Black money muddies Emerald Isle: Ireland's economy is under siege, but tax evasion is big business, writes Alan Murdoch

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The Independent Online
HANDBILLS tumble through letter boxes promoting builders, roofers and electricians identified only with a first name and a phone number. Armies of women hawkers ('shawlies') in inner-city north Dublin push prams supporting bread trays piled with jewellery, bananas and sweets, covering their faces if a photographer attempts a picture.

Ireland's extensive tax-evasion industry stands out for its brazen approach. Each evening, self-appointed parking commissars take control of Dublin's city centre as meter restrictions cease.

Attired in identical peaked black caps like a battalion of sea captains, they exact handsome sums for 'minding' the cars on their patch, waving their arms around during parking manoeuvres and offering expert analysis of the weather.

The issue leaped to the top of the political agenda last week when Maurice Doyle, governor of the Irish Central Bank, said there was no point pretending there were 300,000 people (the official total) unemployed and actively looking for work. Many were 'working without paying income tax or social insurance, while simultaneously receiving social welfare payments', he said. Large-scale fraud was corroding entrepreneurial spirit.

Groups representing the unemployed attacked his implication that there was work on offer and his call for dole to be withheld from those judged not to be looking for a job. Michael Woods, the Welfare Minister, suggested Mr Doyle had overlooked the return of 13,000 emigrants to dole queues at home, extra part-time workers on the jobless register, and the inclusion now of married women in the figures. But neither camp could convincingly deny Mr Doyle's claim of extensive abuse.

Practitioners defend their behaviour, saying they have no choice. 'It's criminal, people are getting crucified for tax,' said a woman in her late thirties with unconscious irony - she herself fiddled welfare payments while working - while lamenting the paltry take-home pay of the PAYE worker.

The complicity of some employers is legendary. For years, a Cork building firm has deducted the equivalent of a dole payment from the under-the-counter wages of its grey workforce. Companies with staff drawing dole illegally will now be forced to repay the equivalent if they are caught. But a concession allowing limited earnings of Ir pounds 15 ( pounds 14.30) plus the daily rate of benefit while drawing dole only gives official sanction to what has long been reality for successful tax dodgers.

Crippling interest repayments on foreign debt and the cost of funding 18 per cent-plus unemployment and a high dependency ratio have Irish fiscal pips squeaking. Once, an indulgent blind eye might have been turned to tax-dodging. Now,to balance the books, Bertie Ahern, the Finance Minister, must instigate a cultural revolution to turn a black economy white.

Both carrot and stick are in use. There have been five tax amnesties in six years to tempt unregistered earners and defaulters into compliance. Meanwhile, the Revenue Commissioners, the Irish tax authority, have been targeting major fiddles in construction, the licensed trade, hotels and more recently petrol stations. With Ir pounds 35m outstanding in tax arrears, several hundred publicans stand to lose their licences now that renewal is tied to possession of an up-to-date tax certificate.

The attack on hotels and restaurants was sought by Siptu, Ireland's super-union, to protect legitimate taxpaying jobs from lower-cost 'black' labour ventures. Tax investigators have formed a black economy monitoring group in tandem with the main employers' body, large construction firms and unions to assess progress in eliminating the problem.

A key weapon is the combined tax and welfare card being issued to all adults, with a magnetic strip for access to computer records to help block frauds by workers already in the tax net. Also, all firms in key 'fiddles' sectors - hotels, construction, road haulage and the bar trade - must now notify local benefits offices when they take on a new employee.

Quantifying Ireland's black economy is difficult. Available tax data reflect only those often-ingenious evasion systems that the authorities have identified.

Farmers, strong on political clout, have long been let off lightly. The average tax paid by farmers in 1992 was Ir pounds 696 (1991: Ir pounds 529), against Ir pounds 3,662 by PAYE employees (1991: Ir pounds 3,532).

Gabriel Fagan, a Central Bank researcher, recently estimated that black economic activity could run to 8 per cent of Irish gross domestic product (nearer 10 per cent under alternative statistical measures).

The growth of evasion closely tracked the rising tax burden from the Sixties, he found. It then dipped slightly with tougher anti-evasion measures and slight tax cuts delivered between 1989 and 1992.

His conclusions suggest ministers have still not grasped the full consequences of high taxation of low-paid workers, and how hard it is for firms to stay viable within the tax net.

John Bruton, leader of the Fine Gael opposition party, claims it costs an Irish employer Ir pounds 3.33 to put an extra Ir pounds 1 in a worker's hand. (Recent concessions allow reduced employers' social insurance contributions for new workers.)

Far from easing the tax burden to make legitimate employment more attractive, this year's Irish Budget imposed an additional 1 per cent 'temporary' levy, so workers now surrender almost 57 per cent of pay over Ir pounds 10,900 in income tax and health and social insurance.

Unions demanded the levy be axed over the next two Budgets. Ministers refused. So after seven years of inflation-beating wage control, the unions quit national pay talks with government and employers to return to individual company-level bargaining.

(Photograph omitted)

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