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Redress for Taxpayers - Presentation to Oireachtas Committee (12 February 2003) (12.02.2003)

Address by Mr Kevin Murphy at Joint Oireachtas Committee

Chairman,

I'm pleased to have this opportunity to speak to the Committee about the implementation of the recommendations in my investigation report Redress for Taxpayers.

As you know the Revenue rejected three of the five recommendations I made in that report. The first and second recommendations rejected related to a number of individual cases and generally to public service widows where lengthy delays had occurred in making refunds of tax wrongly levied and where Revenue had refused any compensation for the loss in the value of those refunds. The third rejected recommendation related to the introduction of a compensation scheme to deal with this matter generally on the lines of that accepted by all public bodies other than Revenue.

I am pleased to acknowledge the initiative of the Minister for Finance in the context of the Finance Bill which fully meets the third of the three outstanding recommendations. However, despite some last minute efforts, I regret to say that Revenue still refuses to implement my other recommendations on two grounds - possible cost repercussions and the claimed absence of specific statutory authority to make the payments. I intend to concentrate on these two issues.

But I would first like to make a few brief general comments. The credibility of any Ombudsman depends on his/her ability to deliver adequate and appropriate redress or remedies to people who have been treated unfairly. My primary duty is to the individuals who have complained to me and I am duty bound to continue to press their case.

The Ombudsman Act 1980 gives me the authority when a person loses out as a result of the improper or unfair action of a public body to recommend:

"that measures or specified measures be taken to remedy, mitigate or alter the adverse affect of the action".

These are wide powers indeed and they carry the authority of statute. I find it frankly unbelievable that any public body which implements a formal recommendation of mine, made under statute, could face a challenge unless there was an actual statutory bar preventing their doing so. In my view, and I should like to emphasis this point Chairman, a formal recommendation for redress, in accordance with the provisions of the Ombudsman Act 1980, once unfair treatment has been accepted, carries its own statutory authority.

The Ombudsman Act, of course, recognises that neither public bodies nor Ombudsmen are infallible and that there may be very infrequent and exceptional cases where the merits of an Ombudsman's recommendations may be disputed by the public body. In those circumstances, the Act provides that the Ombudsman can refer the matter to the Houses of the Oireachtas which would have the task of judging who is right and who is wrong in the context of good administration and fairness to the citizen. It seems to me that a Committee of Dáil Deputies and Senators which specialises in Finance and Public Service matters is an excellent jury to make judgements of that kind. But, Chairman and Members, the case you are considering this morning, is not a case where the merits of my recommendations are being disputed. The Revenue has never denied that my complainants were unfairly treated. In its public response to my Report, the Revenue stressed that it had no fundamental difficulty with the basic principle of the payments recommended, it was rejecting my recommendations simply because of the "widespread implications of making compensation payments" and the absence of any statutory authority to pay compensation. As the Chairman of the Revenue put it in his letter to me of 22 October 2002.

"To the extent that there is any unfairness in our failure to compensate the eight complainants for loss of value that unfairness arises from the statutory position; it should not be laid at Revenue's door."

In my view, where injustice has occurred, failure to rectify it is itself further maladminstration.

That, Chairman, brings me back to the question of cost and the alleged need for specific statutory authority for any compensation.

On the question of cost at no stage has the Revenue produced any costing of my recommendations. My recommendations cover two distinct groups. First public service widows who were widowed prior to 1988 and were wrongly taxed on their children's pensions and second a group of 10 other complainants including 4 not specifically mentioned in my report with one thing in common, they all had income tax refunds wrongly withheld from them for varying lengths of time stretching to 15 years in one case. It is necessary to distinguish between the two groups because, in the case of the widows, I was recommending refunds of tax as well as compensation payments and therefore, my recommendations extended to all widows in that category. We now have the ridiculous position that Revenue are refunding these widows tax wrongly paid in the 1980's but only in 1980's money values. That is not adequate redress since it does not put these widows back in the position they would have been in if they had been correctly taxed in the first place. I would have expected that by now Revenue could tell me what the cost would be. All I have heard is that the number of pre-1988 qualifying widows is much less than had been estimated.

As regards the other 10 complainants my recommendations apply only to them and do not extend any further. The cost would clearly be insignificant so what is the problem? Revenue has argued that because the 10 cases are so disparate there is bound to be widespread implications. I would have thought that the opposite would be true. If, Chairman, you look at the individual cases set out in pages 32 to 35 of my report you will see that, with two exceptions, the circumstances of each case are so sui generis that they can hardly be repeated. The two exceptions are the Professional Services Withholding Tax Cases. I suspect that these are seen as a problem although Revenue never raised the issue of a specific spin off from these two cases during the three years or more of my investigation. Are we then to deny justice to public service widows and the other complainants because Revenue now sees some problem with two particular cases? And how real is that problem? Revenue knows that, under the Ombudsman Act, I am precluded from investigating complaints unless they are made within 12 months of the alleged improper or unfair action. I have discretion to waive this time bar but only if I am satisfied that special circumstances make it proper to do so. It would be helpful to the Committee's assessment if the Revenue indicated:

• What is the cost of implementing my recommendations for compensation for loss of value in the case of the complainants specifically covered in my report?
• If they are fearful of repercussions how do they see them arising and what would be the cost in those cases?

Let me turn now, Chairman, to the issue of lack of statutory authority. I have already expressed the view that, if the merits of my recommendations are accepted (as they have been in these cases) then the statutory authority on which my recommendations are based provide a legitimate basis for implementation. This was established in the earliest days of the Office of the Ombudsman when County Managers were particularly conscious of the ultra vires doctrine which required their actions to have specific statutory authority. A public body has the obligation to make restitution when their improper or unfair action has adversely affected someone.

In any event, the Revenue has available to it the Care and Management provisions of the taxes legislation as well as the well established and long existing practice of ex-gratia payments to meet cases where inequity arises. In relation to the Care and Management provisions the Revenue said to the Commission on Taxation (see page 10 of my Report):

"Under the care provision we mitigate the application of the law if its literal interpretation would not be in accord with the intention of the Oireachtas or if it would result in hardship ".

In relation to ex-gratia payments, the most recent published example of such payments being made resulted from my Special Report on Local Authority Housing Loans . The Department of Environment and Local Government confirmed to my Office that it fully accepted the principle that compensation for loss of value was fully justified on grounds of equity. Indeed, ex-gratia payments to mitigate unfair treatment are a frequent feature in Ombudsman cases.

The unsatisfactory nature of the Revenue response is best illustrated by a series of questions to which I have so far failed to get satisfactory answers:

1. On what authority did the Revenue pay interest in the case of the former bank officials (see page 18 of my report) who had been refunded income tax following a High Court decision?
2. If not on the basis of the Care and Management provisions, on what other authority were the payments made?
3. How do the Revenue justify the different and less favourable treatment for public service widows given that the High Court found in their favour also?
4. Did the Revenue at any stage look for sanction from the Department of Finance to make ex-gratia payments given that other Departments including the Department of Finance itself were operating such compensation schemes?

I should explain in that regard, Chairman, that the Department of Finance in a letter dated 18 December 1986 to the Office of the Ombudsman had undertaken to treat cases in areas other than Social Welfare on the same basis as Social Welfare cases. I have circulated a copy of this letter for the information of Members and I would draw your attention to the last paragraph on the first page.

Chairman, let me conclude by saying as strongly as I can that the continued refusal of Revenue to compensate the complainants covered in my report is not only unjustified but it is perpetuating and exacerbating an injustice which Revenue acknowledges exists. I have every confidence that this Committee when it has had an opportunity to digest all the arguments, will support my view that this continuing injustice must be remedied and that the power to provide such a remedy is clearly and unambiguously available.

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