Richard Bruton
Ceist:49 Mr. R. Bruton asked the Minister for Finance the main factors which result in the very low tax contribution of top earners here. [14736/03]
Priority Questions. - Tax Reliefs.
I would not agree with the Deputy's premise that high earners in Ireland make a very low tax contribution. Top earners in many cases make a very substantial tax contribution to the Exchequer, for example, the most recent figures available from the Revenue Commissioners indicate that for the tax year 1999-2000 just over 1% of the highest income earners contributed more than 20% of the annual income tax take.
The Deputy may be referring to the effective tax rate of individual earners. The Revenue Commissioners carried out a study in 2002 on the effective tax rates for high earning individuals based on the tax year 1999-2000 which is the latest year for which the relevant data was available. As is the case with an earlier 1997 study, I have placed a copy of the study in the Oireachtas Library.
The study referred to was carried out by the Revenue Commissioners in 2002. Of the top 400 earners' cases examined in the 2002 study, 117 had an effective tax rate of less than 30%; 231 had an effective rate between 30% and 44%; 52 had an effective rate of 45% and higher. Of the 117 earners with an effective rate of less than 30%, 51 had an effective rate of less than 5% and 29 of those 51 top earners had an effective rate of 0%.
However, this study indicates an increase in the effective tax rate of high earners in 1999-2000 compared with the findings of a similar study carried out by the Revenue Commissioners in 1997 on the effective tax rates of high earners in the tax years 1993-1994 and 1994-1995. One of the conclusions drawn from the 1997 study was that the use of capital allowances on buildings was one of the main methods of reducing the tax bills of high earners to very low levels. I subsequently capped the amount of capital allowances on buildings that could be set off against non-rental income.
Arising from this latest study, I announced in budget 2003 the abolition of capital allowances for investment in registered holiday cottages and the reduction in capital allowances for hotels to the rate applying generally to industrial buildings. I also indicated that a range of reliefs would not be extended beyond their end 2004 termination date.
While I support properly designed tax reliefs, the unintended use of the tax system by exploiting loopholes to reduce the tax paid by high earners is not my aim. Since taking up office as Minister for Finance, I have acted swiftly to address tax avoidance schemes that serve to narrow the tax base. The 2003 Finance Act contains a series of such anti-avoidance measures.
Tax reliefs have been introduced by all Ministers for Finance including by my immediate predecessor. All tax incentive schemes are kept under regular review, especially in the context of the annual budget and Finance Bill process, to ensure they continue to meet the purpose or purposes for which they were introduced.
I thank the Minister for his reply and for his presentation of that report to the Oireachtas. Will he agree that a situation where some of the top earners pay no tax and one in five of them pay less than 20%, is not an acceptable situation? Will he agree with me that the study shows that those top 117 earners which he mentioned each received tax relief worth €600,000? Will he further agree that the bevy of tax breaks available to these top earners is really adding to public anger about a situation where we see, despite a collapse in the value of shareholdings, that top executives and executive directors are paying themselves 25% increases, that their bonuses and top-up payments come to 150% on top of their basic pay and the Minister is facilitating them with all these tax breaks?
Is it not the case that most of these tax breaks will go to the sheltered sector where there is no competitive edge to be achieved for the country? They were mainly in the building industry which has been overheating all throughout those years and thereby adding to the difficulty for small investors wishing to buy a home for themselves. Does it not create a very wasteful tax gain for accountants – and the Minister was an accountant in a previous life – by chasing these breaks and wasting their energy? Is there not also a problem as to who is the gatekeeper? In the case of Beaumont Hospital, tax breaks worth €13 million were given in a project whose total cost was only €8 million? Will he agree with me that this issue must be addressed by him far more vigorously than it has been to date in his six budgets and as he enters what he calls the next volume of his series?
It is interesting to compare the most recent report with the 1997 report. The latter report influenced my decision to introduce a cap of £25,000 on capital allowances outside the ring fence. Although it did not receive great publicity, it was one of the most effective measures I introduced to limit the allowances in these areas. Deputy Richard Bruton, who has raised some interesting questions, will know from his Government experience how difficult it is to abolish a scheme. I have abolished some of the schemes and I have said that I will abolish more next year.
Properly focused tax reliefs have considerable benefits. The Deputy will agree that the urban renewal scheme, which was introduced almost 20 years ago, has led to the transformation of many of our major cities. After I signalled that I intended to abolish certain tax breaks, I received representations from all sides of the House in relation to what I will do in 2004. Film tax relief, which is much loved by a colleague of Deputy Burton, is recognised as having helped to bring film-making to Ireland. It is the single most attractive tax concession in the tax code as one cannot lose on it. People in this House who have availed of it are aware that it is a singular effective tax break, that it provides a guaranteed income, more or less, and that there is no risk at all. People should be very clear about this. As tax breaks will always be availed of by high earners, one has to balance the level of economic activity with the loss to the Exchequer.
Tax breaks should be abolished when they outlive their useful life, and I have tried to do this. Tax breaks which were introduced to the tax code for particular purposes – I introduced some of them – should be abolished when their period of usefulness has elapsed. As Deputy Richard Bruton knows and Deputy Burton will know, the abolition of tax breaks causes difficulties. There are always good projects out there. A balance has to be struck between economic activity and the loss to the Exchequer. While focused tax incentives have a part to play, their usefulness has to be measured so that they can be abolished when a certain period of time has passed. An example of a particularly focused tax relief was the scrappage tax relief and, as Deputy Burton knows, certain people thought at the time that it should not have been abolished.
An Leas-Cheann Comhairle
We need to move on to the next question.
I would like to ask a brief supplementary question.
What about capital allowances for—
An Leas-Cheann Comhairle
I will allow a brief supplementary question.
I have a copy of the comparison. Six people were found in the second study to have paid less tax than they did in the previous study. There was no great improvement in the tax contribution, according to the study. Does the Minister not agree that if he wants to promote good things, such as film-making, it would be far better to do it by way of subsidy? Such a system would mean, at least, that somebody would be controlling it and acting as gatekeeper, unlike in the Beaumont Hospital example. A subsidy system would not have the huge inequitable distribution effects, whereby top earners use tax breaks to wash out their money. They pay less tax than those who clean their offices.
Perhaps the Deputy will be Minister for Finance some day and I wish him well if it comes to pass. I wish him well when a Department complains that it is not being allowed to take advantage of a tax break and asks to be given €50 million instead.
An Leas-Cheann Comhairle
We must move on to Question No. 50.
That will not happen unless we find gushing oil in County Meath.
Is that not the test of whether it is worthwhile?
An Leas-Cheann Comhairle
The Chair has called Question No. 50.
The effect of the changes I have made has allowed the overall tax take to increase. I am just pointing out that a balance needs to be struck between economic activity and the cost to the Exchequer. Deputy Bruton's argument needs to be taken into account.
An Leas-Cheann Comhairle
Will the Minister take Question No. 50?
It is not as simple as some people try to portray.