ESRI Rejects Call For Irish Minimum Tax

by Jason Gorringe, Tax-News.com, London

13 October 2005

Ireland's Economic and Social Research Institute (ESRI) has rejected arguments that the country needs a minimum tax system to ensure that wealthy people pay a fair amount of tax, and has urged the government instead to review the extensive system of tax reliefs and allowances which can help to substantially cut the tax bills of those on high incomes.

As part of its annual pre-Budget report, ESRI pointed to a new study which suggested that a fresh approach is needed by the government to so-called "tax expenditures" - special breaks in the tax system which are, in effect, a hidden form of government expenditure.

ESRI is calling for a four-pronged approach to improve the current situation. Firstly, it advocates that all tax relief should undergo the same tests posed for expenditure proposals. In addition, the transparency of direct expenditure should mean that the government should favour this over tax breaks.

Secondly, ESRI argues that a more systematic and regular review of the costs and benefits of tax expenditures is needed, including regular annual reports.

Thirdly, the Institute believes that government can achieve the same objectives as a US-style minimum tax, but without impacting so heavily on taxpayers by imposing restrictions on tax relief.

Lastly, ESRI points out that there are still a number of tax reliefs which are allowed at the taxpayer's marginal rate. Analysis shows that the aggregate benefit from mortgage interest relief, which is allowed only at the standard rate of tax, is concentrated on better-off taxpayers. Reliefs allowable at the top rate (such as pension contributions) are further skewed towards high income earners, the Institute said.

The Irish government has come under fire from the opposition after figures released by Finance Minister Brian Cowen last week revealed that several wealthy residents paid little or no tax during 2000 and 2001.

Mr Cowen explained that the deductions from taxable income include allowances such as capital allowances, losses, allowable expenses and retirement annuities. "In some cases, these will reduce the taxable income to nil," he stated.

The Oireachtas finance committee is currently reviewing a range of tax concessions amid growing calls from opposition members that they are unnecessary and tend to help the wealthy avoid tax. It is also reviewing the rules governing residency for tax purposes. As things stand, persons need to spend more than 183 days in Ireland to be considered resident for tax purposes.

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