The Minister for Finance, Brian Cowen, has introduced a Finance Bill designed to end an unacceptable situation whereby high-earning tax residents, through the use of various incentive reliefs, have been able to reduce their taxable income to nil. The measure will go some way towards reassuring PAYE workers of the Government's commitment to greater equity. But super-wealthy individuals will still be able to reduce their income-tax liability to about 20 per cent.
In addition to addressing the controversial issue of tax-free millionaires, the Minister has responded cautiously to concerns expressed by the Central Bank and the ESRI about the damaging effect maturing SSIA accounts may have on an overheating economy. In offering a once-off incentive to low-paid workers who transfer part of their savings into pension funds, the Minister has nodded in the direction of fiscal prudence and pension provision. But by setting strict limits on qualifying income levels and investment amounts, Mr Cowen has also ensured that the bulk of SSIA cash will contribute to a feel-good consumer factor in the run-up to the general election.
The Revenue Commissioners, flush with the success of investigations into offshore tax evasion, which transformed Government finances, are seeking extra powers. In particular, they want the Minister to approve regulations under which financial institutions and government departments will automatically report interest, profit and certain other payments to customers. Mr Cowen has indicated that he is favourably disposed to this development and the Bill will allow for such powers in relation to financial institutions. But the Government is likely to come under intense pressure from farming interests who have, in the past, successfully objected to the Department of Agriculture providing Revenue with the details of all Cap payments made to farmers. Payments to sub-contractors in the construction, meat-processing and forestry industries will be subject to a tightening of the 35 per cent withholding arrangement, as part of the Revenue's ongoing investigation of those sectors. And the Minister intends to tighten up regulations dealing with an estimated 50 per cent of landlords, to make them tax-compliant.
These are all positive developments, designed to encourage the emergence of equity, transparency and compliance within the tax system. Some property-based reliefs - already specified in the Budget - are being phased out, having outlived their usefulness. Others are being extended or enhanced so as to encourage innovation and economic development. In his second year at Finance, Mr Cowen has continued to develop the powers of the Revenue Commissioners, to tighten up on tax evasion and on aggressive tax-avoidance practices. The findings of a rash of tribunals which identified high levels of tax evasion in this State and the success of the Revenue Commissioners in follow-up operations meant that he had little option. Still, credit should be given where it is due. Mr Cowen's appetite for reform and for tax equity stands in sharp contrast to that of his predecessor.