Taxpayers claim €11bn in tax breaks each year

TAXPAYERS claim more than €11 billion a year in tax breaks — 20% of the total tax-take — mostly employee tax credits and pension and housing reliefs.

In a paper to the International Institute of Public Finance (IIPF) at the University of Michigan, TCD economist Micheál Collins and chartered accountant Mary Walsh found that there are 131 separate tax breaks in the Irish taxation code and that the Department of Finance has no data on exactly how much tax is foregone in as result of 42 of the breaks.

“Overall, some form of data is available for 89 of the 131 tax expenditures in the Irish system (68%) — for the other 42 expenditures no ex-post or ex-ante costing or estimates exists,” the report states.

The paper entitled ‘Tax Expenditures: Revenue and Information Forgone — The Experience of Ireland’ concludes that such an information deficit undermines the ability of the taxation system to function efficiently and compromises the ability of policy makers to design, control and evaluate taxation interventions.

Collins and Walsh conclude that despite the scale of the tax breaks (tax expenditure) the system has been subject to only very limited detailed examination over the last two decades.

“Indeed the majority of attention given to the system has been focused on extensions and expansions to existing tax relief schemes, and introductions of new ones, rather than on evaluations of the appropriateness of this forgone exchequer income vis-à-vis its benefits,” the say.

Based on this analysis, the authors outlined a series of administrative and structural reforms relevant to tax expenditure systems in Ireland and elsewhere.

“The most basic approach to reform of tax expenditures is to repeal the legislation giving rise to the tax expenditure. It is often stated that existing tax expenditures must run their course. This is rather like saying that tax rates cannot increase. While investment may have been made by reference to the tax rules in a particular year, it would be disingenuous to think that a country’s Government or parliament is in some moral or legal sense barred from changing legislation on tax rates and tax expenditures, particularly in the context of dramatic changes in a country’s fiscal situation,” they said.