REFORM PROPOSALS:TAX BREAKS result in the exchequer forgoing €11 billion in income annually, according to a research paper presented at the Kenmare conference.
The authors, Dr Micheál L Collins, an economist at TCD, and Mary Walsh, a chartered accountant, told the conference that lobbying by individuals and groupings was the main reason for the introduction, extension and expansion of assorted tax breaks, technically known as “tax expenditures”. These decisions were based on “very limited economic evaluation”, they added.
Dr Collins and Ms Walsh, members of the Government’s Commission on Taxation which reported in 2009, proposed ending many tax breaks and tax incentives as a means of contributing to bringing the public finances back to a sustainable footing. This would also result in a “more appropriate and better administered tax system”.
They made wide-ranging proposals focused on the exemptions and reliefs which account for most foregone tax revenue.
The largest of all of these is relief on pension contributions, which results in almost €3 billion foregone, the authors believe. They propose immediate changes which reform could yield up to €1 billion annually.
The authors proposed gradually reducing the employee tax credit over a number of budgets in order to recoup the €2.5 billion foregone via this relief.
The third costliest relief is the exemption from capital gains tax on the sale of a principal private residence. They did not advocate abolishing this, but supported bringing in an annual property tax. They also advocated abolishing mortgage interest relief and medical insurance relief in four annual steps up to 2014, and the immediate removal of tax exemption for child benefit.
They did not give estimates on the amount of extra tax those on different incomes would pay if their proposals were introduced. It was said during a question and answer session the proposals appeared to be “painless”, but in fact would result in significant tax increases across income levels.
The authors rejected the notion that reform could not be carried out immediately, saying “it would be disingenuous to think that the fiscal situation in which we now find ourselves cannot be addressed because the Oireachtas is in some moral or legal sense barred from changing legislation on tax rates and tax expenditures. Holding or changing tax rates and tax expenditure amounts remains an annual policy choice.”
When compared to seven OECD countries included in a recent OECD study, the authors note the use of tax breaks and incentives is not unusual in Ireland in terms of overall tax revenue foregone. What is unusual is that the cost of the tax breaks is concentrated in a small number of reliefs. The 10 costliest tax expenditures accounted for a larger amount of total tax foregone in Ireland than in any of the seven other countries looked at by the OECD.
