Water charge dithering is resulting in low ‘tax morale’

Last week I received a bill from Irish Water. By temperament, I usually pay these things without too much analysis.

I reserve my protests for the ballot box. 

But the messing and uncertainty over the future of the utility in the last several months has given me pause for thought. This time out my payment might not be quite as automatic as it usually is. I suspect I’m not alone in that.

People respond in different ways to the bills and notifications from the Revenue or the local authority or whichever government authority is responsible for collecting a particular charge. It seems people are consistently more likely to pay accurately and on time when they feel they have been fairly treated.

A lot of the time, of course, we don’t have a choice about paying taxes or levies — all employees for example have to pay their tax whether they like it or not through the PAYE system.

On the occasions when the general populace does get an opportunity to decide, more often than not people decide in a positive fashion. But when the taxpayer feels that he or she is being hard done by, that generates resistance of its own. 

The Household Charge in 2012 was met with considerable resistance, as are water charges now.

The TV licence was to be replaced by some kind of public service broadcasting levy. This was dropped. There was to be an annual charge levied on householders with septic tanks. This was ultimately reduced to a token payment of €5 for registration, but what has become of that since?

Now the current Government is reneging on water charges and abandoning those law-abiding people who have already paid them. That is creating an atmosphere whereby I’m not the only one who will think twice about paying an Irish Water charge.

Official indecision is corrosive to compliance. Published almost unnoticed in recent days was an update on Local Property Tax compliance, another unpopular charge on the list. 

When it was introduced, the surprising thing about LPT was just how high the compliance rates were. Its predecessor, the Household Charge was only paid by about two thirds of households. LPT collection was devolved to Revenue in 2013, and very rapidly compliance levels hit the high 90%s — 97% in 2015.

LPT compliance, however, for 2016 is running at only 87%. That’s a full 10 percentage point drop, and that is very significant. 

It’s not clear what the reasons might be for the extent of such a fall-off in compliance, but I would be quite sure that the lack of determination to enforce water charges is now beginning to spill over into other areas. 

The current dithering around water charge — the notion that they could be pushed back to await a decision by a committee and remain in limbo until that decision is taken — has implications not just for water charges but other forms of taxes and government levies.

The academics have a term for this kind of public response — they call it tax morale. The idea behind tax morale is that taxpayers are indeed more willing to pay taxes and levies if they feel they are being fairly treated, if they feel the charge is fair and equitable, if they feel they are contributing in some way to public services and also, very importantly, if they feel that they are not isolated by complying with the requirement. 

If compliance with a government charge is normal behaviour, people are much more likely to pay. One outcome of the 70 days of deliberation in forming a government is that payment of water charges is no longer normal behaviour and non-compliance has become mainstream.

This is fine as far as it goes, but the country still has to be run, and public services and utilities still have to be funded. I spoke to a senior engineer in one of the local authorities recently, who was dismayed at the prospect of Irish Water being suspended. 

He felt that progress was really being made on improving the supply and quality of water, and that the current debacle would at best stall, or at worst undo a lot of the good work already carried out.

* Brian Keegan is director of taxation with Chartered Accountants Ireland.


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