Dáil Éireann debate -
Thursday, 6 Nov 2003

Vol. 573 No. 5

Written Answers. - Tax Code.

Joan Burton

Question:

27 Ms Burton asked the Minister for Finance if his attention has been drawn to the recent finding of the report of the Comptroller and Auditor General that in 2002 the top 400 earners benefited from tax breaks to the value of ?70 million; his views on whether it is appropriate that such a small number of wealthy people should benefit so disproportionately; his plans to review this situation; and if he will make a statement on the matter. [25762/03]

Minister for Finance (Mr. McCreevy)

As the Deputy will be aware, the figures referred to by the Comptroller and Auditor General are extracted from a study carried out by the Revenue Commissioners in 2002 on the effective tax rates for high earning individuals based on the tax year 1999-2000. A similar study was undertaken in 1997.

One of the conclusions drawn from the 1997 study was that the use of capital allowances on the expenditure on buildings in tax designated areas and on hotels was one of the main methods of reducing the tax bills of high earners to very low levels. Subsequently, in the budget for 1998, I capped the amount of annual capital allowances on such buildings that could be off-set against non-rental income and, in the case of hotels throughout most of the country, I abolished in total the capital allowances against non-rental income.

As the Deputy will be aware, the 2002 study indicates an increase in the effective tax rate of high earners in 1999-2000 compared with earlier years. However, it is clear that some high earners continue to achieve substantial reductions in their tax liability as a result of certain tax reliefs. The study indicates that property based capital allowances continue to be the chief instrument used by high-income earners to reduce their taxable income by substantial amounts. It is also clear that the 1998 changes were not fully in effect by 1999-2000. Accordingly, in the budget for 2003, I abolished capital allowances for investment in registered holiday homes and reduced capital allowances for hotels to the rate applying generally to industrial buildings. I also indicated that a range of tax incentives would not be extended beyond their end-2004 termination date. All these measures will reduce the opportunities for very high earners to pay relatively low effective rates of tax.

On the other hand, as I said during my 2003 Budget Statement and on many other occasions on the record, I am a supporter of properly focused, clearly defined and specific reliefs which can encourage the development of goods and services, including public services, which might otherwise not be provided or, where provided, are too little or too late. I have introduced a number of such schemes which have been welcomed. However, it is the case that in providing some incentives for good public policy reasons, they also allow higher earners to reduce their tax paid to varying degrees. This is one of the factors that must be taken into account in reviewing such reliefs. I assure the Deputy that all tax incentive schemes are kept under review, especially in the context of the annual budget and Finance Bill process.