The Cabinet will this week have its first chance to consider the findings and recommendations of the Public Accounts Committee Inquiry into the DIRT affair. There is no reason why it should not act quickly on a number of the recommendations, particularly those calling for the establishment of separate reviews of the operation of the Revenue Commissioners and of the role of external auditors in financial institutions. However, other issues raised in the report are likely to occupy the attention of policymakers in the Government and the public service for months to come.
The report's findings detail the extraordinary level of tax evasion engaged in by many of the bank and their customers in the late 1980s and early 1990s and the laxity of the Department of Finance, the Revenue Commissioners and the Central Bank in doing anything about it. A weakness of the report is its commentary on the role of successive ministers for finance. The committee was precluded from examining political policy issues; but surely the inaction by successive ministers was an operational matter, in that they did not tackle a problem which they knew existed. True, their civil servants did not put forward proposals for doing so, but surely ministers can be expected, at least sometimes, to set their own agenda?
What about the report's recommendations? The Revenue no doubt expecting criticism of their actions, had already commenced a trawl through all the financial institutions before the report's publication. The Revenue is now a better-managed institution than was the case ten years ago, but the proposed review of its structure is nonetheless appropriate. The committee suggested that the Department of Finance undertake the review; the Government might also seek some outside or international involvement in the process to bring a perspective from outside the public service. Some kind of external supervisory board for the Revenue is one item which should be on the agenda of any review.
The Revenue also faces a difficult operational task in collecting the tax that is due. The audit of the financial institutions is a major task - the banks would be well advised to co-operate and pay up quickly. The Revenue must then decide the extent to which it will pursue unpaid tax from the customers who actually held the bogus accounts. This is potentially a massive undertaking - there were 300,000 non-resident accounts in the period under review and DIRT evasion is sympomatic of a much wider level of tax evasion during the period. Clearly, however, the Revenue will have to follow leads which suggest serious tax evasion among the customer base of the financial institutions.
The report also raises the role of the Central Bank in monitoring the financial sector. Here the Government must decide quickly on what to do about the proposed new financial regulator, a matter on its agenda now for some months. More active prudential regulation and a new approach to protecting consumers are called for. And the committee recommendation of a review of the role of external auditors should also be followed. There is no reason why auditing in Ireland should not operate to the highest international standard and thought needs to be given as to how to achieve this.
The central test of the whole process, of course, will be whether the banks pay up the DIRT that is due. If they do and if the whole affair leads to a more efficient public administration, then it will have been worthwhile.