Dáil Éireann Debate, Tuesday - 1 February 2005
11 Mr. P. McGrath asked the Minister for Finance his views on whether additional caps should be introduced in respect of certain tax reliefs in order that they not be used to eliminate the tax liability of high earning persons. [2585/05]
Amharc ar fhreagraAs the Deputy will be aware, in budget 2005 I announced that my Department, in conjunction with the Revenue Commissioners, would undertake this year a detailed review of certain tax incentive schemes and tax exemptions.
There are a number of elements to the review which is already underway. It will evaluate the impact and operation of certain incentive schemes and exemptions including their economic and social benefits for the different locations and sectors involved and to the wider community, including external consultancy work on the evaluation of property based tax incentive schemes. It will examine the degree to which these schemes allow high-income individuals to reduce their tax liabilities.
As well as examining relevant international approaches, the review will also include a consultation process seeking submissions on measures that could be introduced to balance the benefit of such reliefs and the extent to which such incentives and exemptions are used by high earners to reduce their tax bill. One such measure to be examined will be whether additional caps should be introduced in respect of certain tax reliefs in order that they cannot be used to eliminate the tax liability of high earning persons.
If the core issue is to examine how high earning individuals can reduce their tax liability to zero, which is a scandal, can the Minister in a much more rapid and targeted way cap what any individual can claim on the aggregate of relief across the board? It is a targeted intervention which would not destroy the relief if the Minister feels the relief continues to have relevance. Why has he decided to review the whole lot when there is capacity to take some short-term measures that would not have any damaging effects and that would ensure everyone pays a realistic tax contribution? He could do so this year. He does not need to wait for reviews.
I set out in my Budget Statement the reason I decided to take a comprehensive approach, and I stand by that judgment. It is important to examine how we can systemically deal with the idea of high income earners being able to eliminate completely their tax burden. A number of approaches could be considered, not just putting a cap on the relief one could claim. Whatever methodology is decided on, based on the broadest possible comparative work, submissions and so on, we must examine the balances between the benefit to the taxpayer and wider community benefits in respect of the schemes themselves. We must examine every aspect. One then gets a much clearer picture of the way forward. As the Deputy knows, some of these schemes, those for which I have not changed the dates, are coming to an end. In looking at this we need to recognise the broader tax relief schemes I have outlined, which are clearly for the benefit of ordinary taxpayers. We are not talking merely of schemes for the rich. The ones we are concentrating on here involve property reliefs, specific area reliefs and so on. We are considering these to see what role they could or should play in the future, given the current level of economic and social development we have attained.
We will also consider what structures should be put in place for people who can access those schemes based on our review of the balance between the benefits for individuals who would invest in them and the wider community benefit which would derive from whatever modification of structure might emerge as a result of the comprehensive review we are undertaking — or the complete elimination of the schemes. Coming into this job at this time, I felt that this was the best direction for me to take.
Caps already exist on some schemes such as that for film relief, so that a new concept is not being introduced. Is the Minister indicating that next year's budget will contain a comprehensive response to this review? I am sure he will forgive me for being sceptical of reviews. We have seen about ten reviews of competition with no concrete action taken on many of them. I know the Minister does not have a reputation for conducting reviews and then doing nothing about an issue, so will he indicate his intention for next year's budget? Will he have ready for that budget a comprehensive response, a set of measures as a result of this review?
That is my honest intention. Rather than considering this matter piecemeal and reacting to whatever issue is more fashionable in any given week or day I intend to consider the entire issue. It would be helpful for the ordinary taxpayer to see what role these schemes play and to see their wider benefits.
Successive governments devised these schemes. They were changed and modified and they evolved through circumstances including judgments justified in their own way and time. A wider community benefit derives from these schemes. Too often, critics like to portray them in terms of being some sort of sop or concession to high earners. Their purpose is rather to gain a wider community benefit, which has taken place. Some schemes have worked very well and others not so well in instances where the level of architecture or integrated planning or whatever was not uniform. One could point to a great success in location A and one not so great in location B. We must learn what wider merits are involved in these schemes, their applicability and application in the years ahead, given that the economy is not progressing at full speed in every part of the country. We must learn lessons from the operation of these schemes so far, and considering the infrastructure deficits we have identified, see what can be done to assist parts of the country that might gain an overall benefit by the implementation of such incentivised schemes. That is the purpose of the review. It is not done simply to defer decisions. It is a question of getting matters right and it is far better to take what might be a valid criticism of not proceeding with the schemes now, or making any changes now. I am prepared to take that flak in the interests of coming forward next year, as Deputy Bruton suggested, with something that perhaps makes greater sense.
Does the Minister agree that it is not appropriate for an individual with an income of perhaps €200,000 per year not to pay at least the standard 20% income tax rate after the ordinary personal tax credits and so on have been applied? It is very difficult for someone on the average industrial wage, on a gross income of about €30,0000, having the top tax rate of 42% applied for some of that income and certainly for any additional overtime earnings in excess of that gross income, to find that someone with a very substantial income of €200,000 paid no tax. Will the Minister undertake to eliminate that loophole for earners at the top level?
Will the Minister accept that the focus of the current review of tax reliefs is somewhat misplaced, that not only should we look at whether the existing reliefs are effective — many of us believe they cannot be justified — but that we should put in place mechanisms regarding how any future relief might be introduced, what sort of democratic accountability is attached to them and whether they can be cost-effective during the term in which they are meant to operate? Such mechanisms do not exist for any of the current reliefs and we need them if we are to have any faith in any such reliefs to be introduced in the future.
The democratic accountability is very clear. Matters are voted on in this House, the Finance Bill is enacted in this House and changes brought forward are decided in this House.
Sometimes they are decided on the night before.
That does not bring into question the validity of democratic accountability within the law. One can bureaucratise this democracy out of existence if one wants, and get someone else to do our job. We must take the decisions and make the judgments. We do not have to wait for unanimity or total agreement. One must make a decision and one does so. Democratic debate is about putting forward different views. Matters are voted on and they proceed. People can decide afterwards if a good or bad decision was made. Too much of our modern politics is about finding out if someone else can make decisions for us. We can make the decisions here, stand over them and that is the end of the matter.
Regarding Deputy Burton's point, of course we want equity in the tax system. That is in the interests of high earners, low earners, all earners, including those outside the tax net. Everyone should pay his or her share. That protects everybody. Regarding the payment of at least 20% tax on income, there are many people with the income mentioned by Deputy Burton who earn more than 20%, as the Deputy knows from the answers to questions she tabled in recent months.
If one goes for the minimum income tax rate for the type of income earners the Deputy mentioned, one has to watch out for that rate becoming the target rate. Tax planning then begins to develop on a much wider basis so that more people go down to that rate rather than rise to effective rates of 32% or 40% or whatever, as the Deputy will know from answers to parliamentary questions. An entire range of issues is involved there, such as tax credits and trading losses. Taking it that everyone accepts that all those are legitimate credits against tax liabilities, the broad point is that we want to arrive at an acceptable situation. It is not acceptable for a person at the income level noted by Deputy Burton to end up after assessment without a tax liability. It is not acceptable now, nor was it acceptable in 1993 or before that. No reputable tax planner indicates to anyone that he or she should aspire to that situation, apart from bringing attention to themselves.
It is not as simple as it seems but one simple, fair and understandable concept, which is comprehensible to all and to which I subscribe is that everyone should pay his or her fair share of tax. For these tax relief schemes to be successful one needs people with discretionary earnings above normal living expenses and so on to invest in the schemes and make them work. We must be clear on that. We cannot on the one hand talk of high earnings and on the other hand say that all should be on low earnings, because then one will not get people into the schemes. The wider issue involves the employment content, the economic activity generated and the wider community benefit which, for example has seen an extra 100,000 people working in the construction industry. That is not entirely due to these schemes but they have made their contribution. We must take that into account when deciding and making judgments about the balance between the benefits to the investor and the wider community benefit.
Those are the sorts of things that we must analyse objectively, taking our time to deal with all aspects comprehensively in a calm and collected way. That will add to a greater understanding of what, if any, role such schemes will play in future, given the level of economic development that we have achieved hitherto. That is why the way that I propose is better. It is not simply a question of focusing on dealing with the equity issue for high taxpayers, which is valid and something that I intend doing, but it is also about achieving greater comprehension in the community of what such schemes can do, why they exist and what benefits derive from them beyond their being a concessionary benefit for high-income earners. We must come to understand that their wider acceptability as part of the tax code will ensure that they are valid and play the role that we envisage.
