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Tax Code.

Dáil Éireann Debate, Tuesday - 17 February 2004

Tuesday, 17 February 2004

Questions (63)

Michael D. Higgins

Question:

142 Mr. M. Higgins asked the Minister for Finance the progress made to date in his review of tax incentive schemes, especially in view of the finding of the report of the Comptroller and Auditor General that in 2002 the top 400 earners benefit from tax breaks to the value of €70 million; and if he will make a statement on the matter. [4749/04]

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Written answers

All tax reliefs and incentives were reviewed in the context of budget and Finance Bill 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 2004 Budget Statement and these and other necessary provisions are now included in Finance Bill 2004 which was published earlier this month.

The provisions include an extension of film relief to end 2008 with an increase in the amount per film that can be raised under the relief to €15 million and significant administrative changes to tackle abuse. There is also an extension of the termination date for various area based tax incentive schemes to 31 July 2006 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, the business expansion scheme and the associated seed capital scheme are also being extended to end 2006 and the company limit is being increased to €1million. However, he extension and changes to both of these schemes are subject to a commencement order to allow clarification of potential EU state aid issues raised by the European Commission. 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 bills of those in the higher income bracket.

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. I placed copies of both these studies in the Oireachtas Library.

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 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 assure the Deputies that all tax incentive schemes will continue to be 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.

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