TAX NEWS - June 2010
Ireland Tax: Vast system of tax breaks cost the State €7bn a year
A Sunday Independent investigation of all tax breaks, exemptions and allowances across the Irish system shows that up to 2008, when most of the property tax breaks ended, over €25bn had been lost in tax revenues to such tax incentive schemes.
Controversy has erupted over the issue of tax breaks, given Finance Minister Brian Lenihan's need to slash €3bn from government spending in the next Budget. This is on top of the €4bn of savings achieved last December.
Last week's banking crisis report written by Klaus Regling and Max Watson highlighted with alarm the cost of various "tax expenditures'' -- tax allowances, reliefs and exemptions -- which they say were larger than the remaining income tax receipts.
"As a percentage of total tax revenue, tax expenditures in Ireland are more than three times larger than on average in the EU," they found.
The most recent figures show that tax breaks for pensioners, which were biased towards wealthy pension holders, totalled €3,035bn. Over €900m alone was lost to "investment income and gains-approved superannuation funds".
Labour's Joan Burton said much of this amount went to benefit wealthy pension holders because of how the tax breaks are geared.
In 2008, child benefit was paid to 580,000 families in respect of 1.1 million children at an estimated cost of €2.5bn.
According to a detailed series of documents released by both the Department of Finance and the Revenue Commissioners, 15,299 claimants cost the Exchequer well over half a billion euro in property-based reliefs in one year.
Huge sums of money are also being lost through a huge range of income tax and corporation tax credits, allowances and reliefs.
Figures from the Revenue Commissioners show that, in 2008, Ireland had 5,393 households with incomes of over half a million and their average tax rate was only 32 per cent, because of the range of exemptions and tax loopholes open to them.
Last year's Commission on Taxation report stated that tax avoidance undermines the entire tax system.
"It can undermine tax compliance if the generality of taxpayers are of the view that some taxpayers have the resources to have tax avoidance schemes developed that can reduce their tax liability in an unintended way while most taxpayers have no opportunity of doing so.
"Taxpayers who engage in aggressive tax avoidance undermine fairness in the tax system," the report said.
Ms Burton added: "The merit of incentives is to reward those who help others like a child or a dependent relative. What happened under Fianna Fail is that the whole system went mad.
"We need to almost start again and reinstate some equity and fairness to the tax system."
Responding to the criticism, Taoiseach Brian Cowen admitted that he made mistakes in failing to reign in the level of tax breaks.
"There were property tax incentives in place over the period from the mid-1990s which, with the benefit of hindsight now, should have been abolished many years prior to my decision in December 2005 to abolish them," he said.