Government threw out ‘minimum tax’ for high earners

PROPOSALS to stop the country’s highest earners using tax schemes and incentives to slash their tax bills were thrown out before last year’s Budget because the Government feared the move would cost more than it saved.

Confidential briefing papers prepared for the Government’s top-level tax advisory group reveal plans for a so-called “minimum tax” were discussed late last year but senior civil servants rejected the idea.

The papers also show extra incentives to encourage Special Savings Incentive Account (SSIA) holders to put their lump sums into pensions were viewed as too generous.

The minimum tax proposal would have forced top earners, with salaries of €100,000 or more, to pay a minimum of between 10% and 20% of their income. A Revenue survey prepared for the Government found one-in-five high earners was paying tax at rates of less than 20%.

The briefing document said the tax would help ensure that every taxpayer would pay a “reasonable” amount and that it would not interfere “unduly” with the range of tax incentives that encourage investment in selected areas. These include controversial schemes that allow high earners to cut their tax bills dramatically, in return for investing in areas like hotels and student accommodation.

But the proposals were blocked during high-ranking talks ahead of the Budget last autumn. Civil servants argued 80% of high earners were already paying tax at an average rate of over 20%.

“If a minimum income tax were introduced, this group of taxpayers would be likely to request their accountants to take steps to reduce their tax bills to a minimum,” the briefing paper stated. “Such an approach would be likely to encourage tax planning rather than discourage it by drawing the attention of those who are currently not involved to the extent of the involvement of others.”

Other reasons given for not introducing the tax included the need for “very complex” legislation and a view that setting a minimum tax rate would give the impression that 20% would be the “acceptable” rate to pay and that anyone paying over 20% would feel they had been treated unfairly and take extra steps to cut their bills.