Oireachtas Committee: “Discretionary” tax relief is costing Ireland €21.4bn each year

Posted 07 February, 2019

Ireland is losing out on €21.4 billion annually because of generous tax reductions allowed to firms and foreign executives, expert warns.

UCD economist Dr Micheál Collins told an Oireachtas committee the State was forgoing an amount almost equal to half of what the Revenue collected in taxes in 2018 due to “discretionary” tax relief.

“The most recent list of tax expenditures from the Revenue Commissioners lists a total of 120 tax-relieving measures,” Dr Collins said.

“Of these, I would classify approximately 106 measures as discretionary, and the total cost of these measures in revenue forgone is €21.4bn per annum.”

Tax expenditures cover a wide range of reductions including tax credits for PAYE workers and tax relief on child-benefit payments, but also include tax reliefs and exemptions allowed to firms and foreign executives living in Ireland.

The Revenue collected €54.5bn in taxes for the Exchequer in 2018, according to its latest report.

Dr Collins, from the UCD School of Social Policy, Social Work and Social Justice, revealed the high level of revenue waive through these reliefs and reductions at a meeting of the Budgetary Oversight Committee.

In many cases he said such measures were “worthwhile” and “had long-standing policy support” and, as such, did not need to be reviewed.

However other discretionary measures, including mortgage interest relief, capital allowances and income tax reduction for high-income foreign executives living in Ireland, needed to be assessed to evaluate their effectiveness.

“The reality is that when we introduce tax expenditure there is an inequality inherent within it – we are reducing the tax that one person or company is paying relative to other individuals who are not in a position to avail of that tax relief - so it needs to be pretty clear if it is worthwhile doing it… [whether] the overall benefits to society are greater than the cost,” Dr Collins said.

“It is remarkable how little attention the policy-making system gives to the nature and stability of the overall taxation system.

“The argument against it is that if you were to abolish all these tax breaks overnight all that money would not come in, and I think that’s a very fair and correct argument but nonetheless it gives us some insight into the scale of the tax write offs that are currently in place in the system… [and] when you compare it relative to the overall tax take, it’s a significant figure,” he added.

Calling back to measures deployed by past Irish governments to promote the property and building sectors, Dr Collins said Ireland had “effectively written the textbook on how not to do property supports via the tax system”.

He recommended the committee request the Department of Finance finalise a list of tax expenditure measures considered not baseline [to the tax system], and report their cost per annum, in terms of revenue waive, to the committee.

“The Committee is interested to identify ways that the relative effectiveness and cost of tax expenditures can be regularly scrutinised and reassessed, given the prevailing lack of regular scrutiny,” said Committee Chairman Colm Brophy TD.

“Dr Michéal Collins has been considering this issue in detail for many years and his perspective bears careful consideration.”

By: David Kearns, Digital Journalist / Media Officer, UCD University Relations