Dáil Éireann Debate, Tuesday - 23 March 2004
31 Ms Burton asked the Minister for Finance if he will consider the establishment of a commission on taxation to inquire into the fairness and equity of the overall tax system and the impact, in particular, of provisions for exemption from tax and residency rules; and if he will make a statement on the matter. [8921/04]
View answerThe last commission on taxation was set up in early 1980. Its terms of reference included the recommendation of such changes as appear desirable and practicable to achieve an equitable incidence of taxation, due attention being paid to the need to encourage development of the national economy and to maintain an adequate revenue yield. The background to the setting up of this commission was the discontentment of the PAYE sector with the system which led to the PAYE tax marches of that time. The 1980 commission on taxation issued five reports between 1982 and 1985. Its key recommendation was a low single rate of direct tax on a wider tax base.
I see no case to set up a new commission. Since 1979-80, the top rate of income tax has gone down from 60% to 42%, the 45% and 50% rates have been abolished and the standard rate, which at one stage was as high as 35%, has come down to 20%, and is now the bottom rate. With regard to PAYE concerns expressed at the time vis-à-vis the self-employed, a PAYE allowance — now a credit — was introduced in the 1980 budget. The system of income tax allowances has been replaced by a much fairer system of tax credits. Standard rating and the move to tax credits has equalised the value of personal allowance for all tax payers regardless of their level of income, thereby increasing the equity of the system.
Since 1993-94, while the total number of those in the income tax record has increased significantly by almost 664,000, or almost 54%, from 1,230,000 to 1,893,800, the number who pay no income tax at all has more than doubled over the past ten years from almost 325,400 to almost 668,700. Over the past 7 budgets, 81,300 aged income earners have been taken out of the tax net. Tax exemption limits for persons aged 65 and over have more than doubled since 1997. On international comparisons relating to the average production worker, Ireland has the lowest tax wedge in the EU and one of the lowest in the OECD.
As regards combating tax avoidance and widening the tax base, I have introduced a series of measures over the past six years, beginning with the imposition in my first budget of a £25,000 annual cap, now €31,750, on the amount of capital allowances on buildings that an individual passive investor can set against non-rental income. On combating tax evasion, I have given the Revenue Commissioners increased powers which they have used to good effect in pursuing tax defaulters.
For all these reasons, there is no question but that the present income tax system is much fairer than it was ten years ago, not to speak of the system that applied in 1979-80.
There are various fora now at which the tax system can be discussed, including the National Economic and Social Forum and the partnership process and these have played a key role in ensuring our economic success in recent years.
The Deputy has made particular reference to the provisions for tax exemption. Deputies may be interested to note that one of the few exemptions which the commission on taxation proposed in 1984 to retain was the exemption from tax on income from stallion nominations. The Deputy also referred in particular to the present rules on residence for tax purposes. I remind the Deputy that these rules were agreed by the then Fianna Fáil and Labour Government following detailed consideration in the context of the 1994 Finance Bill.
The previous residency rules were a mixture of statutory provisions, old case law and administrative practice, which Deputies I am sure would accept was an unsatisfactory situation. In his 1994 budget speech the Minister for Finance had earlier pointed out that the rules were quite complex and that there was a case for clarifying and simplifying them to ensure the legislation provided certainty. This aim was achieved by the provisions in the 1994 Finance Act. The key residency rule is residence in the State for at least 183 days in a tax year, which is also a key rule in several other EU countries. I see no reason to change them, let alone set up a commission on taxation to examine them.
