Increases to inheritance tax thresholds over the past decade have had the appearance of being “arbitrary and without any clear policy rationale,” the Parliamentary Budget Office has said in a briefing document on the country’s existing tax base.
It suggested that while a case might be made for linking changes to inflation, the four increases introduced since 2013 have ranged from 3.2 per cent to 24 per cent and that variation, combined with the infrequency of the changes, leaves the Government’s approach to the issue appearing not to follow “clear and consistent principles”.
In a briefing document intended to outline the potential impacts of changes to taxation in the forthcoming budget, the office, which aims to provide “independent and impartial information, analysis and advice to the Houses of the Oireachtas” acknowledged index linking could “assist in preserving the purchasing power associated with capital acquisitions”.
It argued, however, that the justification for recent increases had not been made clear and that the Commission on Taxation recommended two years ago thresholds for immediate family members, currently set at €335,000, be “substantially reduced” given the need to significantly broaden the tax base.
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The Minister for Finance, Jack Chambers, has said the “consensus within Government” is that the threshold is too low, however, and that he is working on options to change it in the forthcoming budget, but that no decisions have been taken.
In its document, An Overview of Taxes on Wealth in Ireland, published this week, the PBO highlighted the commission’s warning with regard to the State’s growing reliance on corporation and income taxes.
The report said “income and corporation tax receipts are highly concentrated on a small number of taxpayers. This remains an ongoing concern and poses a risk to the public finances.”
It said: “In 2023, 79 per cent of income tax receipts were paid by the top 20 per cent of income earners; while 52 per cent of corporation receipts were paid by just 10 companies. The concentration of the tax base poses a significant risk to the State and its ability to fund growing levels of public expenditure.”
It was also critical of the limited availability of the sort of up-to-date information required to properly consider policy options.
“Understanding the distributional impact of policy changes related to taxes on wealth on different groups in society is hindered by the lack of timely and detailed administrative data,” it said.
Overall, it pointed to large increases in the amount of tax revenue being collected by the Government, with the total increasing from €38 billion in 2013 to €88 billion in 2023. It said the proportion of this total accounted for by income and corporation taxes combined has increased from 49 per cent to 62 per cent.
Net Irish household wealth at the end of 2023 was €1,112.6 billion, it said, compared with €465.9 billion a decade earlier, with the increase of 139 per cent in nominal terms far greater than that recorded in relation to inflation or wages.
Housing continues to account for about two-thirds of this wealth, it said.
About 2 per cent of tax revenue was generated by capital acquisitions tax, which includes inheritance tax, and capital gains tax last year.
When other taxes on wealth are included, the total remains “relatively low, at €4.9 billion in 2023″ it said.
It acknowledged that many of those required to pay increased taxes on property and wealth would already be paying higher amounts of tax on earnings and that the overall competitiveness of the economy needed to be considered and so it said “additional base-broadening measures should be considered by government”.
“As the value of assets and household wealth held in Ireland grows, it is important that the State adequately and fairly taxes wealth to avoid and correct market distortions, and to broaden the tax base,” it said.
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