Mr. Seamus McCarthy:

As the Chairman stated, central Government funding transfers to local authorities present a highly complex picture, with transfers from a number of departmental Votes and funds for a wide variety of purposes. In my annual report each year, I include a chapter designed to present an overview of the level and trends of such funding and the purposes for which that funding is provided. Figure 8.1 in the chapter, which is replicated on-screen, gives an indication of the many sources and flows of the funding for 2016.

I should point out that there have been some structural changes in how the funding moves since the report was published. In particular, since the beginning of this year, motor tax receipts are no longer paid into the local government fund. They are now paid into the Central Fund of the Exchequer, like other tax revenue receipts. Moreover, local property tax receipts, which are collected by Revenue, are now paid directly into the local government fund, rather than into the central fund.

In 2016, the aggregate transfers of funding from central government to local authorities amounted to slightly more than €2.2 billion. Over 80% of this funding was provided either through Vote 34 - Housing, Planning and Local Government, or directly or indirectly from the local government fund. Both the Vote and the fund are administered by the Department of Housing, Planning and Local Government.

One of the key functions in administration of the local government fund is the allocation of local property tax receipts to individual local authorities using a redistribution model. The result of that redistribution is summarised in figure 8.3 of the chapter, included with the Comptroller and Auditor General's submission. The bulk of the funding transferred to local authorities in 2016 was earmarked for three spending areas; €913 million for housing and urban regeneration, representing 41% of the total; €639 million for transport investment, representing 29%; and €310 million for local authority general purposes, representing 14%. The final part of the chapter summarises the activities in 2016 of the Local Government Audit Service and of the statutory National Oversight and Audit Commission. These are the primary mechanisms through which central government funders gain the necessary assurance about the application of the funding provided to local authorities.

The 2016 account of the local government fund received a clear audit opinion. The account recorded income of just over €1.9 billion, and expenditure of €1.92 billion, resulting in a deficit of just less than €16 million for the year. The fund was financed mainly by motor tax receipts totalling €1.049 billion, local property tax receipts of €463 million and a contribution of €397 million from the Exchequer through Vote 34. However, it should be noted that on the expenditure side in 2016, a total of €318 million was paid over from the fund to the Exchequer.

Aside from sums directly or indirectly transferred to local authorities, the other substantial expense on the local government fund in 2016 was a subvention of €652 million paid to Irish Water. Members may wish to note that a further €184 million was contributed to Irish Water from the central fund of the Exchequer in 2016 in the form of capital contributions. I have dealt with the overall funding of Irish Water in a section of chapter 1 of my 2016 report.

The final part of this morning’s agenda relates to Special Report No. 97, which was completed in December 2016. The report presents the findings of an examination we undertook which reviewed trends in motor tax receipts, the costs of collection of the tax and the effectiveness of controls in ensuring compliance with motor tax regulations. The examination was carried out under co-operation arrangements between the Office of the Comptroller and Auditor General and the Local Government Audit Service.

As I mentioned previously, annual motor tax receipts amounted to just over €1 billion in 2016. While the number of vehicles taxed has increased in recent years, revenue has fallen from €1.16 billion in 2014. This reflects the ongoing replacement of older private vehicles by lower emission vehicles, which attract lower tax rates. The examination concluded that if other factors remain unchanged, decreases in motor tax revenue will continue. For example, we projected on current trends that the replacement of older private vehicles will reduce motor tax receipts by €260 million between 2015 and 2024. That is almost a quarter of the current total receipts.

Members will be aware that vehicle owners have the option to renew their motor tax for a period of three, six or 12 months. However, taxing vehicles for shorter periods is more expensive pro rata for taxpayers, and results in higher transaction processing costs for local authorities and for the Department of Transport, Tourism and Sport. We also found that on average, owners of older vehicles taxed on the basis of engine size renew their tax more frequently and for shorter periods when compared to owners of newer vehicles taxed on the basis of emissions.

Motor tax collection is now mainly done through the motor tax online system of the Department of Transport, Tourism and Sport. Local authorities collect a reducing share of motor tax revenue through their local motor tax offices. As a consequence of the dispersed collection system, the overall cost of administering the motor tax system is not readily identifiable. Data collected for the examination suggests that in 2014 the Department of Transport, Tourism and Sport and local authorities were incurring costs of around €49 million each year. We estimated that the cost of processing an online payment was around €5 per transaction, whereas the cost was about €10 per transaction when processed via a motor tax office.

In 2015, the online facility was used for two-thirds of transactions and increasing each year. However, there is significant variation in the online processing rate in individual counties. In Dublin and surrounding counties, close to 80% of transactions were conducted online. In Donegal, Roscommon and Longford, the rate of use of the online facility was closer to 50%. However, the examination found that there had been no recent evaluation of the factors influencing a customer’s decision to pay tax online or at a local office, or the period for which they pay tax. This information would help to inform planning for the provision of services in the future, including the use of IT solutions to increase the efficiency of service provision.

We also examined the operation of controls in relation to collection of motor tax. We found that there was no current estimate of the level of motor tax evasion, and that the impact of changes in regulations governing off-the-road declarations had not been ascertained. The examination also found that there was limited validation of key information such as name, address and insurance details when taxing a vehicle. Furthermore, there had been an increase in the proportion of frequent transfer of ownership of individual vehicles, which may facilitate the evasion of motor tax because arrears are not pursued when ownership changes.

The report makes a number of recommendations concerning the need to monitor motor tax evasion and analyse transaction data to identify emerging trends and support risk-based enforcement measures. As agreed, I will introduce the Vote at the beginning of this afternoon's session.