A relatively small group of high-income individuals have benefited in recent years from approximately €3 billion in tax reliefs arising from Government-promoted schemes, according to a review carried out for the Department of Finance, write Colm Keena and Liam Reid.
Some of the schemes could no longer be justified or they constituted an expensive way of achieving the public policy they were designed to achieve, the review concluded.
The urban renewal scheme, designed to promote the development of certain designated urban areas, was the most expensive of the schemes reviewed. It resulted in €1.43 billion in taxes forgone, arising from investments made under the scheme from 1999 to July of this year, when it ends.
Consultants Goodbody, who looked at the scheme for the Department of Finance, said that while the scheme had a positive impact on ridding centre city areas of derelict sites, the benefits had "accrued to relatively few higher income individuals" and had "strong negative income distributional effects".
It also found that in more recent times, the scheme was benefiting investors in property developments which would have been built anyway. Yet the tax breaks could represent up to 43 per cent of the cost of the buildings.
Indecon, which studied a number of property-based reliefs as part of the review, recommended continuing schemes promoting investment in private hospitals, nursing homes and childcare facilities. Estimates of future capital expenditures in the schemes indicated they would lead to a further €850 million in taxes forgone over coming years.
The €3 billion estimate of taxes forgone does not include reliefs available for pension schemes - €1.4 billion in 2001 alone. Pension relief is more widely spread than the other schemes reviewed.
The review revealed that two individuals on seven-figure salaries, who were not identified, had used tax relief on pension contributions to build up retirement funds of €100 million each.
Many of the recommendations in the report have already been accepted and are to be implemented. However, Opposition politicians criticised Minister for Finance Brian Cowen, saying he was ignoring the recommendation that there should not be any new tax incentives, or extensions of any existing schemes, unless they had been justified by a rigorous cost-benefit study.
"This was a key recommendation," said Richard Bruton, Fine Gael's finance spokesman. "It is very regrettable that Minister Cowen chose not to implement this recommendation. Tax relief is a very blunt instrument for achieving social or economic objectives.
"We need to subject it to very close scrutiny," he added. "Against this background, it is difficult to understand why the Minister has not acted on key recommendations made to him in respect of these reliefs."
Labour's finance spokeswoman Joan Burton said the reports showed that tax incentives were "a rich man's game". She said some high-income individuals were making use of pension reliefs to avoid huge amounts of tax. She cited the two cases outlined in the report, where the two individuals were able to remove €25 million each in tax-free lump sums from their €100 million pension funds.
She also questioned the value of schemes that had been allowed to continue, such as tax breaks for childcare facilities. She said the report found the current scheme drove up the cost of building the facilities, but did nothing to reduce the cost of childcare for parents.
Green Party finance spokesman Dan Boyle described the reports as "disappointing". Mr Cowen's "reluctance to follow through on many of the mild recommendations" indicated "a lack of willingness on the Government's part to properly deal with the economic unfairness that many of these reliefs help to bring about".