Many PAYE taxpayers will be incensed by details of a report published by the Department of Finance last Friday about the tax payments of the wealthy in the year 1999/2000. It showed that almost one in five of the State's highest earners had an effective tax rate of less than 15 per cent; 16 of the 400 taxpayers surveyed paid less than 7 per cent, with some using tax shelters to avoid income tax altogether.
At a time when the effective tax rate - the percentage of total gross income taken in tax - for many average earners is around 20-25 per cent, it is unacceptable that some of the richest of the rich are not paying their fair share. There is a clear policy implication; the tax shelters which allow this to happen must be abolished.
The main incentives giving rise to the low effective tax rates for the highest earners are the property-based capital allowances incentives. These include incentives to invest in property in designated areas, to build hotels and to put money into car parks. In some cases these schemes were put in place to meet an identified need - such as promoting development in certain areas. Apartment schemes in parts of Dublin's docklands and cottage schemes in specified towns are examples of the resulting investment.
Few would argue against the modest use of tax incentives which promoted socially or economically valuable projects. However the use of the property-based schemes has gone well beyond this. Clearly very significant sums are being sheltered from tax, many in schemes of dubious economic value.
In particular, the Revenue say that "a substantial number of the individuals availing of the incentives were partners in a relatively small number of partnerships set up to avail of specific incentives." Many of these used ingenious variations of the incentives schemes to avoid huge amounts of tax; for example, the report says that the partnerships identified had sheltered €46 million in annual income from tax through the use of property-based shelters and a further €22 million through car-park and hotel schemes.
In his Budget speech the Minister, Mr McCreevy, said that given the budgetary position, the demand for property investment and the desire to have a fair tax sytem, there is no justification for a continuation of these schemes beyond 2004, and he announced that they would end on schedule in December of that year. This is too long to wait. The tax shelter schemes should end as soon as possible and this should be provided for in the forthcoming Finance Bill.