The Irish Venture Capital Association has expressed concern about, among other things, high marginal income tax rates and the significant increase in the capital gains tax (CGT) rate over recent years.
Rates of CGT had to be increased to maintain the yield from CGT in a period of falling asset prices so that it would continue to make a contribution to the fiscal consolidation we are required to make to return our public finances to order. Increases in capital taxes, however unpalatable, are generally considered to be less damaging economically than taxes on employment and these are the hard choices that this Government has had to make in this and other areas over recent years.
While noting the concern expressed by the Association about the competitiveness of our various tax reliefs as compared to other jurisdictions, I would also point out that in the 2014 World Economic Forum Global Competitiveness Report, Ireland has improved its overall ranking over the years from 24th in 2011 to 15th this year. Clearly, we cannot rest on our laurels but the bigger picture from a competitiveness perspective is more positive.
A CGT relief for entrepreneurs re-investing in productive business assets was introduced in the last Budget and Finance Act. Its commencement is subject to EU clearance from a State-aid perspective. It is admittedly a restricted measure and this is due to the constraints imposed by the broader fiscal context that I have referred to. The relief will be kept under review.
As regards income taxes, the "tax wedge" is the difference between what an employer has to pay in terms of gross wages plus taxes to hire an employee and the net revenue received by that employee after deduction of all taxes on their wages. A competitive tax wedge is considered vital in encouraging employment growth across all income categories and to incentivise individuals to remain in or return to the labour market. According to the latest OECD "Taxing Wages report 2014", based on wage and tax levels for 2013, Ireland has the lowest tax wedge of the 21 EU members of the OECD, a position which has been maintained for the last 11 years.
Nonetheless, I have put on record my belief that the income tax burden is currently too high in Ireland and that I believe it needs to be reduced. However, I have also said that although it is my intention to alleviate the burden I can only do so when the public finances allow it.