Dáil Éireann debate -
Wednesday, 25 Jan 1995

Vol. 448 No. 1

Written Answers. - Tax Credits.

Peadar Clohessy

Question:

22 Mr. Clohessy asked the Minister for Finance if he will have arrangements made to carry out a study on the implications of tax credits in substitution for tax allowances; and if he will make a statement on the matter. [1567/95]

Liz O'Donnell

Question:

53 Ms O'Donnell asked the Minister for Finance if he will have arrangements made to carry out a study on the implications of tax credits in substitution for tax allowances; and if he will make a statement on the matter. [1568/95]

Minister for Finance (Mr. Quinn)

I propose to take Questions Nos. 22 and 53 together.

I have no plans to set up a study group to consider the implications of tax credits to replace tax allowances. The Government has particular tax policy objectives which are set out in the Programme of Renewal. This policy includes increasing personal allowances, widening the standard rate tax band and targeting assistance towards lower paid workers.

It is important that, in looking at possible options in the area of taxation, there should be no confusion between the underlying policy considerations, such as equity, progressivity or efficiency, and the essentially administrative issue of how best to realise these in practical terms. Tax credits simply represent an alternative means of pursuing goals which could equally be advanced within the framework of the present allowances system. The choice between a credits system and an allowance system should, therefore, rest on considerations of simplicity from the standpoint of taxpayers and the administration.

As regards the question of substituting tax credits for allowances, it should be made clear that this would significantly increase the progressivity of the tax system in the absence of other changes. The tax system is already quite progressive. Moreover, one effect of replacing allowances by credits could be to bring about a situation where a far greater proportion of taxpayers would be liable at the higher rates. I do not believe that this would be generally seen as an improvement in the tax system, it would certainly run counter to the view that economic and employment objectives are likely to be best served by keeping marginal tax rates as low as possible.