The Cost of Government

I read in The Economist that the cost of collecting US taxes is estimated at between 15-20% of the gross figure. I was curious to know how well the Inland Revenue does in comparison and was surprised to find that, according to the National Audit Office, it does ten times better. The cost of collecting income tax in the UK is just over 1.5%. Less than managing agents charge to collect rent. Less than estate agents charge to sell houses. Weird.

This is truly extraordinary. In a country where the National Health Service is as inefficient an organisation as could be conceived (delivering worse health at higher cost than any equivalent) and where most public sector organisations appear to be chaotic and anti-productive, the tax collectors are superbly efficient. How come? Why don't we distribute these paragons around the other public services to get wider benefit from their super-powers?

I cannot find much more information on this subject on the internet. I wouldn't mind betting that the difference is accounted for more by the method of measurement than reality. Maybe the US figures include the cost to taxpayers of compliance? Certainly the UK figures do not, and the amount of money and time expended in dealing with the Inland Revenue is a major cost to the UK economy. When the Inland Revenue calls, you drop all production and deal with them - such are their powers.

The Economist is advocating a "flat tax" for the UK, similar to that in Russia. As a Russian taxpayer, I can certainly confirm that the tax authorities here are easier to deal with. There are no complicated allowances; no higher rate bands. You declare your income and pay 13% of it. As simple as that. I signed my tax return this week and (unlike any I ever signed when I was a UK taxpayer) I understood it - even though it was in Russian it was clearer English than anything the Revenue ever managed!

Collection costs in flat tax regimes are confined to basic clerical work, investigative work on suspect returns and collection of unpaid bills. There's a PAYE system in Russia too, so I found that my company had paid most of the tax already and I have to write a cheque for a small balance. I can't find any numbers for the percentage cost of collection in Russia, but it must be pretty low.

Does anyone out there have comparitive data? It strikes me that a flat tax might be a good place to start in rolling back the British State. If nothing else, a country with fewer tax collectors must surely be a happier place - and as they are apparently Britain's most efficient Civil Servants they could be redeployed to run the Health Service to wonderful effect.