Kieran Coughlan: Tax strategy group’s ideas for pre-budget discussion

Ireland’s tax strategy group is tasked with reviewing our taxation system and presenting options to the Government for policy initiatives to support government objectives.

The group has been in existence for over 20 years, and up to now, its publications were issued to the Department of Finance, and published after the annual budget was formed and delivered.

This year, the group’s reports have been published in advance of formation of the budget, as a move “to facilitate informed discussion”.

This year’s report is spread over 10 papers ranging from corporation tax to climate change.

Looking specifically at their income tax and PRSI paper, it’s interesting to note that our tax base is supported mainly by income taxes (including the universal social charge), expected to amount to more than €19bn in 2016.

Our overall income tax take amounts to more than 40% of total exchequer receipts, and although it’s of little consolation, it is interesting to note that this level of tax take from income tax is broadly in line with other EU countries.

Despite our reputation as a leading country in which to base multinational enterprises, the reality on the ground is that our low corporation tax system doesn’t help alleviate the tax burden on the average Joe or Josephine.

Ireland’s income tax system is seen as one of the most progressive in Europe, progressive not in the meaning of an enlightened or advanced tax system, but progressive in that the more you earn, the rate you pay increases incrementally.

Although the introduction of the income levy and the universal social charge was touted as broadening the tax base, changes over the past five or six years have raised tax thresholds, while reducing the rates applicable at each threshold.

Broadening of the tax base was designed as a structural reform, a strong shift away from our over-dependence on capital taxes (stamp duty and capital gains tax), to make the economy more independent of the vagaries of property cycles.

However, the tax strategy group points out Ireland still needs a relatively broader and more diverse tax base, with a move away from dependency on income taxes, to broaden the tax base.

On the self-employed, the paper reiterates the Programme for a Partnership Government commitment to increase the earned income credit to €1,650 by 2018. 

This should be of benefit to many of Ireland’s farmers, albeit that persons with off-farm employment income will not benefit from the scheme, as an individual cannot claim both the PAYE credit and earned income credit.

The paper suggests that the self-employed benefit through a more favourable regime in respect of claiming expenses, and benefit from paying tax once per year, rather than by deduction as applicable to employees, and does not offer any suggestions as to how the income tax system can give more support to the self-employed.

From a farming perspective, it’s a pity the paper is not creative in considering solutions to address structural problems in the taxation of Ireland’s largest indigenous industry — such as solutions for farm income volatility, and measures to bolster longer term profitability.

Sticking with the Programme for a Partnership Government, a commitment to “extension of additional social insurance benefits/pensions to the self-employed” is explored in the pay related social insurance paper. 

Schemes to which the self-employed do not have access are jobseeker’s benefit, illness benefit, partial capacity benefit, invalidity pension, health and safety benefit, carer’s benefit, treatment benefit, and occupational injuries benefits including disablement benefit.

Extending availability of such benefits was previously assessed in 2013, when the cost of extending the range of benefits to the self-employed was determined as warranting an additional increase in the rate of PRSI by at least 1.5% (from 4% to 5.5%).

A further conclusion from the paper is that extension of benefits to the self-employed should not be a voluntary opt-in or opt-out affair, because that would attract a profile of riskier self-employed persons to opt in, meaning the overall cost to the exchequer would not be supported by the extra contributions by that cohort.

The tax strategy group suggests that much more ground work will be needed to develop a model for extending PRSI benefits to the self-employed.


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