First introduced in 1969 by then Prime Minister Charles Haughey, the tax exemption has supported a flourishing artistic community in Ireland whilst also encouraging artists, writers and musicians from across the Irish Sea to settle in the country. However, the tax benefits of the exemption have in recent years been eroded, firstly by the imposition of a EUR250,000 cap on tax exemptions amid a more general crackdown on tax reliefs in 2006, and now by Lenihan, who has imposed a 1% 'income levy' on annual earnings up to EUR100,000, rising to 2% thereafter, on all taxpayers.

“We realise the solidarity of demands of all tax payers, but there is too much at stake - we all have too much to lose by not taking action now,” said Lenihan in his budget speech. “This levy will allow all income earners to contribute in a proportionate manner to the restoration of order and stability for the public finances. This will enable Ireland to return as soon as possible to a natural level of economic growth.”

He went on tell Irish radio after the budget that while the artists scheme has indeed attracted a lot of people into the country who wouldn't otherwise be there, the income levy is applied before the artists’ exemption so it will apply to all their income.

It has been calculated that the Irish government forgoes about EUR30mn annually in tax on the EUR100mn or so earned by artists availing themselves of the exemption. Lenihan expects to generate EUR1bn from the new income levy.

For artists at the wealthier end of the scale however, possibilities exist for reducing their tax liabilities by moving their business affairs to be taxed in another country. For example, shortly after the EUR250,000 cap was put in place, it emerged that Irish super-group U2 had created a company in Netherlands through which to channel their royalty payments, and they are expected to save millions of euros in tax by doing so. But it should be noted that only a small number of artists (about 10) benefiting from the scheme earn more than EUR1mn per year, while the vast majority, as many as 80%, are earning less than EUR10,000 per year.