State likely to suffer sharp funding shortfall within five years, commission warns

Ireland is likely to suffer a severe funding shortfall in the next five to 15 years without a significant overhaul of the taxation system, the Oireachtas Committee on Budgetary Oversight will be warned on Wednesday.

An opening submission by members of the Commission for Taxation and Welfare, who are due before the committee to discuss their recent report, suggests the overall level of revenues raised from taxation and pay-related social insurance as a share of national income “will have to rise materially”.

“This reflects the age profile of our population. To provide the level of services that, as a society, we currently expect, will require significant additional funding,” commission chairwoman Niamh Moloney will tell the committee.

Electric motoring

The need to raise additional revenue also reflected the other significant fiscal risks that Ireland faces from the carbon transition and its growing reliance on corporation tax as a source of funding, it says.

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The exchequer is expected to lose up to €5 billion in tax receipts annually from the shift to electric motoring while there is a question mark over our corporation tax revenues, which have surged in recent years.

“While corporation tax receipts are currently very high, it would not be wise to place strategic reliance on this revenue to meet our future needs,” Ms Moloney will say.

In a report published last September, the commission detailed 116 possible changes to the tax and welfare systems to broaden the State’s tax base.

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They included increasing the Local Property Tax and introducing a site-value tax while restricting the relief from capital gains tax from the sale of a principal private property. The commission also proposed the imposition of congestion charges on city centre motorists as a way of funding increased spending on public services in the future.

[ Ictu to highlight concerns over Commission on Taxation recommendations ]

At the time, Taoiseach Leo Varadkar criticised the proposals, saying some of the recommendations looked like they came “straight out of the Sinn Féin manifesto”.

Child poverty

In her submission, Ms Moloney will tell the committee that the commission’s report “proposes a series of measures to expand the tax base and to shift the balance of taxation to ensure that a greater share of taxation is drawn from more efficient taxes, and so to secure the sustainability and also the fairness of the taxation system”.

Overall, it proposes “shifting the balance of taxation away from taxes on labour and towards taxes on wealth and consumption; and strengthening the PRSI system”, she will say.

There are also measures to reform the welfare system to support employment and address child poverty.