Minimum tax ruled out in favour of restricting reliefs

OFFICIAL studies show some top earners pay little or no tax because of their extensive use of tax relief schemes.

But ESRI experts yesterday ruled out the introduction of a “minimum tax” to ensure everyone paid some minimum level.

The authors of a new paper on tax expenditures questioned special Government tax incentives and described them as a hidden form of Government spending.

ESRI experts Tim Callan, John Walsh and Kieran Coleman said special breaks in the tax system “are, in effect, a hidden form of Government expenditure” that need to be more carefully controlled.

A study suggests a new approach to such tax expenditures was required in order to find some equity in the system. In the case of new tax reliefs, they should have to pass all the tests posed for expenditure proposals, and then an additional one: why use a tax expenditure rather than a direct expenditure? The transparency of direct expenditures should mean that they are usually favoured over tax breaks, said the authors.

The authors, who were addressing the ESRI conference on budget perspectives 2006, also called for a more systematic and regular review of the costs and benefits of tax expenditures.

They said that best international practice includes regular annual reports on the costs and benefits of tax expenditures.

They also ruled out a US-style minimum tax to get the high earners to pay tax. “The same objective can be achieved with less impact on ordinary taxpayers by imposing restrictions on the reliefs”, they said.