Consulting for What?

May 13, 2019

Sunday Business Post 12 May 2019
A business story which got buried in the tangle of the broadband debate this week was the announcement from the Department of Finance of a number of public consultations.  Three consultations on the operation of business tax reliefs are aimed mainly at the small to medium enterprise (SME) sector.  It's hardly surprising the announcement was buried by broadband, if you’ll forgive the mixed metaphor.  The Finance Minister is right in his assessment that rural broadband is actually a business issue with the potential for cascading (probably Exchequer) benefits. 

The lack of broadband affects very many while at best, tax incentives for SMEs are a minority sport.  They don't cost the Exchequer much in revenues forgone (at least when compared to the €3bn broadband bill), and relatively few businesses claim them.  So are these tax consultations worth having?

It is many years since a senior official remarked to me, perhaps in an unguarded moment, that if there were too many consultations, nothing would ever get done.  He may have had a point.  The consultation process on tax issues has, in the last few years, become something of a mini industry.  They emerge on a frequent basis; the Department of Finance website notes no less than fourteen over the past three years.  This very frequency is a cause for scepticism. 

The role of government should be to set policy.  Any consultation on taxation policies invites comments from the audience which might benefit from them - the reverse of turkeys voting for Christmas.   Therefore the integrity of a tax consultation can only be preserved if it is about the mechanics of the relief at issue.  It should be about what elements of policy are workable and what are not.  A consultation should examine not whether a tax relief is necessary, but how, given that it is already government policy, the responses will help make it work better. 

That kind of outcome is unlikely, given past experience.  Some tax consultations either fail entirely, miss the point, or layer a veneer of inclusiveness over official decisions. 

There have been several Department of Finance sponsored public consultations to do with encouraging people to invest in and develop small Irish enterprise and to avail of tax breaks for doing so.  A review of tax and entrepreneurship four years ago examined precisely the same issues currently under review.  At the time, and many times since then, it has been pointed out by businesses and lobby groups that an investment in a small enterprise is by definition risky.  Where the certification process for eligibility for tax relief makes the investment even riskier, a tax incentive scheme is unlikely to be successful.  The consultation may have identified the problem but it has not been solved. 

A 2016 consultation examined the way PRSI is levied on business people.  The official response from the consultation didn’t issue until 2018.  Mercifully, the social protection Minister, Regina Doherty, had better sense than to implement the conclusions the Department managed to draw from the responses and recognised that PRSI is not a tax, but an insurance payment which confers benefits.  She promised instead to re-examine the benefits available to the self-employed, most recently the announcement to extend job seekers benefit. At least this particular consultation prompted a solution to a different problem. 

Perhaps the most egregious example of consultation malaise concerns the 2017 Coffey report.  The Coffey report was an examination of the operation of the corporation tax system.  It was commissioned to placate cabinet ministers.  Some in government were uneasy at the 2016 decision to appeal the European commission ruling that Apple had benefited from illegal State aid in the form of tax breaks.  Seamus Coffey's recommendations have been consulted upon in different guises three times since.  

There are little grounds for hoping that any of the responses to the three SME-facing consultations now open are likely to bear fruit.  The very short timeframe assigned to the consultations, demanding responses by 24 May suits only those who are sufficiently resourced to respond quickly.  Given that these consultations are targeted at the SME sector, short timeframes make it harder for those businesses most likely to need the reliefs in the first place to make in-depth responses. 

Nevertheless, many businesses and interest groups will make time to put in some form of response on these consultations.  Having channels for public input into official decision making is an important component within a democracy, even if those channels are shallow and meandering. 

One improvement to the process could be the introduction of a code of consultation principles, similar to the one which operates in the UK which provides undertakings on time limits, responses and actions.  The UK code for instance would have prohibited the current consultations taking place because the response interval spans the local election campaign.  

However, if government wants to secure proper engagement with the consultative process, it is not further consultations or codes that are required.  Rather, it is tangible evidence that the comments, observations and suggestions from the consultation process are being heeded.

Brian Keegan is Director of Public Policy and Taxation at Chartered Accountants Ireland