Tax expenditures may take a number of forms such as exemptions, allowances, credits, preferential rates, deferral rules etc. They are general government policy instruments used to promote specific social or economic policies and are closely related to direct spending programmes.
The Department’s Report on Tax Expenditures for 2019, published with the Budget 2020 documentation on 8 October, identifies a complete list of all tax expenditures measures in the Irish tax system. In total 176 tax expenditure measures are identified, in respect of which the total revenue forgone is estimated to be €5.3 billion, are classified under the following nine broad headings Capital taxes (CAT/CGT); Pensions; Stamp Duty/DIRT; Local Property Tax ; Benefits-in-Kind; Corporation Tax; Excise Duty; VAT and Personal Tax Credits. It should however be noted that data for over 40% of the tax expenditures listed is not available, so the total revenue foregone of €5.3 billion listed in the Report does not reflect the full amount of such expenditure.
The absence of revenue foregone data on a given tax expenditure can be due to any one or more of a number of reasons, including:
- It not being collected (normally where such collection/costing is not required in law);
- Revenue, due to taxpayer confidentiality considerations, being unable to provide the data necessary to cost a particular tax expenditure as doing so might allow the use of the expenditure concerned to be linked to a particular taxpayer or small number of taxpayers; or
- the revenue foregone figure is below €50,000.
As the report is prepared on the basis of the latest available date on revenue forgone in respect of each measure, it is not possible to accurately forecast the projected size of tax expenditures at the end of 2020.
It should be noted that Revenue provides an extensive suite of costings across nearly all tax heads, most of which are published in their Ready Reckoner: https://www.revenue.ie/en/corporate/information-about-revenue/statistics/ready-reckoner/index.aspx. In recent years, Revenue have greatly expanded both the range of the costings and statistics published, as well as making this information available in more open and accessible formats as part of commitment to support the Government’s Open Data initiative.
Furthermore, my Department periodically reviews its approach to tax forecasting. The last such report was published in 2008. At present, the Department is currently assessing its tax forecasting methodology with various institutions (domestic and international) represented. The analysis will focus on the composition of the Irish tax take and the accuracy of the Department’s tax forecasts, with a plan to report before end-2019.
There is continued monitoring of tax expenditures by my Department. Over the course of each year, a number of reviews of tax expenditures and other tax related matters are carried out by, or on behalf of, the Department of Finance. These are intended to ensure that the tax expenditures and taxes they relate to remain fit-for-purpose, to ascertain whether existing tax expenditures and taxes should be amended, continued, extended or ended, or to otherwise review certain taxes (existing and proposed) or groups of taxes. These reviews are normally published on the Department’s website.
In relation to further new tax expenditures in 2020, a range of options for possible new tax measures are examined as part of the Tax Strategy Group process each year. In addition to consideration of measures under individual tax heads, broader papers on the area of Tax Expenditures were prepared for the TSG in July this year, and previously in 2017. These papers are published, and are available on the Department’s website.