Economics: "Whosoever hath, to him shall be given, and he shall have more in abundance. Whosoever hath less, that which he hath shall be taken from him". This excerpt - taken from Matthew 13:12 - is one of the Bible's more confusing paragraphs, writes Marc Coleman

In short, it says that the rich get richer and the poor get poorer. But this isn't a biblical justification of riches and poverty. Here the Bible is just describing a depressing reality, throwing up its hands in despair. Last Monday, the Department of Finance proved the literal truth of the Bible, or at least this portion of it.

Three separate reports published on its website have shown how tax reliefs have benefited a few wealthy individuals, at massive net cost to the Exchequer. Some years ago a report by the Revenue Commissioners showed how a small minority of this group was abusing the scheme to eliminate or reduce tax liabilities.

In one of his first major acts as Finance Minister, Brian Cowen acknowledged their sinfulness of such schemes and promised to follow the path of righteousness in the future.

But he has decided to extend the deadline for several reliefs, in many cases longer than the consultants recommended. Bartholemew - in whose vineyard Cowen labours - spake thus unto him "Lo, an election cometh! Let us not provoke the multitudes who work in the construction sector, lest they join the Tribe of Enda."

There are two issues here: on the one hand the issue of flaws in particular schemes and on the other the need to put a clear strategy in place for handling tax reliefs in future. The Government is committing a venal sin in relation to the first and a mortal one in relation to the second.

The first of the three reports was produced by Indecon consultants and puts the net cost to the Exchequer of non-residential schemes (hospitals, nursing homes and the like) at around €450 million. The second, by Goodbody consultants, puts the equivalent cost of residential renewal schemes at a further €1,933 million.

In all cases the estimates take account of the benefits accruing to the economy from the incentives created. And in most cases the beneficiaries of such schemes were wealthy investors. Throwing in a miscellany of other schemes takes the overall cost close to €3 billion.

The €3 billion taken in stamp duty last year - in the main from those on middle or lower incomes - is equivalent to the amount paid in tax relief to those earning some of the highest incomes in the country. The relentless drift of taxpayers on modest incomes into the higher tax band is another aspect of inequity highlighted by this issue. For now the question is the Government's missed opportunity to straighten out tax relief for once and for all.

Just before Budget time, a very useful contribution on this topic came from Tim Callan, John Walsh and Kieran Coleman of the Economic and Social Research Institute (ESRI). The paper, entitled Tax Expenditures, was delivered to a special ESRI budget perspectives conference last autumn, well in time to inform the Finance Bill.

The most useful thing this paper does is to change terminology. It speaks not of tax reliefs, but of "tax expenditures". This gets across the idea that relief is a cost that is financed by other tax revenues. Of course, such reliefs also incentivise activity, generating further revenue. But as the consultants' reports have identified, the net tax foregone is always a positive amount.

And even if an economic activity does needs stimulus, Callan, Walsh and Coleman point out that direct aids have several advantages over tax reliefs. Direct expenditures are easier to target on a specific activity and less easy to abuse. And, unlike tax reliefs, their costs have to be monitored regularly by the Department of Finance and possibly other departments.

Not that the cost of tax-relief schemes is confined to the Exchequer. One citation in the study, from an 1984 report on the same subject by the Commission on Taxation is worth reproducing: "In considering the introduction of incentives for one sector, account must be taken of the disincentive effects on other sectors which bear the cost." The reliance of our present economy on the construction sector and the relative weakness of indigenous manufacturing, not to mention research and development, are just two symptoms of this. The oversupply of hotels and holiday cottages - and its potential to devastate tourism and property prices in rural areas - is another.

So, to some extent, analysing the issue now is a case of shutting the stable door after the horse has bolted. Cost-benefit analysis should have preceded the implementation of such schemes and should have been their constant companion throughout their implementation. Even had they been subject to casual scrutiny, a glance at the Liffey skyline would have informed any semi-intelligent person that such reliefs for urban renewal became unnecessary by the late 1990s.

But, as pointed out by Labour finance spokesperson Joan Burton TD, something important can be salvaged. The underlying problem with reliefs is the lack of any systematic method to assess them. Labour has echoed an idea mooted in the ESRI paper to establish a tax commission that would apply cost-benefit analysis to all future tax-relief schemes.

To summarise the three problems with our tax relief system: much of the activity that tax relief was introduced to aid was, by the late 1990s, booming of its own accord - such as apartment building - or has overshot desired levels - such as hotel building; the inequities these reliefs have introduced are inexcusable; but, most of all, their selection and implementation is unacceptably devoid of method.

We can forgive Brian Cowen for being a politician. But the extension of schemes should have been subject to cost-benefit analysis to prove it.

Labour's proposal to create a commission is the right idea at the right time. The Government's rejection of that proposal will cause distortionary and inequitable tax reliefs to continue. That would be a mistake of biblical proportions.