At times during that decade, the top rate of tax hit a 65% marginal rate. Politicians, recognising that they had contributed to the problem, wanted to recoup as much money as they could while being fair to those who had felt that taking a chance on evasion was well worth the risk because of the exorbitant tax rates.
I was thinking about that tax amnesty yesterday, in the context of this:
Thousands of family carers are being hit with tax bills going back years after Revenue got access to data on their payments.
One man in his 80s, who cares for his ill wife, expects a bill for €6,000 in tax back-payments for the past three years.
It comes after the Department of Social Protection started sharing data files on those receiving Carer’s Allowance and Carer’s Benefit payments with the Revenue Commissioners.
The problem that has arisen here is simply that thousands of people – not I think completely unreasonably – were unaware that carer’s allowance is taxable as income. Most likely, these people thought and assumed that since it is a state welfare payment, like the dole, it is not subject to income tax. And having failed to pay income tax on it, they now find themselves with big bills running into the thousands, and the potential for interest and penalties.
34,000 people have received such letters. If we take it that the average amount of money owed to revenue is €6,000 (which seems high) then that would mean that revenue was pursuing a total sum of something like €200m. This is about one third of all carers, with estimates of around 100,000 people in total getting the allowance from the state.
It is easy enough to say that the state should simply write off the tax that it is owed. That of course presents a “moral hazard” difficulty – because it seems that for every person who did not pay their taxes, there are two more that did. Simply writing off the tax for those who did not pay it would be deeply unfair to those that did, and would constitute a financial reward for breaking the law.
Which is why, if I was Taoiseach, I think I would just write it off for everybody. Go back to the earliest date revenue are investigating, and write off any tax paid on carer’s allowance. This does not need to be done in the form of cash repayments: Just give every taxpayer credit on their individual revenue account that they can write future tax payments off against. Carers can then either use that allowance to cancel off the tax they did not pay, or – if they did pay it – can use it to offset future tax liabilities. No moral hazard, fair to everyone.
The idea of taxing carers is bizarre anyway. Carers by definition save the state money – a person being cared for at home is not being cared for in a state institution or a private nursing home subsidised by the state. In a great many cases, they are people who have given up a better paying job in order to care for a family member. If the state deigns to support them, it is utterly bizarre to hand over cash just to claim some of it back in tax.
From a political point of view, this is an opportunity for a quick and easy political win for the government: Decisive ministerial leadership could make this problem go away, and doing so would be popular not only with the carers themselves but with the extended family who often depend on those carers to look after an elderly or disabled relative.
This is one of those things where an effective Government should be able to make the problem go away at minimal cost to the exchequer. The solution I propose above, for example, would not deprive the state of any money immediately (since the tax has already been not paid) and would likely cost a minimal amount moving forwards. We should watch this one closely: Inability to sort it out quickly and with minimal fuss would be a concerning indicator that the leadership skills of our senior politicians are even more atrophied than we might have imagined.