niamh hardiman ucd geary institute and ucd school of politics and international relations...
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Niamh HardimanUCD Geary Institute and
UCD School of Politics and International Relations
Structural Challenges of the Slovenian Economy
Ljubljana, 19 June 2013
Politics, Public Administration, and Performance
Taxation in democracies
• Purposes of taxation– Maximize (non-damaging) revenue– Minimize collection costs– Without evasion (by citizens)– Without corruption (by tax officials)
• Options– A. Extraction through coercion– B. Compliance through consent
• How to move from A to B? – Building ‘trust’
Taxation and democracy: voting
Government
Citizens
Citizens
Citizens
Taxation and democracy: extracting tax
Government
Citizens
Citizens
Citizens
Taxation and democracy: fairness
Government
Citizens
Citizens
Citizens
Taxation and democracy: voluntary compliance
Government
Citizens
Citizens
Citizens
Implications
• Consent and legitimacy
• Fairness
HOW?
• Policy design– Tax system
• Institutional design– Administrative system
Principles of good tax policy
• Clear rationale
• Transparency of tax collection
• Ease of compliance
• Not too expensive to administer
Variations in tax policy preferences
Types of tax
• Income– Personal– Corporate
• Consumption– VAT, excise, water,
carbon, etc.
• Property– Rates, charges, etc.
• Wealth– Assets, gifts, capital
gains, inheritance, death duties, etc.
Variations in tax policy preferences
Types of tax
• Income– Personal– Corporate
• Consumption– VAT, excise, water,
carbon, etc.
• Property– Rates, charges, etc.
• Wealth– Assets, gifts, capital
gains, inheritance, death duties, etc.
Examples of exemptions and tax expenditures
• Basic personal
• Business investments– Capital depreciation
allowances– Innovation, R&D
• Incentivize behaviours– Home ownership– Personal pension
Variation in rates, bands, incidence
• Emergent issues:– Broader base– Fewer rates– Fewer exemptions– Type of income
shouldn’t matter– Redistribution not
only via taxation
• Debates about:– Progressive?– Individuals or
households?– Family type?– Source of income?
Principles of good tax administration
Principles of good tax administration
Common issues
Dealing with tax evasion through smart compliance strategy:
tough auditing…..
…. plus peer pressure and norm building
Tax administration: institutional reform
‘Rebuilding the ship while at sea’
• Leadership
• Team-building
• Buy-in
Expertise
Technology
Principles of administrative design
• Autonomy in recruitment
• Strict meritocracy
• Operational autonomy from core civil service
Complacency is the enemy
Complacency is the enemy
Some reflections on the Irish experience
Pre-1988:
•Narrow tax base
•Late extension of PAYE and PRSI
•High rates on taxable income
•Evasion and avoidance
•Sustained low corporate tax rate– To incentivize FDI
Tax rates on employee incomes
Source: Hardiman, 2002
Corporate tax rates
Source: Hardiman, 2002
Tax reform, 1988+
• New rules, new regime
• Incentives– Tax amnesty 1988– Regular emphasis on
voluntary compliance
• Sanctions– Tough enforcement– Bailiffs– Heavy penalties and interest
payments– Prosecution: ‘name and shame’, fine, jail
How?• IDEAS
– Commissions on Taxation• 1960, 1985, 2009
– Economic crisis of 1980s
• ACTORS– Revenue Commissioners
• INSTITUTIONAL DESIGN– Extensive internal reform– Operational autonomy
How effective?
TAX ADMINISTRATION HUGELY IMPROVED
•Highly efficient online systems
•Shadow economy reduced hugely
•Voluntary compliance with new self-assessed property tax:
– Over 80% by deadline
Sinn Féin’s Mary Lou McDonald has admitted she has decided to pay the controversial property tax — despite asking families to oppose the new levy.
Likely defaulters have been reminded by Revenue it has full powers in terms of payroll, social welfare and bank accounts to take money. Furthermore, Revenue can charge an additional levy by way of penalty.
Ms McDonald said: “That’s the decision we’ve taken as a family. Obviously, as a citizen, I would always prefer to be fully tax-compliant. I always play by the rules.
“We’re registering and paying this tax very much under protest because we know, for many families, this is a bridge too far.”
The Irish Examiner, 28 May 2013
Cost of tax administration system
http://ec.europa.eu/europe2020/pdf/themes/07_shadow_economy.pdf
Estimated size of the shadow economy,
2012
Schneider, The shadow economy, http://www.economics.uni-linz.ac.at/members/Schneider/files/publications/2012/ShadEcEurope31.pdf
How effective?
TAX POLICY HAS BEEN PROBLEMATIC
•Government decisions in 1990s and 2000s to:– Narrow income tax base – Postpone new sources of tax – Incentivize building – Over-rely on revenue from construction boom
TASC, Failed Design, 2010, p.12
Tougher job now for Revenue Commissioners
• Right mix of
– Incentives
– Deterrents
– Sanctions
