asked the Minister for Finance whether any change in the existing tax structure is under consideration which would reduce the incidence of indirect taxation which now constitutes 65.8 per cent of all Government raised taxation and which bears most heavily on lower incomes.
Ceisteanna—Questions. Oral Answers. - Indirect Taxation.
34.
The figure of 65.8 per cent referred to by the Deputy appears to be based on OECD national accounts statistics and to relate to the year 1968. Local authority rates are, it should be noted, included as indirect taxes for the purpose of these calculations. It is estimated that, since then, the ratio of indirect taxation to total taxation has fallen to about 62 per cent.
I should point out that about two-thirds of indirect tax revenue, as so defined, is referable to customs and excise duties on alcoholic beverages, tobacco and hydrocarbon oils. Clearly, apart altogether from fiscal considerations, substantial reductions on, in particular, alcohol and tobacco would be likely to have social and medical implications of a serious nature.
The comparatively low ratio of direct taxation to total taxation is attributable, inter alia, to the fact that social welfare contributions, which are relatively low in this country, fall into the category of direct taxation and to the comparatively restricted wage and salary sectors and the small corporate sector in the economy. However, despite the low overall ratio, the actual rates of direct taxation are not low. As I indicated in my financial statement of 19th April last, the Government were for some time past concerned about the increasing burden of income tax, which represents about 67 per cent of direct taxation, in particular on lower incomes and decided that a substantial alleviation of the burden should be provided for in this year's budget.
I might add that the effects on the different income groups of individual taxes or categories of taxes must be considered in the context of the taxation system as a whole and in the light of benefits accruing from Government expenditure.
Would the Minister agree that the incidence of indirect taxation is still pretty high even compared with the European average? Could the Minister say whether, in fact, there is any plan in contemplation coming up to the next budget to alter the situation, accepting that indirect taxation must bear most heavily on the lower income groups?
I accept that it certainly is higher than most other countries but the factors I have mentioned must be taken into account. I do not think any substantial reduction in indirect taxation, apart from the fiscal consequences, would be the answer to the problem. In fact, it would create a great deal more problems, as I have tried to indicate. A very important factor in this is the level of social welfare contributions in this country as compared with other countries. This distorts the picture very much.