The restrictions put on pension contributions and the use of tax reliefs in this week's Budget did not provoke serious complaint yesterday, indicating perhaps that they were not causing undue distress.
Finance spokesman for Fine Gael, Richard Bruton, said he did not think the restrictions on the use of tax reliefs being introduced, were very severe.
"You are still talking about very substantial reliefs being available to a very large number of people," he said. Similarly, he questioned whether the State should be subsidising people accumulating a pension fund of up to €5 million. A survey by PricewaterhouseCoopers (PwC) found that the changes due to affect non-domiciled managers working here for foreign multinationals was creating most concern amongst its clients.
PwC partner Feargal O'Rourke said it was his view that it was the remittance change that would be creating the largest number of representations to the Minister for Finance Brian Cowen. "Multinational Ireland is concerned about this and representations will be made," he said.
The measure has existed for decades and is used to attract multinationals here. People resident here but not domiciled here pay tax not on their whole income but only on the amount of money they remit here. This will end in January 2006, a change that Mr Cowen said will yield €100 million a year from 2008. Mr Cowen said he wanted to balance the need to offer incentives to work and enterprise with the aim of ensuring that everyone pays an appropriate amount of income tax.
He announced the closing down of a range of tax relief measures such as the urban renewal and multi-storey car park schemes. However, he is retaining some schemes such as tax reliefs for nursing homes and private hospitals. People earning more than €250,000 a year who make use of such schemes will from January 2007 be restricted in the amount of tax they can avoid. The new rules will mean that the value of the reliefs (tax avoided) that can be used in any year cannot be more than 50 per cent of the person's total income. Tax reliefs unused can be carried forward, though for some people, with very high incomes and large amounts of reliefs available, part of the reliefs may never now be used. An effect of the measure is that high income people will have to pay at least 20 per cent in tax on their income.
Mr O'Rourke of PwC says there is a lot of "smoke and mirrors" about the move. He says surveys conducted by the Revenue show the effective tax rates being paid by high income earners has been increasing since 1998. This is because the then minister for finance, Charlie McCreevy, changed the rules so that only rental income could be offset against investments in such schemes.
This meant that persons with high incomes from, say, their profession, could no longer get tax relief on that income from investing in, say, an urban renewal scheme. Since 1998 the schemes put in place prior to that date have been going through the system, with less each year still remaining in existence.
Mr Cowen has said the measure will yield €50 million in extra income in a full year though Mr O'Rourke believes this estimate may be a bit on the high side.
On pensions Mr Cowen has put a €5 million cap on the size of pension funds to which ongoing contributions will receive relief. In other words, once your pension fund has grown to €5 million, you can no longer use the reliefs that are available. "The cap in the UK is £1.5 million [ €2.25 million], so it could have been worse," says Joyce Brennan, a senior consultant with Mercer. "It is a very high cap but I suppose it can be reviewed later on," says Mr Bruton. "It is hard to see how the taxpayer should have to go as far as helping someone build a €5 million retirement fund."
A major issue is the huge number of people on lower incomes who are not paying into a pension, he said, and he was disappointed that nothing was done for them in the Budget. People on lower incomes receive less support from the State because they are on a lower tax rate, and this should have been addressed.
He says he is uncomfortable about the tax relief schemes that have been retained, such as the private hospitals scheme. There has been no study done to show such schemes were justified.
