Financial expert: Tax changes effective but indiscriminate

Brian Lenihan has brought in an effective, efficient but indiscriminate tax regime to plug the massive hole in the Exchequer coffers, a leading financial advisor said tonight.

Brian McDonald, tax partner with consultants Deloitte, said the 1% income levy could raise €1.18bn in a full year.

“It applies to all sorts of incomes, even people who don’t have to pay income tax. It would be indiscriminate,” he said.

“It’s very effective, you are hitting everything. There’s no reliefs, there’s no off-sets. It’s a very effective form of taxation.”

Mr McDonald warned though that the Government may have to consider keeping the levy for at least two years in order for it to have any significant impact.

“The problem with these type of levies is that sometimes they come in and they are left there,” he said.

“However, it allowed him (Mr Lenihan) to be relatively lenient with a lot of other tax measures.”

Reliefs on pension savings have also been hit hard. In effect the levels have been halved from €275,000 to €150,000.

“Effectively he has halved the relief tax limits. In all the circumstances it certainly is backward as regards pensions,” he said.

“But who’s going to protest.”

Deloitte also expects businesses to pick up the tab for the Standard VAT rate increase to 21.5%. The change could bring in €227m a year.

Aidan Fagan, partner at Deloitte said: “Arguably, an increase in the VAT rate in time of negative growth simply saps business confidence and reduces consumer spending.

“Any gains to the exchequer may well be negated by the lower spending. In addition, businesses will have to cope with the cost of amending their accounting systems.”