Dáil Éireann debate -
Wednesday, 10 Dec 2003

Vol. 576 No. 6

Written Answers. - Tax Policy.

Eamon Gilmore

Question:

37 Mr. Gilmore asked the Minister for Finance the progress made to date in his review of tax incentive schemes, especially in view of 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; and if he will make a statement on the matter. [30083/03]

Tom Hayes

Question:

76 Mr. Hayes asked the Minister for Finance the extent to which his Department is conducting a review of tax breaks in the tax code; and if he will make a statement on the matter. [30124/03]

Minister for Finance (Mr. McCreevy):

I propose to take Questions Nos. 37 and 76 together.

All tax reliefs and incentives were reviewed in the context of budget 2004. On foot of that review and having considered the many pre-budget submissions which were made to me, I made a number of announcements regarding various tax reliefs in my budget statement last week. These included the extension of the film relief to end 2008 with an increase in the amount per film that can be raised under the relief to €15 million. There was also an extension to the termination date for the other schemes to 31 July 2006 in order to relieve pressure on construction resources to meet the December 2004 deadline and allow for an orderly winding down of these schemes. In line with my position on targeted reliefs, I also extended in budget 2004 the business expansion scheme and the associated seed capital scheme for a further three years to 31 December 2006. It must be accepted that, of their nature, tax reliefs even where they can be justified for good public policy purposes will reduce the tax bill of those in the higher income bracket.

As Deputy Gilmore 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 1998 budget I capped the amount of annual capital allowances on such buildings that could be set-off 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.

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. I would like to assure the Deputies that all tax incentive schemes are kept under review, especially in the context of the annual budget and finance Bill process, seeking at all times to ensure that there is an appropriate balance between the provision of particular incentives for good public policy reasons and the availability of opportunities for higher earners to reduce their tax exposure.