Seanad Éireann debate -
Wednesday, 5 Oct 2005

Vol. 181 No. 3

Tax Evasion: Motion.

Mr. Ryan

I move:

"That Seanad Éireann,

—noting that in 2004, 259 people were prosecuted for Social Welfare fraud amounting to €1 million and that 36 of those were sentenced to terms of imprisonment;

—noting further that in 2004, only 1 person was prosecuted for tax offences and that a custodial sentence was not imposed;

—noting that the amount of tax written off by the Revenue Commissioners in 2004 amounted to €173 million involving over 26,000 separate cases;

—recognising that non-payment of VAT represents a deliberate attempt to defraud both the public and the State;

—believes that the failure to prosecute tax offenders represents a deliberate decision to protect the well off from the full rigours of the law; and

—calls on the Government to take whatever steps are required including legislation, if necessary, to ensure that tax offenders are prosecuted through the courts with the same vigour that is applied to Social Welfare recipients.''

Cuirim fáilte ar leith roimh an Aire Stáit, ós rud é go bhfuil aithne againn ar a chéile le blianta. D'oibríomar le chéile nuair nach raibh mórán todhchaí ag an bheirt againn, a bhí ag léachtóireacht go síoraí. Tháinig athrú ar an saol, áfach, agus cuirim fáilte roimh an Aire Stáit.

I have long wanted to talk about the extraordinary and consistent discrepancy between prosecution and punishment for welfare offences and the prosecution and punishment of tax offences. The issue has been visible for years and has been raised consistently with the Revenue Commissioners. However, they consistently resist the question of prosecution. I will put the facts on the record. According to the report of the Comptroller and Auditor General in 2004 some 36 people were imprisoned after court cases involving social welfare recipients. We have increasing evidence of a ruthless group of exploitative employers based on stories from our immigrant workers in particular. I am not saying all or even most, but some employers have taken advantage of various vulnerabilities to be less than honest, to put it mildly.

Of 476 criminal cases forwarded to the Chief State Solicitor in 2004 only 17 involved offences committed by employers. Of the people who were prosecuted and of those who went to jail, 21 were prosecuted under offences relating to unemployment assistance. These were people who presumably had defrauded the State on a grand scale. Some 12 people committed offences relating to unemployment benefit, two for disability benefit and one for other schemes, which amounts to 36 people. The grand total of money involved was barely €1 million. Nobody defends welfare fraud. I must trust the courts that the people prosecuted, sentenced and sent to prison had committed offences of the scale and gravity that deserved prison offences. While it is hard to believe that offences which on average work out at €4,000 are of the scale requiring people to be sent to prison, one accepts it.

It is extraordinary to consider the treatment of tax evasion in the same year, which was as with every other year. We seem to learn about another tax evasion scam every year. This year it is the construction industry and in other years it was Ansbacher, offshore accounts and bogus non-resident accounts. Twenty years ago we all knew that many people had several bank accounts in which they hid their money. Having been assured that the Revenue Commissioners had all the powers they needed, we discovered later that they had no such powers, that they had great difficulty in inspecting bank accounts and that we needed to make available to them a slew of new powers, which tax-gathering agencies in other countries had taken for granted for years. The IRS in that most free-market of countries, the United States, had vastly greater powers of discovery than the Revenue Commissioners.

After we worked our way through it all, we discovered that nobody goes to prison. I am not a great enthusiast for sending people to prison, as I believe it rarely changes those sent there. However, the prospect of going to prison would significantly change the behaviour of the kinds of people who are consistently not prosecuted. By and large those we send to prison come from a background with a previous family history of being in prison. We send the poor, underprivileged, exploited and marginalised to prison. I believe we do not prosecute those who are most afraid of prison for fear that they might end up there.

An enormous amount is said about tax evasion. It starts from the almost tearful image of brave struggling entrepreneurs whose "own money", as it is termed, is being taken from them by the rapacious State. I will not mention income tax yet, regardless of my feelings about it. In 2004 the Revenue Commissioners wrote off €72 million of VAT that was due to them but could not be claimed. Let us get away from the poor tearful entrepreneur having his money taken and remember what happens here. I can think of two VAT offences which mean that the Revenue gets no money. In one case people collect VAT and do not pass it on to the Revenue and in the other they do not charge it and offer a more competitive price for their goods and services.

The former case amounts to theft from their customers. Let us be clear about the matter. This is not the money of anybody. The customer is paying this tax to the State. Anybody who holds on to VAT, just as with holding on to PAYE or PRSI contributions, is a thief. It is other people's money that they should not have other than acting as an agency for the State and if they do not pass it on it is theft. On the other hand, if they do not charge VAT they are effectively stealing from their competitors as honest providers of goods and services who charge VAT will lose out in their businesses to those who chose not to. Let us walk away forever from this nonsense about the suffering taxpayer. These people are collecting tax on the State's behalf and choose not to pass it on.

In 2004 the Revenue Commissioners wrote off tax in 26,000 cases. If only a quarter of these related to VAT, 5,000 to 6,000 people either stole money from their customers, the State or their competitors. Not one of those was prosecuted for such an act of fraud. The Revenue stated the money was unrecoverable for a variety of reasons and that was it. While the money might well be unrecoverable, the individual or the company must have been identified given that Revenue was aware of these problems and yet none of them was prosecuted. I can only imagine what people would say if the Garda decided, in the case of fraud or theft generally and where it could not recover the money because the person had gone bankrupt or whatever, that it would no longer prosecute the offender because there was no point. How is it that people who steal money from the State in the form of illegally holding on to other people's VAT or not charging VAT are let go scot-free while unfortunate wretches who improperly and illegally claim social welfare payments to which they are not entitled are sent to prison in significant numbers? There is only one conclusion. In the core of the philosophy of the State as epitomised by the Government, now in office for almost ten years, is a perceived difference between the poor and the well-off. The poor are seen as appropriate subjects to prosecute and sent to prison while the rest of us are not. That runs through the entire decision-making priorities of the Government. This is a classic example of the way this Government talks about inclusion, social justice and rights for all yet leaves alone those who have some kind of stake in society.

It is wonderful that the public is beginning to see through this. We are now seeing the public's realisation of the difference between a strong economy and a fractured society. The fundamental issue of which the public has taken note is that in our society there are those who can rip us off and those who are ripped off. Those who can rip us off are regarded as quasi-heroes to be understood — perhaps they made a mistake, maybe they were a little exuberant — while those who get ripped off, in particular the poor, are regarded as the criminals because deep down is a belief that the poor are suspect, that they are responsible for their own impoverishment and need to be watched and punished, while those who get rich at the expense of the taxpayer, their customers and their competitors are regarded as having at worst made a mistake and that at best they deserve our indulgence.

That is the fundamental flaw in Irish society, built on inequality, growing out of injustice and leading into a situation where the difference between those who are on the inside and on the outside becomes greater all the time. We see it in little things like social welfare, in big things like tax evasion, and above all we see it now in employment practice where the Government is tacitly encouraging large-scale exploitation of people at work.

Mr. McDowell

I am happy to second the motion proposed by my colleague, Senator Ryan. I acknowledge that in recent years there has been a significant improvement in the use of Revenue powers and that the special investigations unit which is responsible for investigation matters, such as the Ansbacher Cayman bank accounts and the offshore accounts has, though belatedly, been successful in bringing home quite an amount of unpaid taxes. However, there are still many people who do not pay taxes.

It is important to put this debate in context. We are not talking of the little guy who is late submitting his VAT or of someone who might be under pressure and postpones payment of income tax for a couple of months. We are talking of serious tax evasion, of fraud, of people who, as Senator Ryan said, in effect rob money from their fellow taxpayers.

There are plenty of those people about. The report of the Comptroller and Auditor General dealing with the matter of relevant contracts tax, RTC, points out that two mega-scams were discovered during last year alone. In one case, 97 individuals and companies, and in the other case 27, conspired together to defraud the Revenue of due taxes. This is organised and shameless. These are individuals who set out from the start to defraud the Revenue of money. They did so not because they were short of a few bob or negligent in making their returns in time. These people deliberately set out to defraud the Revenue of money and they should be prosecuted.

In recent years there has been something on a consensus on this. Before I came to the House today I read the Revenue's statement of strategy in which it made it clear it would use its powers of prosecution more in the future. The Minister for Finance and his predecessor are on the record as saying there will be more such prosecutions in the future. The Revenue set up its special investigations and prosecutions branch a few years ago and said it would pursue more prosecutions, but that has not happened.

I looked at the numbers of custodial sentences in this area, going back to 1997. In that year there were none. In 1998 there were two, in 1999 there was one, in 2000 there were two, in 2001 there were four, and one custodial sentence was imposed in each of the years 2002, 2003 and 2004. That adds up to just a dozen people prosecuted successfully and given custodial sentences, most of which were suspended. In his timely report last week, the Comptroller and Auditor General compares that with 259 prosecutions taken last year for social welfare fraud, in most cases involving a fraction of the money we are talking of in terms of tax evasion. Some 39 of the people involved went to prison last year alone, so that more people went to prison last year for social welfare fraud than have gone to prison for tax evasion as long as records go back.

There is something seriously wrong here. All the rhetoric, all the commitment from Government and from the Revenue to use the powers of prosecution, has not amounted to anything. Is this an incapacity? Is there something wrong in the system which makes such prosecution impossible or difficult, or is it a lack of political will or a lack of will within the Revenue? One must conclude that a lack of will is involved because getting only one successful custodial sentence last year — a sentence which was suspended — defies belief.

If the Revenue cannot do the job, the power should be given to someone who can. The notion of a fiscal prosecutor has been proposed, a sort of DPP for tax cases, who would have particular responsibility for prosecuting tax evaders through the courts. The Law Reform Commission considered this and did not recommend it. However, I found the reasoning of the commission less than totally persuasive. The Revenue will have to put in a far better performance over the next few years if it is to successfully make the case, as it has done before, that taking the powers out of its hands is not the right course to take. We should seriously be considering removing that power, because if the Revenue will not use it, someone else must be encouraged or allowed to do so.

Many of us reluctantly supported the tax amnesty Act of 1993 because it was introduced during the period of the Fianna Fáil-Labour government. We supported it because it imposed an obligation on people to use the amnesty and settle their affairs. It also prescribed quite heavy penalties, including a mandatory custodial sentence for those who did not get their affairs in order.

Some 12 years later, that power has never been used. To my knowledge, not one person has been prosecuted, successfully or otherwise, for failing to use the tax amnesty Act of 1993. One must ask why. Many of the people involved not only got the facility of the 1993 Act but could also have used the 2001 partial amnesty. They have twice refused the opportunities given to them, and the obligations imposed on them, to settle their affairs. It defies belief that not a single person could have been successfully prosecuted for not having lived up to his or her obligations under the 1993 Act.

Everyone agrees it is important to encourage, facilitate and oblige people to fulfil their social obligations and pay their taxes. It is important that court cases are taken. I appreciate that the primary responsibility of Revenue is to collect money and that the Revenue does not primarily see itself as a prosecution service. However, it is important to send the signal that tax evasion is unacceptable and that the necessary action will be taken to ensure that people meet their obligations.

Dr. Mansergh

I move amendment No. 1:

To delete all words after "Seanad Éireann" and substitute the following:

"—noting the substantive new powers granted to the Revenue Commissioners in successive Finance Acts since 1999;

—noting the determination of the Government to take the necessary steps to combat tax evasion;

—noting the success of the Revenue Commissioners in pursuing non-compliance through various means as evidenced by the yields from special investigations of over €2 billion since 1998;

—noting that the Revenue Commissioners' normal audit programme each year continues to recover increasing amounts of tax, together with interest and penalties;

—noting that the Revenue Commissioners are prosecuting an increasing number of cases of serious tax evasion each year before the courts;

—noting also, the significant number of summary prosecutions that are brought by the Revenue Commissioners each year for matters such as filing incorrect returns, the illegal sale of tobacco, cigarette smuggling, various excise and licensing offences;

—noting the success of the Revenue Commissioners' debt collection and reduction programmes where debt now stands at a historically low level of 2.5% of gross collection compared to 30% in the late 1980s and 15% in the mid-1990s;

—noting that there can be valid reasons for the write off of uncollectible debt by the Revenue Commissioners and that all such write offs are in accordance with protocols agreed with the Comptroller and Auditor General;

calls on the Government to continue to take all necessary measures to build on the new levels of compliance with tax legislation achieved since 1997."

If one were to believe the motion, one would have a picture of a draconian social welfare system grinding the poor and, on the other hand, a lax tax system turning a blind eye to everything and everyone. That is a political caricature.

Let us deal with the so-called facts that are presented in the first line of the motion. It refers to 36 people being sentenced to terms of imprisonment. It does not mention, of course, that 26 of those sentences were suspended; therefore, 36 people were not imprisoned for that period. The motion refers to social welfare fraud amounting to €1 million and, technically, the Opposition is connecting it to the 259 figure. However, the Department of Social and Family Affairs claims to have saved €386 million in overpayments, although all those overpayments are not necessarily fraud, with 7,000 employers reviewed. That is in the context of a total social welfare bill of €12 billion.

There is an effort to administer the social welfare system in a humane way. Even where people are convicted of fraud, for example, they have families who will continue to need payments. Approximately 5% of cases are prosecuted out of a total of 10,000 cases of overpayment. In many cases it is difficult to recover benefit. People who go to prison, and I am not necessarily defending that, are there for a matter of weeks, sometimes even days. Obviously there are certain categories of people who by no stretch of the imagination are near the borderline. I refer to criminals, and there are four social welfare officers attach to the CAB, or other people from whom civil recovery can be made. What one would not have learned from the promoters of the motion is that 159 people were fined and only ten were sent to prison. I am not disputing the entire Opposition argument but I will come back to it when I have examined the Revenue side of it.

One would think from listening to the Opposition Members that prison was the only recourse available to the State to deal with tax evasion. However, approximately 200 names appear on lists at quarterly intervals and some of these people have to pay large sums of money. A sum of €9 million was mentioned in the last list. Senator Ryan said he is generally not keen on sending people to prison. He is, perhaps, a little keener on sending wealthy people to prison.

Mr. Ryan

Absolutely. It is worse for rich people.

Dr. Mansergh

It costs €80,000 to keep a person in prison for a year. Frankly, that is not a good use of the State's money. It is far preferable to recover the money with interest and penalties and to name and shame. I am aware from one or two people who have been caught that there is considerable shame involved. That is a more effective way of dealing with this.

The vast majority of tax evasion cases do not go through the courts. The Revenue Commissioners deal directly, or through accountants in some cases, with the individual concerned and recover the money without legal cost. The question is if one wishes to maximise the revenue of the State for services or if one is mainly interested in retributive justice. The Revenue Commissioners have done a fantastic job in the last few years. They have secured €2 billion from special investigations. They were given many extra powers in 1999, when former Deputy, Charlie McCreevy, was Minister for Finance and when it was possible to tighten up those provisions without causing damage to the State's interest. It is not an accident it occurred in that year because 1999 is the year we became part of the euro and the danger of money going out of the country, if measures that were too draconian were adopted, disappeared. There has been a new situation since 1999, regardless of whether people wish to acknowledge it.

It is rubbish to claim that the Government has a differential attitude to the poor and to the wealthy. However, there is a small amount of truth in the claim with regard to the courts. The district justices send social welfare offenders to jail. While one or two of them might be well off, generally they are not. They do that to give an example to others and it is reported in the local press. However, on the tax side, I am informed that experience in the criminal investigation of tax cases to date is that exacting evidential standards are set to satisfy the criteria for successful prosecution. In other words, the courts, judges and legal profession are slow to find somebody guilty. There are all sorts of technical problems. I am willing to admit that the problem may exist. The courts need to be vigilant that they do not find themselves administering, although not at the wish of the Oireachtas, any form of class justice.

The Revenue Commissioners can do a great deal more. I do not believe they have by any means exhausted ways of tracking down evasion. I support the Revenue Commissioners getting the resources they need because they will benefit several fold over whatever it would cost to hire different expertise or personnel.

Mr. J. Phelan

I support the motion put forward by my colleagues in the Labour Party. They are, no doubt, surprised by some of the content in the Government's amendment. The core issue in this debate and in arguments about tax evasion and the taxation system is equity. The facts presented in the motion clearly show that some people are, to borrow a phrase, treated more equally than others by the State. People who are wealthy can afford expertise in the taxation area to avoid and, in some cases, evade paying tax. Regardless of what Senator Mansergh said, it is clear from the figures where the emphasis of this Government lies, and it has been in office for nine years, with regard to tax evasion as opposed to social welfare fraud. It is clear that the poorer parts of society do not count.

This is remarkable when one considers the origins of the Fianna Fáil Party. I have always had an interest in history, particularly political history. Fianna Fáil has traditionally presented itself as the party of the less well off in society.

Dr. Mansergh

It still is.

Mr. J. Phelan

We have seen a remarkable transformation, despite what the Taoiseach might say about his newborn socialism — which neither I nor anyone else believes — to a point where Fianna Fáil is the party of the tent at the Galway Races and of big business.

Minister for Finance (Mr. Cowen)

That is a caricature.

Mr. J. Phelan

The fact is that the sympathies of this Government continue to lie with those who are very well off as opposed to those who are at the lower end of society, struggling to make ends meet. I regret this and have no doubt that when people get a chance to express their views on it, they will be more than willing to do so.

If one examines the figures presented by the Labour Party, the point becomes clear. Last year, 36 individuals were sentenced for social welfare fraud while only one was sentenced for tax evasion. That is a startling statistic. I was surprised that the Government considered it necessary to amend the motion, which puts such stark statistics in the public domain. Anyone with a conscience would have to agree that a system that allows such inequality to exist cannot be defended or supported.

I am disappointed because I do not get any sense from the Government representatives here or from those with responsibilities in the Department of Finance that there will be a reversal in the figures I quoted from last year. I do not detect any urgency about ensuring that those who deliberately evade tax will suffer the full rigours of the law. Those who can afford to pay the top tax consultants, the best accountants or the best legal minds in the country have a better chance of avoiding a custodial sentence or any other penalty than those who have difficulties with social welfare over-payments. I wish to emphasise that social welfare fraud is a serious offence which I do not condone but the full rigours of the law that are applied to those engaging in such fraud should equally be applied to those who are known to be evading tax. It is clear that this is not the case.

Neither the motion nor amendment makes specific reference to the issue of tax revenue fines. In 2003 the Comptroller and Auditor General, Mr. Purcell, made a statement in his annual report to the effect that one third of tax revenue fines remained uncollected. Perhaps the Minister for Finance can tell us what is the current situation in that regard. Mr. Purcell further stated in his report that there is little point in imposing such fines if they are not going to be paid. Given that such a large amount of tax revenue fines remained outstanding in 2003, surely the figure for the number of people convicted and given custodial sentences for tax evasion should be much higher than it is. I wish to know why the figure is not so. As with previous speakers, I do not necessarily believe that custodial sentences are appropriate in all cases, but there are situations where they must be imposed. It would be significant if the Government indicated that there would be a crack down on tax evasion, that wealthy people who evaded tax and did not avail of the amnesties to settle their affairs would be brought through the courts and face the full rigours of the law. I await the comments of the Minister in that regard.

I compliment the special investigations unit in the Revenue Commissioners, which has done an excellent job over the last few years. The unit has been given additional powers and has used them well in recent times. However, it is still clear that people are evading tax. Despite the rosy picture presented by Senator Mansergh and Government in general, many people are still evading tax in this State. I was struck by the reference in the Government amendment to a level of tax evasion of 2.5%, down from over 30% in the mid 1980s because I believe that 2.5% is still too much. To include such a reference in the amendment is inappropriate because people who evade tax are robbing from everyone. They are robbing from tax payers and people who pay their fair share as well as from education and health services.

I fully support the motion and compliment the Labour Party for tabling it because contrary to the popular perception, as espoused by Senator Mansergh, tax evasion still exists in this State.

Dr. Mansergh

I never suggested otherwise.

Mr. J. Phelan

We must bring the full rigours of the law to bear on those engaged in tax evasion as well as those engaged in social welfare fraud.

Mr. Cowen

I appreciate the opportunity to address this motion and to speak in support of the amendment put down by the Government which points to the very significant and increasing successes of the Revenue Commissioners in recent years in protecting the State's revenues and tackling tax evasion.

The Labour Party motion contains a wholly unsupported and outrageous allegation that there is a policy in place to protect the well off from the rigours of the law. Decisions to prosecute in individual cases are the prerogative of the Revenue Commissioners and the DPP. I know of no evidence that would support this unwarranted allegation. The Senators who put down the motion should think again about this wording, which strikes me as entirely inappropriate. Unless it is a claim that can be supported with real and substantive evidence, they should not lend their names to it.

The Revenue Commissioners are charged by law with tax collection. The role of the Minister for Finance in this area is circumscribed by law and by practice, for obvious reasons and that is as it should be. The Revenue Commissioners have made it very clear, both by their actions and commitments, that they have no tolerance of tax evasion and non-compliance. The Government entirely supports them in this regard. In their most recent statement of strategy for 2005 to 2007 they affirm the commitment to "improving compliance and maximising tax collection" and to achieving this by a balanced approach combining a sharp and uncompromising response to evasion and default while providing high quality services to compliant tax payers. The Revenue Commissioners' primary goal of ensuring that everyone complies with their tax and customs responsibilities remains at the core of their activities. Their main compliance interventions are firmly focused on those who pose the greatest risk to the Exchequer, namely, those who fail to comply. This requires a balancing of resources between various programmes so they are deployed effectively and efficiently in identifying and combating risk to the Exchequer.

This approach to risk has clearly been successful, with over €2 billion recovered for the benefit of the Exchequer through the special investigation projects initiated in recent years. Over €1 billion of this amount was recovered in the past 18 months. This sum is in addition to the recoveries made under the normal audit programmes of the Revenue Commissioners, which result in around 16,000 audits being conducted annually.

The modern approach to revenue collection, supported by extra powers given by the Government, has succeeded in reducing debt to an historically low level of 2.5% of gross collection, a figure which stands up well in international comparisons. This 2.5% compares to 4% in 1999, 15% in 1994 and 30% in 1989. The reduction has been achieved by improving timely compliance rates combined with vigorous and focused collection initiatives, using all of the available powers.

The level of tax debts for VAT, for instance, for 2004 amounted to €289 million, or 2.1% of gross VAT receipts in 2004, which totalled €13,635 million. This is down from €345 million, or 2.8%, in 2003 and reflects the continually improving rate of collection. To indicate the scale of activity in VAT, a total of €9,984 million in new tax charges were raised during 2004, of which €8,184 million was in respect of 2004 tax periods.

The essential function of the Revenue Commissioners is to collect tax. Inevitably, cases will arise where, because of the particular circumstances, collection is not possible or the tax cannot be collected without disproportionate cost to the State. Even in a time of significant economic growth, the reality of commercial life is that some businesses fail. As Members of this House will be aware, requests to Revenue to be understanding in such circumstances are not unheard of. Moreover, because of Revenue's unique position in being a creditor to all, most business failures will involve at least some tax debt. In these circumstances and where recovery of the debt is not possible or the cost of recovery is not proportionate to the return, arrangements are made to pass the tax as irrecoverable, also known as writing-off the tax. This is done to distinguish the uncollectible tax on Revenue's records and thus allow collection and pursuit efforts to focus on the outstanding tax liabilities that remain collectible. For example, the level of tax debts for VAT for 2004 amounted to €289 million or 2.1% of gross VAT receipts in 2004 of €13.635 billion. This is down from €345 million or 2.8% in 2003 and reflects the continually improving rate of collection. To indicate the scale of activity in VAT, a total of €9.984 billion in new tax charges was raised during 2004, of which €8.184 billion was in respect of the 2004 tax period.

The essential function of Revenue is to collect tax. Inevitably, cases will arise where, because of the particular circumstances, collection is not possible or the tax cannot be collected without disproportionate cost to the State. Even in a time of significant economic growth, the reality of commercial life is that some businesses fail. As Members of this House will be aware, requests to Revenue to be understanding in such circumstances are not unheard of. Moreover, due to Revenue's unique position in being a creditor to all, most business failures will involve at least some tax debt. In these circumstances and where recovery of the debt is not possible or the cost of recovery is not proportionate to the return, arrangements are made to pass the tax as irrecoverable, which is also known as the writing off the tax. This is done to distinguish the uncollectible tax on Revenue's records and thus allow collection and pursuit efforts to focus on the outstanding tax liabilities that remain collectible.

However, write off of tax is not irreversible and if information subsequently comes to light, such as an improvement in financial circumstances, Revenue can reinstate the tax debt and collection can then be pursued in the normal way. There is broad agreement between Revenue and the Comptroller and Auditor General on the criteria and procedures to be followed in the writing off of tax and the decision to write off tax is only taken on the basis of detailed guidelines that contain a series of checks and balances. In addition, all write off decisions are subject to review by a team of internal auditors in Revenue and by the Comptroller and Auditor General.

The majority of cases where evasion is discovered are concluded on the basis of a negotiated settlement with the taxpayer, which involves collection of the unpaid tax together with heavy interest and civil penalties. The level of civil penalties imposed is usually far greater than the level of fines imposed by the courts in similar cases and settlements are published on a quarterly basis in the tax defaulters list in Iris Oifigiúil if the terms requiring such publication are met. Generally, the civil penalties imposed vary with the amount of tax involved and in cases of serious evasion can equal the total tax evaded. I mentioned earlier the €2 billion yield from various special investigations. Senators may be interested to know that nearly 60% of this figure, €1.2 billion, was interest and penalties. These non-compliant taxpayers certainly did not get off scot free.

However, we fully recognise that in addition to initiating programmes whose focus is largely on the recovery of unpaid taxes and the imposition of heavy penalties, offenders should also be prosecuted where possible. The Revenue statement of strategy for 2005-07 signals as one of its key strategies the "increased investigation and prosecution of tax evasion and fraudulent activity". This is regarded as a vital element in maximising compliance and ensuring the proper taxes and duties are paid on a timely basis to the Exchequer.

The Government supports the approach of the Revenue Commissioners in increasingly pursuing a greater numbers of cases for criminal investigation with a view to their referral to the Director of Public Prosecutions, DPP. To this end and as part of their restructuring programme, the Revenue Commissioners have established a special investigations and prosecutions division. This division, which has spearheaded the major project investigations in recent years, is also charged with co-ordinating all criminal investigation activity undertaken by Revenue and has been provided with additional resources to enable it to conduct more criminal investigations into serious cases of evasion. All other areas of Revenue have been mandated to identify cases that are potentially suitable for prosecution and refer them to the investigations and prosecutions division.

For the record, 35 individuals and companies have been convicted of a variety of serious tax offences since 1996, seven of these since the beginning of 2005. Jail sentences were imposed in 13 of these cases, although seven of these sentences were suspended. One conviction and sentence is currently under appeal and in another three cases terms of community service in lieu of custodial sentences were imposed. Fines were imposed in the rest of the cases. Currently, there are 52 cases of serious tax evasion under investigation with a view to prosecution. The DPP is considering a further 12 cases and has given directions to prosecute in another four cases. There are six cases in the courts process. Additionally, there are a further two cases in respect of which bench warrants have been issued by the court because the defendants have absconded.

This is the highest ever number of cases of serious evasion that has been tackled on a criminal investigation footing by Revenue, which is consistent with the commitments given by it to the public. With the procedures now in place in the investigations and prosecutions division and the arrangements between it and other areas of Revenue, new cases are being identified and added each month. This represents a considerable ratcheting up by the Revenue Commissioners in a relatively short timeframe of their prosecution activity. In addition to the aforementioned prosecutions, over 6,500 individuals and companies have, in the same period, been convicted of offences of failing to file tax returns. Since the beginning of 2004, over 700 individuals and companies have been convicted of customs and excise offences following action by the Revenue Commissioners. These prosecutions must also be factored in when, as is frequently the case, comparisons are made with prosecutions under the social welfare code.

Experience in the criminal investigation of tax cases to date indicates there are very exacting evidential standards to be met to satisfy the criteria for a successful prosecution. Particular difficulties arise where vital documentation is not available, often due to the lapse of time or where witnesses are not available due to their location or reluctance to become involved where the suspect is an employer or business associate. This is in line with the experience of dealing with white collar crime generally. A practical approach must be adopted to avoid Revenue resources being tied up in what is an extremely labour-intensive process and where the outcome may ultimately be non-productive. Consequently, resources tend to be focused on cases in which it is reasonably clear from the outset that evidence of wrongdoing is available or likely to become available in the course of an investigation.

Equally, the courts must be satisfied that the standards applied by investigators in conducting the investigation and gathering the evidence meet the requirements of fair procedure and due process in light of the potentially serious consequences for a suspect. Revenue officers must take care at all stages of the investigation that in addition to the evidential aspects, the appropriate standards are also met. Investigating a case with a view to possible prosecution and then taking suitable cases through the courts can be a slow and resource-intensive undertaking regardless of who is involved. This is a simple mundane fact of life. Getting exercised over it or calling with indignation for more convictions is no substitute for doing the leg-work actually required. Maybe those in the Opposition do not like it but this is the way the system works to protect the innocent while punishing the guilty.

Mr. Ryan

Is the Minister sure he has that right?

Mr. Cowen

Another factor that influences the process of criminal investigations is the level of the powers available to the investigators. Revenue officers, in the course of their work in this area, may identify deficiencies that curtail their capacity to assemble the best evidence in some cases and, as a result of these experiences, suggest matters for inclusion in Finance Bills.

As the Seanad is aware, this Government has a solid track record second to none in introducing legislation to augment Revenue powers in Finance Acts. The chairman of the Revenue Commissioners has pointed out in appearances before the Committee of Public Accounts that almost all of the developments in the pursuit of the major projects undertaken by Revenue could be attributed to the powers introduced by the Minister for Finance in 1999, which allow the Commissioners to examine financial institutions in a way that was not possible previously. In the Finance Act 2005 I introduced a provision I understand is currently being used by Revenue in the ongoing investigation into the use of insurance-based investment products by some taxpayers to evade tax. In addition, I also introduced amendments to section 1078 of the Taxes Consolidation Act 1997 to strengthen the approach to prosecuting those who aid and abet others in evading tax and to create a more general offence of evading tax. These amendments will further assist the drive of the Revenue Commissioners against tax evaders and those who facilitate them.

As the Minister for Finance, my predecessor Mr. Charlie Mc Creevy received the report of the Revenue Powers Group, which examined the powers available to Revenue generally but also considered the area of criminal investigation of tax evasion and made certain recommendations that have a bearing on the matter. In this year's Finance Act I initiated the first measures in a process of reforms in the area of Revenue powers, including a number of the recommendations of the Revenue Powers Group. I intend to return to some of the remaining recommendations that require further consultation and careful consideration for future implementation.

The Revenue Commissioners advise me they are satisfied with the level of success achieved to date in criminal prosecutions for tax evasion in the courts but are determined and confident that their new approach and the establishment of the investigations and prosecutions division will increase the numbers of such cases investigated. It has done so already. The level or severity of the sentences imposed is a matter for the courts but it should be remembered that the impact on a defendant is not limited to the sentence imposed by the court. For example, in one of the cases accepted for investigation in 1999 in which a conviction followed in 2003, a total fine of €1,750 was imposed. However, the convicted person and his company settled their liability to the Revenue Commissioners by paying in excess of €1.65 million, included in which was a substantial civil penalty.

The courts are influenced by the fact that the Revenue Commissioners impose heavy penalties. In the judgment of the Court of Criminal Appeal in the case of the Director of Public Prosecutions v. Redmond, the court stated: “It is plainly not possible for a sentencing court in a case such as this to ignore the fact that other penalties, which may be much greater in amount than the cumulative sum of the maximum fines for those charges, have already been made”.

In the course of the large-scale investigation projects undertaken by the Revenue Commissioners in recent years, such as the investigation into the bogus non-resident account holders and offshore account holders, taxpayers who have paid additional taxes are likely to have committed revenue offences. Due to the vast scale of these investigations and the potential they have to lock up Revenue resources for years, the approach taken has been a pragmatic one, aimed at collecting the undeclared taxes together with interest and substantial penalties in the shortest possible time. It would have been impractical for the Revenue Commissioners to adopt a criminal investigation approach in each of these cases and it would have secured far less by way of settlements.

These programmes are continuing and will now focus on the small number of cases that have not come forward. They will be pursued and will be considered as potential prosecution cases and, where selected, will also face the prospect of being prosecuted, where the required evidence can be assembled.

It can be seen from the results and the progress referred to already, that the Revenue Commissioners are very serious about the pursuit of non-compliance with the tax code and the balanced approach being adopted has proven to be extremely successful. Their resolve to increase the number of cases being investigated and referred to the Director of Public Prosecutions is already bearing fruit, with the numbers of such cases at an all time high. The present arrangements are working effectively. The Law Reform Commission in its paper on a fiscal prosecutor and a revenue court, published in December 2004, looked at the treatment of revenue offences, including the workings of the public prosecution system and surveyed the existing system of bringing revenue prosecutions. The paper includes a recommendation that the arrangements currently in place for the prosecution of revenue offences be maintained for a period and then reviewed in a few years. The message should be clear by now. Anyone who hides taxable income or evades tax will be pursed by the Revenue Commissioners.

Unlike others who had the opportunity but failed to do so, the Government backed the efforts to tackle evasion with important and effective legislative initiatives, to which I have already referred. We have provided significant extra resources to the Revenue Commissioners and an additional 400 staff in the audit and compliance area. By comparison to earlier years and having regard to the excellent results achieved on general tax compliance initiatives by the Revenue Commissioners and the emerging results in prosecutions, the Government is not convinced that the existing arrangements for prosecutions needs to be changed.

The real story, then, is of an active pursuit of non-compliance by independent Revenue Commissioners, supported by appropriate legislative change. The real story is one of non-compliant taxpayers being prosecuted and paying substantial interest and penalties. Of course there are more tax evaders out there; no doubt there always will be some but there is substantial and ongoing progress towards achieving a tax-compliant environment in the State, which I believe has improved beyond all recognition, particularly in the last decade.

The Government is determined that tax evasion be tackled and offenders pursued. Unlike those opposite, we back up this resolve by doing something about it. Perhaps that is why the Opposition contents itself with some unfortunately wild, unsubstantiated allegations here and in the other House. It will do it no good and will be seen through by the electorate. I, therefore, ask Senators to support the Government amendment to underline its abhorrence of tax evasion and to recognise the clear policy of the Government to tackle evasion in all our citizens' interests.

Mr. Norris

I welcome the Minister to the House. I found his speech very interesting but before I turn to it I would like to say that I may support the Government's amendment. Although the Labour Party has made very serious points, it has gone in the direction of a particular ethos rather than any particular party. I do not know of any Government under which there has been the kind of aggressive attack upon private tax defaulters that the Labour party seems to think is deficient and a deficiency of this Government. I do not wish to be part of this on this occasion. The Government is fairly strong in going in the right direction and in the direction that the Labour party seems to wish for.

The Minister said there is no policy to protect the well-off from the rigours of the law. There may not be a policy but that is certainly the effect. Nobody could be in any doubt about this. Wealthy people are protected both in the courts and in terms of their tax provisions and the banks. The bigger the crook, the bigger the write-off he or she will get. A small person gets squashed and trampled. We all know this is true; there is no argument about it. There could be no argument from either side of the House. I disagree with the Labour Party in that I do not think this is a specific policy of this Government. I believe the responsibility lies elsewhere, perhaps in the past. The history of the Revenue Commissioners may play a part in it. I do not want to see people hounded into prison, particularly people on relatively low incomes. The Revenue Commissioners is a beast that is feared in many quarters but also treated with disrespect by others.

I do not believe there is a policy to protect these people but it is a fact and part of our ethos. I remember when tax evasion was not regarded as a sin in the Catholic Church. A person who had evaded income tax did not have to confess it. I have some nationalist friends who are delighted to boast to me about the amounts they defrauded from the Revenue Commissioners. There was no feeling of civic responsibility in this country and we must understand this. We are now at a path where something needs to be done about it. A friend who is a senior and well-advised political commentator said to me very recently that he felt that there should be what he described as "stench marking" in addition to benchmarking because of the awful aroma of corruption that floats around so much of our life in this country. We are sliding down internationally on the corruption index, which is most regrettable. All of us should stand together to try to do something about this.

The tribunals, of which we have had approximately 12, are a good indicator. So far, these tribunals have cost €200 million and that is before third party costs are paid. The total cost will probably be €1 billion. This is the extent of what is going on in this country. The Exchequer seems to be awash with money and everyone is trying to get their fingers into it in one way or another. I have before me an economic report which looks at the report of the Comptroller and Auditor General. The Comptroller and Auditor General talks about the West Link bridge where €2 million disappeared and nobody seemed to bother about it. There is information in the report about the computer system in the Department of Health and Children and how the Prison Service abandoned a €500,000 computer service because it did not like the way it operated. I heard some time ago on the radio about a situation where a road service was faulty and had to be redone. A steamroller had to be brought in and the entire cost of re-tarmacking that section of road was €50,000. However, the authorities were billed €3 million and they paid up. This is the kind of ethos that we have and should address.

The report I have is very interesting because it is not partisan and does not come from any particular political party. It is a kind of business report. It says, "there is a stark contrast in the way the State pursues social welfare fraud, compared with tax fraud". I am not saying it is Government policy but it is a fact and is noticed by the business community independently. The amounts are also quite disproportionate. I have before me a table of prosecutions from the Department of Social and Family Affairs. Table 53 deals with criminal cases forwarded to the Chief State Solicitor and lists them under the headings of unemployment assistance, unemployment benefit, disability benefit, one parent family payment, other schemes, offences committed by employers and so on. In 2004, there were 476 and there were 355 in 2003. The amounts involved were €1,116,492. In other words, the amount was just over €1 million and there was a marginal rise from the previous year. If one looks at the other aspect of this, the special investigations, the money which was deliberately and systematically defrauded by big interests and big private investors is €2 billion and nobody has gone, or will go, to prison. By contrast, the small people, those at the margins of society, have been prosecuted and 36 of them have been sent to prison.

Dr. Mansergh

Only ten have been sent to prison. There were 26 suspended sentences.

Mr. Norris

I am sure Senator Mansergh has superior knowledge but I am quoting the information with which I was furnished.

Dr. Mansergh

So am I.

Mr. Norris

I know. There is no competition at all but my point still stands. There may be a small difference, six or ten, or a little more, whatever the Senator wishes, but he has not addressed the principle of what I was saying.

Dr. Mansergh

I have.

Mr. Norris

I do not think so but Senator Mansergh obviously does and can be satisfied with that.

The situation of what is termed "pick-me-up" schemes is interesting. This involves party supporters outside the political arena who pick up expenses legitimately owed by the political parties. It is illegal but there have been 71 cases of this practice. That comes very close to home in this House.

Fintan O'Toole, in an excellent article in The Irish Times, referred to a series of frauds in the construction industry which is close to some of the political parties here. He wrote “The brazenness can be breathtaking.” Indeed it can. Four building sub-contractors were involved in claiming tax relief funds for jobs that were never undertaken. They never paid the tax, the jobs did not exist but they received the tax relief funds. In his article Fintan O’Toole states:

[They] faked tax refund claim forms pleaded guilty to deception and theft during 2003. They submitted forms to the Revenue claiming refunds on the 35% which main contractors must automatically deduct from payments to subcontractors. But the jobs they were claiming for did not exist and when the offenders received the refund cheques, they simply passed them on to the builders who organised the fraud, keeping a small cut for themselves.

I understand this is called "trousering the proceeds".

If one looks around there is no doubt that the Labour Party is right in what it says in this sense: the small people are crushed, the big crooks get away with it. That is part of our ethos. I am not inclined to blame Fianna Fáil or the coalition Government for this. However, Senator Mansergh with his eloquent interruptions has persuaded me that it would be wrong for me tonight to vote with the Government. In tribute to his wisdom, I shall be happy to vote for the Labour Party motion.

Dr. Mansergh

There is conviction.

Ms K. Walsh

I am happy to be able to contribute to this debate and I support Senator Mansergh's amendment to the motion. I welcome the Minister of State at the Department of Enterprise, Trade and Employment, Deputy Killeen, to the House.

In 2004, a total of 259 people were prosecuted for social welfare fraud amounting to €1 million, an average of almost €4,000 per offender. That is a large sum of money, especially when one considers that an adult's allowance for a full year is €5,000. The Labour Party should consider that only 13% of the offenders who defrauded the State of almost a full year's allowance were sentenced to jail.

This year the Government will spend over €12 billion on social welfare support. That is double the amount spent four years ago. That €12 billion represents €1 for every €3 of the taxpayer's money spent directly on welfare support. The taxpayer contributes a large amount of money to people and families whom our society believe need help. That is one good thing.

At the same time, taxpayers deserve to have their hard-earned money spent wisely. The other House is debating this topic tonight. Social welfare fraud should be called stealing taxpayers' money. Families across the country need this money.

The Labour motion implies, maybe unintentionally, either we are too hard on social welfare fraud or not hard enough on tax offenders. Neither of these implications is true. Tax fraud is an example of stealing taxpayers' money and should not be treated any differently from social welfare fraud. For example, the Labour Party motion makes no reference to the €1.5 billion in back taxes, interest and penalties received following investigation into bogus non-resident and offshore accounts. That omission is a pity.

We put every effort into catching tax dodgers. In January of this year the Government announced amendments to the Finance Bill 2005. These amendments extended the powers of the Revenue Commissioners to pursue prosecutions against persons who engage in, or facilitate, tax evasion. In April 2004 Frank Daly, the chairman of the Revenue Commissioners, said that tax evasion damages our country and is equivalent to robbing one's neighbour.

As the saying goes, "the only stable state is that in which all men are equal before the law". Social welfare and tax fraud are examples of people robbing their neighbours. People who commit either crime should be pursued and treated equally. As legislators we must not move too close to instructing the legal system on how to do its job. That would be dangerous for democracy.

Ms O’Meara

I welcome the Minister of State to the House and thank him for being here for this important debate. The issue of tax evasion and compliance is important for us as law-makers and is extremely important for the community. The Comptroller and Auditor General's report on this area issued last week exposes serious matters.

The Minister, in his address to the House, did not refer to tax evasion in the construction sector which is pointed out in the Comptroller and Auditor General's report and has been substantially covered in the media since then. We probably all agree that there will always be attempts to evade tax. It is almost a given in human nature that certain people will do their best not to pay their fair share. It is the role of the Revenue Commissioners to ensure that tax is paid. That is why they have been given widespread powers in recent years. I agree with Senator Kate Walsh that failure to pay tax and defrauding social welfare are the same as stealing from one's neighbour.

In some cases the Department of Social and Family Affairs has been extraordinary in its pursuit of individuals to recover money for the public purse. I wish to compare that with the activities of the Revenue Commissioners. The Minister said that in some cases the cost of recovering money for the public purse could be far greater than the amount recovered.

One must, however, remember the principle at the heart of this issue. The Revenue Commissioners are not recovering the money for its own sake but on behalf of all compliant taxpayers. It is important that the Revenue Commissioners use the full extent of their powers and pursue cases where they have evidence of a sector that is not complying. In that respect one must look at the issue of relevant contracts tax in the construction industry.

I wish to cite an example of the way the Department of Social and Family Affairs pursues individuals, without giving too much detail. It concerned a man whose brother died. It emerged that the deceased had claimed a pension to which he was not fully entitled, since he had sold land in the years previous to his death and so had means. When the property was legally examined, the Department of Social and Family Affairs was able to see that the man had such means that he had not declared. The family was then landed with a bill. His poor unfortunate brother, also a pensioner, was mithered when I met him. He was up the wall with anxiety and concern regarding the sum owed to the Department. One could say that the family had got its fair dues, but the officers of the Department were extremely diligent in their pursuit of the individual and the sum owed to the public purse, which amounted to tens of thousands of euro. The case was extremely vigorously pursued, and that is only fair.

However, when one looks at the construction industry and in particular the report of the Comptroller and Auditor General, one sees that the level of pursuance in that sector, especially regarding relevant contract tax, is simply not the same. Senator Norris referred to a case before Dublin District Court last week involving several building contractors engaged in a scam relating to that tax. That comes as no surprise to anyone working for the Revenue Commissioners on this sector. There are clear indications that the level of non-compliance and abuse in the area is quite extensive. Eric Fleming of SIPTU, a figure well known for his activity on behalf of workers in the construction sector, has extraordinary things to say on the subject. On some building sites, contractors have no employees, since everyone is a subcontractor. That clearly points to a degree of tax evasion that must be examined very closely and addressed.

One must think of the individual subcontractors involved. To what extent are the employers' obligations for holidays, pensions and other benefits to which people are entitled being avoided? What about overseas workers, who can now be found in large numbers on building sites? Without union involvement, are those people fully aware of their rights as workers, or are they being exploited by being termed subcontractors?

There is also the issue of the relevant contract tax. The chairman of the Revenue Commissioners made the astonishing comment to the Comptroller and Auditor General that one reason that subcontractors and contractors are not paying tax is that evasion is a means of gaining competitive advantage. The Government and in particular the Revenue Commissioners must examine that very closely. I am not satisfied from the Comptroller and Auditor General's report that enough investigations or audits are being carried out in the area. Nor am I satisfied that workers' rights are fully protected.

It is not good enough to say that the building industry has always been like that and always will be. We have had that attitude to tax evasion in the past. The Minister's own figures show that when the Revenue Commissioners go to work, they really get results. It is time that they really went to work on the construction industry and got results on behalf of compliant employers, contractors and workers, and especially on behalf of the wider community. I am not saying that social welfare fraud should not be pursued, but one wonders when one sees the work done on that compared with what appears not be done on the other side, particularly by the Revenue Commissioners.

Mr. Mooney

I welcome our friend and colleague, the Minister of State at the Department of Enterprise, Trade and Employment, Deputy Killeen, and I also thank the Minister for Finance, Deputy Cowen, for taking time out of his busy schedule to address this motion in the House. It is very gratifying that a senior Minister should attend the House when his brief and Department are addressed, and I applaud the Minister for it.

Mr. J. Phelan

It is his job.

Mr. Mooney

From listening to Opposition comments and reading the Minister's speech, there seems to be a clear dichotomy between perception and reality. Anyone reading this would have the living daylights scared out of them. I will quote the specific figure into the record. As the Minister has stated, the overall tax debt is 2.5%, down from 30% in 1989. We are second in a list of the top 22 countries, including several individual American states where tax compliance is very high, as well as wealthy countries such as Sweden.

When I was living in England under old Labour, the perception was that if one voted in the Labour Party, money would flee the country, while if one voted in the Tories, that would generate economic growth. I remember very well that Neil Kinnock publicly stated at a time when the highest rate of tax was approximately 98p in the pound there, and approximately 65p or 70p here, that anyone who paid so much was mad. He was the leader of the Labour Party and a putative Prime Minister. Whenever we talk about tax evasion and avoidance, we seem to forget the context in which this all happened. We had punitive rates of tax in this country, and the tax burden has been significantly reduced, with most of the change occurring during the lifetime of this Government. We now have the lowest tax regime in Europe. People can argue around that statistic, but it is a fact. They now have far more choice over how they spend their money than ever before, something true in comparison with citizens of other EU countries and beyond.

This motion is in two parts. On the one hand it is about social welfare fraud, which is totally separate from Revenue investigations. I came to the conclusion that it was a little like why the United States holds on to the death penalty. It is not about justice or fair play but about revenge. The view is that one should go after those people with all the money — all those multi-millionaires and billionaires. It is seen as disgraceful and outrageous that they have made all that money and are now trying to diddle the country out of its tax revenue.

Mr. Ryan

Does the Senator not agree?

Mr. Mooney

I am reminded a little of Ian Paisley speaking after the initial attempts at agreement last December. He wanted sackcloth and ashes, photographs and blood on the floor. That seems to me to be the motive underlying the motion. The Minister addressed this point so well that I will not elaborate. The wording in the motion before this House includes the following - "believes that the failure to prosecute tax offenders represents a deliberate decision to protect the well off from the full rigours of the law". Senator Ryan can dress it up any way he chooses; it states specifically, unambiguously and without equivocation that the Government complies with the wishes of vested interests on the question of tax avoidance.

Mr. Ryan

Absolutely. I could not have put it better myself.

Acting Chairman (Dr. Henry)

Senator Mooney without interruption.

Mr. Mooney

If the Senator believes that, he and I are on a different side of the line. That is why I am here and the Senator on the other side of the House. I am no expert in this area, but I suggest that social welfare fraud is easier to detect. As all Members agree, social welfare fraud involves taking money from the State to which one is not entitled. It is not any more complex than this in that a person is either employed or unemployed. If unemployed, one is entitled to welfare assistance. However, a person working in the black market has no such entitlement. Nor is a person who has no physical disability and is able to work entitled to claim disability allowance. The structure and architecture of the social welfare system means there are regional and local officers with the resources to investigate the circumstances of social welfare applicants. Nobody can have much sympathy for those who must repay moneys or are stopped from taking further contributions to which they are not entitled.

However, I have some sympathy with the sentiments expressed by Opposition Members in so far as it seems unfortunately to be part of western European culture that it is invariably those who have little resources who end up before the courts.

Ms White

Hear, hear.

Mr. Mooney

I accept that totally. I often wonder at the cases one reads about in newspapers of people living on the margins who have been imprisoned because they were perhaps driven by need to engage in social welfare fraud. On the other hand, a person in an important corporate position who has been involved in wrongdoing will not usually end up in the same situation. There are two types of cases.

However, we as politicians should not go down the road of questioning the separation of powers. If the law is not right and is in any way distinguishing between those who are well off and those who are disadvantaged, we as politicians have a moral obligation to change it. I advise Senator Ryan that cursing the dark is not the way forward. In addressing the last part of the Opposition motion, the Minister outlined in detail all that the Government has done in this area. It is taking the necessary steps, including legislation, to ensure that tax offenders are prosecuted through the courts. The caveat is that there seems to be a widespread perception that a person with money will avoid penal sanctions while those without are more likely to be given a custodial sentence.

I repeat the question put by Senator Mansergh. Why is there such an obsession with putting people in prison? As the Minister of State observed, the raison d’être of the Revenue Commissioners is to collect tax. If they can successfully reclaim the tax owed by a person and extract suitable penalties, where is the logic in calling for a custodial sentence? The type of philosophy embodied in this motion is illogical.

Mr. Cummins

I fully support this self-explanatory motion. There is no doubt that the State has come down heavily on social welfare fraud in the last number of years. It is right that it should do so. Between them, the 259 people brought before the courts for welfare fraud fiddled more than €1 million, an average of €70 per week per person. Of this number, 36 were imprisoned. I have no problem with that. However, if one agrees that social welfare fraud should be eliminated, one must also agree that fraud should be stamped out in all other areas.

The Comptroller and Auditor General found that no less than €173 million in tax was written off because it was considered too difficult to collect it from the fraudsters who had fiddled the State through non-payment of VAT, PAYE and so on. How many of these fraudsters were jailed? Certainly fewer than the 36 who were imprisoned for social welfare fraud. The message this conveys to the public is that it is advisable to evade tax, salt the money away or, better still, use it to cut prices so that competitors can be driven out of business and one's own prices can ultimately be raised. The chances of getting caught are small enough to make crime pay for these people.

Enjoying only meagre resources, the Revenue faces legions of companies subcontracting to other firms which in turn subcontract again to smaller operators. If the Revenue catches up with a person who is evading tax at this stage, he or she can pay what is due and that will be the end of it. This is not the case for those found guilty of social welfare fraud. Senator Mansergh has said it is better to name and shame people and recover the moneys owed to the State. I agree this is fair. However, why is the same process not open to the those who engage in social welfare fraud? Instead of imprisoning them, can the moneys overpaid to such persons not be recovered through a weekly deduction from their social welfare payment? Everybody must be treated equally under the system.

Dr. Mansergh

The problem is that welfare recipients may have dependants.

Mr. Cummins

It is sensible to ask why such persons should be imprisoned when this costs more than the amount they owe.

Dr. Mansergh

The money cannot always be recovered if a person has dependants.

An Leas-Chathaoirleach

Senator Cummins should be allowed to continue without interruption.

Mr. Cummins

Money can be recovered through a weekly deduction from a person's social welfare payment.

Other Members have observed that it seems possible to evade tax if one is able to employ tax consultants and the best lawyers. The objective should be equity and consistency in the system, not revenge. Senator Mooney got carried away when he spoke about death sentences in the United States. That is nonsense. There must be equity in the way the State deals with both rich and poor and consistency in the manner in which fraudsters are penalised. This does not seem to the case at present. There is still a perception that there is one law for the rich and another for the poor and it is difficult to refute this when one observes what is happening in the different areas of Revenue and social welfare. Some €173 million in evaded tax can be written off by Revenue while 36 of those found guilty of social welfare fraud are imprisoned.

Dr. Mansergh

Ten persons were imprisoned for social welfare fraud.

Mr. Cummins

The public is aware that this is unfair. Fine Gael fully supports this motion.

Labhrás Ó Murchú

It is good that this debate is taking place. The motion and amendment provide an extreme contrast. The many discussions, revelations, tribunals and so on that have taken place in recent years make it clear that, in the past, two Irelands existed when it came to tax evasion. The debate has been about whether wealthy people who evaded tax escaped custodial sentences because they had sufficient money to go to court, unlike recipients of social welfare who did not have access to the same resources. Senator Mansergh questioned whether the custodial sentence was fundamental to the debate. I prefer people to pay their debt to society in a way that does not cost society more money.

The thing which worries wealthy people most is publicity, whether it be in the form of naming and shaming or community work. I have not often read of a wealthy person doing community service, but I have read of several reports involving poorer persons. I do not know why that should be. Community service should be productive and tangible and the community should be aware it is taking place. In that context if there are inadequacies in the sentencing regime I suggest that wealthy people be seen to give that tangible service. Many of these people, owing to their position and wealth, have many skills that the community may be lacking or cannot afford and if that person has to show up at a given time to provide those services free of charge and in the public gaze it would be an effective deterrent, not only to that person but to the people who observe it and who might have similar orientation.

There are two Irelands when it comes to the law. People with money are generally in a better position to defend themselves and to fudge and delay charges. There are several such cases at present. As for tax evasion, we are living in a totally different Ireland from the one we lived in ten or 15 years ago. It is certainly more transparent. I do not think we can be more draconian in the legislation we have provided to the Revenue Commissioners. Sometimes, indeed, we are sailing close to the wind of entrapping relatively innocent people, for there are such people. Only two weeks ago a woman visited me who was extremely distraught because she was caught up in a tax issue. She was a hard working woman and certainly not a millionaire and the amount in question was very small. She had worked very hard in a little business of her own, which I will not mention. Her whole world had fallen in on her and her biggest worry was that her name would be published in the newspapers. Her worry was not for herself but that her family might also feel stigmatised as a result.

The Minister said due process had to be at the heart of the system at all times. I fear that the more we clamour for draconian measures there is a danger we will push legislation to the limit. I am not suggesting that the Labour Party or the Opposition in general want them but a clamour has been generated by the media, by talk shows and by vox pops. I do not think such measures would serve the country or individuals well.

It is very difficult for the Revenue Commissioners to bring a case to a stage when they can bring it to a court of law. The documentation they require in order to pursue a prosecution may not be immediately available, deliberately or otherwise. Witnesses one would expect to come forward, particularly in a case of an errant employer, may not be available. I fear we might cut corners in the process and that due process itself would suffer as a result. It will not be the big person who will suffer in that scenario but the small person.

I sensed a reticence in the arguments of Fine Gael Members. They supported the essence of the motion but at the same time tried to balance it to ensure that what I envisage will not come to pass. This debate should have taken place without a comparison between social welfare fraud and tax evasion as it has distracted from more fundamental issues. I empathise with the arguments about social welfare recipients. We need to be careful that the small person does not suffer through lack of support or legal protection. The two issues are too far apart.

We should return to the fundamental principle that everybody should pay his or her fair share of tax. It should be transparent and there should be no room for escape. The maximum legislation, that will ensure due process is observed, should be made available and fine tuned if necessary. I have not heard the Revenue Commissioners asking for extra powers. They have recouped €2 billion in seven years, which is a lot of money. There have been many successful cases. There may be a shortage of inspectors but I understand that is being addressed as well. Everybody in this country is likely to get an audit once in every three years. That is a long way from where we were when people might not have a tax audit in their entire life.

I understand approximately 50% of Revenue resources in the south east were directed toward the construction industry. I worry that we might automatically assume a subcontractor is evading tax. The subcontractor plays a significant role in the construction industry and the development of the country and should be given the benefit of the doubt. Just because there may be a central contractor evading tax we should not assume the subcontractor is guilty by association. It is clear the Revenue Commissioners are prioritising resources in this area.

The debate is good but we should have focused more on fine tuning the procedures to ensure nobody slips through the net but that due process will apply. The people who suffer from this abuse are invariably the weaker people, in a social welfare context, who do not have sufficient money to defend themselves.

Mr. Ryan

I thank everybody for participating in the debate, even those who disagreed with me. I especially thank Senator Norris for being swayed by Senator Mansergh into supporting the Labour Party, and I thank Senator Mansergh for his contribution to the improvement of numbers on this side of the argument.

I would like 20 minutes to reply to each point raised, but I will instead make a few specific points on issues that crossed my mind as I listened to my colleagues debating. In the 1980s, those on the left such as myself were accused of living in cloud cuckoo land when we stated that the country was awash with tax evasion. Even when evidence of inconsistencies were produced, we were told it was the product of imagination. It took years to discover that the country had so much tax evasion. Everybody denied it and denounced it as fiction, including Governments and Revenue Commissioners. It was argued that there was no pool of untaxed income or other forms of revenue out there. There was, however, an enormous pool of such money.

I deliberately left income tax out of this debate, although people such as Senator Mooney are bringing up my begrudgery towards people who make much money. The good example is not income tax where one can argue forever about who has the right to specific money, but the theft of VAT. When VAT is collected and not transmitted to the State, an act of fraud and theft has been carried out. When somebody does business and does not charge VAT, it is essentially theft from competitors, as the person or company is taking an illegal and fraudulent competitive advantage. Why should people who carry out these actions not be brought before the courts? I do not care if they go to prison as long as we stop sending social welfare recipients to prison as well. According to overwhelming evidence, prison does not work and serves no purpose in correcting people. I have the least amount of interest in seeing elderly gentlemen, be they formerTaoisigh in this country or former presidents of Chile, go to prison in their old age.

I have interest in creating a public perception that if an offence is committed, whether a person ends up in court is entirely unrelated to whether he or she is rich or poor. A person should go to court, be charged and be punished in accordance to the offence, be it fraud, theft or something else. It should not matter where that person comes from. I was outraged some years ago by a person who defrauded a major charity having a queue of eminent people looking to give character references.

With regard to arguing whether a person should go to prison or be punished, it has been argued by some lawyers that their client has come from a good family and should not go to prison. Logically speaking, those who come from good families should be further up the queue for punishment than those who did not get a good chance in their life. I have a view on the prison system and I will not allow it to be distorted in this debate.

Why is it that the Revenue Commissioners see the deliberate theft involved in VAT fraud as being unworthy of prosecution? According to statistics, 31 cases were accepted for investigation for prosecution by the appropriate section of the Revenue Commissioners in 2004. In the same year, 476 cases were referred to the Chief State Solicitor for prosecution for social welfare offences. The prison issue should be omitted as it is to a degree a red herring. Fifteen times more people were threatened with prosecution for social welfare fraud than for tax fraud. I want to know why this is so.

The Minister was at his most lugubrious in stating that: "I know of no evidence that would support this unwarranted allegation. Surely the Senators who put down that motion should think again about this wording, which strikes me as entirely inappropriate." When I hear a Fianna Fáil Minister state something such as this, I know I have been successful in making a point. The wording of the motion is entirely appropriate as it is within the Government's power to insist that people should be prosecuted wherever they are discovered. I can only imagine what would come about if the Garda stopped prosecuting people for fraud generally, provided these people paid the money back along with a penalty. Again, I can only imagine what would occur if white-collar criminals knew that if they were caught they could pay back the money along with a penalty of 50%, for example.

Every person who settled with the Revenue Commissioners could do so, and we do not know how much money they managed to make from the sum of money that was not paid ten years ago, for example. How much money could a person have made in ten years if, for example, €1 million was put into property? The property could be worth €10 million at this stage because of the property boom. The person would have avoided €1 million in tax and paid back €2 million, leaving a clear profit of €8 million. We should not grieve too much over penalties, which would have been paid by people who could afford to pay them.

This is a fundamental point, rather than the issue of imprisonment, punishment, vengeance, greed or envy. Two different organs of the State, both accountable to Government and allegedly implementing policy, take entirely different views on dealing with criminal activity. One prosecutes almost 500 people, the other considers prosecuting 31.

If it is not a matter of policy, the Revenue Commissioners are out of control. If the Revenue Commissioners are subject to legislation and general oversight by the Oireachtas and the Government, it is a matter of policy. This amounts to a policy to prosecute the poor and be lenient on the rich. This relates to the motion.

An Leas-Chathaoirleach

Is the amendment agreed to?

Mr. Ryan

Was the amendment seconded?

An Leas-Chathaoirleach

A Government amendment is not required to be seconded.

Amendment put.

The Seanad divided: Tá, 28; Níl, 16.

Tá

• Brady, Cyprian.
• Brennan, Michael.
• Callanan, Peter.
• Dardis, John.
• Dooley, Timmy.
• Feeney, Geraldine.
• Fitzgerald, Liam.
• Glynn, Camillus.
• Hanafin, John.
• Kenneally, Brendan.
• Kitt, Michael P.
• Leyden, Terry.
• Lydon, Donal J.
• Mansergh, Martin.
• Minihan, John.
• Mooney, Paschal C.
• Morrissey, Tom.
• Moylan, Pat.
• O’Brien, Francis.
• O’Rourke, Mary.
• Ó Murchú, Labhrás.
• Ormonde, Ann.
• Phelan, Kieran.
• Scanlon, Eamon.
• Walsh, Jim.
• Walsh, Kate.
• White, Mary M.
• Wilson, Diarmuid.

Níl

• Bannon, James.
• Browne, Fergal.
• Burke, Paddy.
• Burke, Ulick.
• Coghlan, Paul.
• Cummins, Maurice.
• Feighan, Frank.
• Finucane, Michael.
• Hayes, Brian.
• Henry, Mary.
• Norris, David.
• O’Meara, Kathleen.
• Phelan, John.
• Ryan, Brendan.
• Terry, Sheila.
• Tuffy, Joanna.

Tellers: Tá, Senators Minihan and Moylan; Níl, Senators O’Meara and Ryan.

Amendment declared carried.

Question, "That the motion, as amended, be agreed to", put and declared carried.

An Cathaoirleach

When is it proposed to sit again?

Ms O’Rourke

Tomorrow at 10.30 a.m.