Widen property tax net in budget, says European Commission
It questions some income tax reliefs and says that reduced Vat rates, including the recently extended rate on tourism-related services, are not effective.
The Government, the EC advises, also needs to make more changes to the corporate tax system to prevent multinationals unfairly reducing their tax contribution or avoiding it altogether.
The latest assessment of the country’s progress out of recession is fairly positive, but the commission insists that, despite the absence of the troika, there can be no let-up, as the country must balance its budget by 2018.
While most of the measures have been set out by the Government in two reports to the commission, the question of extending the property tax and reducing or abolishing the number of zero or reduced Vat rates was not.
With a veritable revolution on their hands over property tax, Fine Gael and Labour are unlikely to welcome the commission’s intervention, especially the suggestion that it could be extended to farmland.
The report notes that some local authorities are considering taxing unused development land in cities to encourage construction in areas where there are housing shortages.
Property tax was introduced as a separate payment by households under the agreement accompanying the EU loans to the country, based on the value of the property.
However, the commission’s report notes that “the base remains relatively narrow, as it excludes all non-residential property, such as farmland, development land, and derelict sites”.
It also notes that commercial buildings have been, and continue to be, subject to property tax.
The report criticises the zero and reduced Vat rates and says that while they were introduced as a way to protect vulnerable groups, they fail to do so.
It notes that the Government recently agreed to keep the reduced Vat rate of 9% rather than 13.5% on tourism-related services, but says there is no evidence that this kind of action achieves its objective in a cost-effective way.
The report describes tax on labour as fragmented and complex, with multiple rates and classes of income tax and social contributions.
It suggests getting rid of tax credits and exemptions that it says narrows the tax base. The average tax take in the EU is 39%, while it is just over 28% of GDP in Ireland — the sixth lowest in the region, with the tax take on low-wage earners among the lowest at 21%.
The health system came in for a drubbing in the report, which noted that despite having one of the youngest populations in the EU, it was among the costliest and blamed poor management and expensive drugs.
The Government is expected to take on board the recommendations when putting together next year’s budget, due in October.
