Irish people have a strange relationship with income tax. Nearly everyone — apart from a few masochistic socialists — complains about paying too much. Yet many of those with genuine grievances pay more than they have to, being either ignorant of the tax system or too lazy to work out how much they’re overpaying and how to recoup it.

Meanwhile, others who could afford to pay more go to extraordinary lengths to reduce or even eliminate their tax bills. Some limit the number of days they spend in Ireland so they can claim they are not resident. Others, who can’t go abroad or don’t find the various tax incentives attractive enough, instead lie about their incomes to reduce the size of their bills.

Half of all PAYE workers — according to a survey by the Taxation Institute — do not understand the tax system. This suggests a million Irish people do not claim tax relief on medical expenses, for example, and that nearly half do not look for money back from bin charges. More than a third do not understand their tax certificates or their P60s, while more than 43% do not know if they are receiving all their entitlements, and nearly as many leave it to their employers to sort out. Not surprisingly, employers pay too much tax to the Revenue Commissioners.

Those workers who make tax returns, and who know how to claim all their entitlements, can end up getting cheques each year worth hundreds or even thousands of euro. But the state keeps hundreds of millions to which it is not entitled.

Which may be why some people are rich and the rest of us are not. And why some, like the Bailey brothers, the builders of Ray Burke bribe fame, remain wealthy even after paying huge fines when caught evading tax.

The €22m in tax and penalties the Baileys paid to the Revenue Commissioners is just a small fraction of the wealth they accumulated during the years they used unpaid tax to fund their business expansion.

The Baileys were the headline act in last week’s quarterly revelation of evaders caught by the Revenue Commissioners. In the first three months of the year the Revenue collected €109.6m from cheats, with just 150 of those “tax defaulters” stumping up €55m. On the list were prominent priests, jazz musicians, hurlers, publicans, farmers and conventional businessmen, many of them pillars of society.

Their tax cheating can probably best be explained by greed. Because the rich, if they organise themselves properly, pay a smaller percentage of their annual income in tax each year than the vast majority of PAYE workers. There is no need for the rich to hide income — all they have to do is use the inducements offered by the state.

Every year the Revenue details the tax take from the country’s top 400 taxpayers. The latest list — for 2002 — reveals that 43 people who earned more than €1m paid less than 5% tax on their income, and at least six may have paid nothing.

The top 400 earners paid an average of 24.4% of their income in tax, down from the previous year’s 28.9%. Most reduced their tax bills legitimately by investing in property-based incentives, such as hotel and car-park construction schemes. Tax avoidance is an enormous industry in itself, organised by accountants and lawyers who master a complicated landscape of tax legislation.

That was not the end of the windfalls for the millionaires, though. Their investments have benefited enormously from rising asset-valuations over the past decade. Those profits attract capital gains tax (CGT) at a rate of just 20%, half of what it was until Charlie McCreevy changed it in 1997. So not only did governments allow the wealthy to keep more of their income, they facilitated hugely successful investments that exacerbated the gap between rich and poor.

Successive ministers for finance have made a virtue of this generosity. They have claimed that the tax incentives encouraged wealthy people to invest in Ireland; that they have assisted the economic regeneration of many rundown parts of the country; and that the state’s CGT take has multiplied since the halving of the rate.

This is only partially true. Ireland was profitable for investment with or without tax breaks, and the trade of assets that the 20% CGT rate encouraged might have happened just as readily at a rate of 30%.

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