Irish Government Defends Tax Reliefs

by Jason Gorringe, Tax-News.com, London

09 February 2006

The Irish government has been defending its use of special tax incentives to encourage economic activity in certain sections of the economy, after the publication of a recent review of tax reliefs attracted strong criticism from opposition politicians.

While accepting that some of the tax breaks introduced in recent years to help stimulate investment have been abused by some individuals, Prime Minister Bertie Ahern told the Dail that the policy had helped to transform Ireland into one of the most dynamic economies in Europe.

Similar sentiments were echoed by Finance Minster Brian Cowen, who moved to close many tax breaks in the recently published Finance Bill, but who also argued that there is no reason why the policy of targeted tax breaks should be completely abandoned, noting that the tactic has been used by previous governments, regardless of political persuasion.

“There was a time when there was 18% unemployment in this economy, there was a time when the construction industry was employing a third of what they’re employing at the moment," Mr Cowen observed.

“We shouldn’t close off in principle the idea of tax relief schemes if they’re required, but I agree there should be cost benefit analysis done," he added.

A review of tax reliefs by Goodbody Economic Consultants, published by the Finance Ministry earlier this week, revealed that the Treasury has foregone about EUR2 billion in revenue as a result of various tax relief schemes, such as those for private hospitals, nursing homes, student accommodation, childcare, the special exemption for artists and property tax breaks.

The review also showed that property tax breaks have been used almost exclusively to cut the tax bills of the wealthy.

“There is no doubt that the incentives have been a key mechanism for high income earners to reduce their tax liabilities," the review observed, noting that one individual had managed to pay EUR25m into a pension fund tax-free.

Cowen has since placed a EUR5 billion cap on tax-free pension fund contributions.

Recommended