In its pre-budget submission, left wing think tank TASC has called on the Irish government to maintain spending on welfare, and reduce tax breaks to average European Union (EU) levels in order to save EUR5.2bn a year.
“TASC estimates that tax breaks will cost the State approximately EUR7.4bn in 2009. If tax breaks on personal income tax and corporation tax were reduced to EU average levels, they would only cost EUR2.2bn in 2009, a difference of EUR5.2bn,” TASC’s report argues.
Based on the most recent figures on tax concessions available, from 2005, the EU average level of tax expenditure on personal income tax and corporation tax equalled 6.8% of total tax revenue. TASC observes that if the Irish government were to reduce the tax breaks to within these bounds, tax expenditure for 2010 should amount to around EUR2.2bn.
TASC’s report continues:
“The government must justify introducing or keeping any tax breaks. TASC calls for tax breaks to expire annually, unless the government presents an equality audit and economic efficiency audit to the Oireachtas (Parliament) to demonstrate their economic and social benefits.”
Commenting on proposals to cut social welfare, earmarked as the most likely method of cutting EUR4bn of Ireland’s budget deficit, the report argues: “Evidence shows that tax breaks are more likely to benefit the better off. Social welfare cuts will affect the most vulnerable in society.”
According to an Organization for Economic Cooperation and Development (OECD) report on Ireland in 2009, while personal allowances take the lower earners out of income tax system, "the distributional nature of the other reliefs goes against progressivity as they only affect those who pay tax and benefit the highest earners the most.”
TASC has called on the government to investigate the social benefits and efficiencies of tax breaks currently in place, and where they are not appropriate, to phase them out within a year.
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