The Department of Finance’s Tax Strategy Group (TSG) unleashes a veritable avalanche of information about the State’s tax system in July each year – not just an assessment of existing measures but the likely cost of new ones – all aimed at informing upcoming budgetary policy. It’s hard to get your head around the sheer volume of material involved but here are six key highlights.
Mandatory reporting of all gifts and inheritances
There has been speculation that the Government might move to ease the burden of inheritance tax in the upcoming budget. It is seen by some as unduly onerous on low and middle-income households. Taoiseach Simon Harris acknowledged recently that “unfairness” and “anomalies” relating to the system deserved greater attention. However, the department threw in something of Sidewinder missile by suggesting the Government could introduce legislation to make it mandatory to file a tax return on all inheritances and gifts, no matter how small.
Currently recipients are obliged to file a capital acquisitions tax (CAT) return only when they pass 80 per cent of the relevant lifetime tax threshold (currently €335,000 in respect of gifts and inheritances from parents). The TSG said this placed “a significant burden on taxpayers to retain detailed records over a long period of time” but presumably the real reason is to catch undeclared gifts that are eluding the tax system.
The ECB’s inappropriate monetary policy
As part of the launch of the TSG’s papers, economists in the department typically deliver a report on Ireland’s economic outlook. This year’s one doesn’t deviate too much from what we’ve had in the recent Summer Economic Statement but it lists “inappropriate monetary policy” as one of the possible downside risks to the current outlook. This refers to the fact that with house price inflation now over 8 per cent, a cycle of interest rate reductions at European Central Bank (ECB) level is probably not going to help and could fan the flames of further house price rises.
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Tapping bookies for more tax
The Government is weighing an increase in betting tax but with an extra allowance meant to protect smaller bookies. Revenue currently levies 2 per cent on all bets placed with online or on-street bookies in the State, that is not passed on to punters, raising €103 million last year. Officials are considering a 0.5 per cent hike to the charge, according to the Tax Strategy Group report published on Tuesday.
Reforms introduced in 2002 originally linked the charge to State funding for horse and greyhound racing, but the government effectively broke that in 2008 during the financial crisis. It allocated €95 million to those sports for this year.
They are also mulling increasing the current allowance to €65,000 a year per firm, from €50,000, to ease the burden on small independent bookies that turn over less than €2.5 million a year.
Who is paying the most income tax?
Apart from costing various possible changes to the income tax system (including indexing the bands at a cost of €1.2 billion), the TSG’s paper on income tax examined the distribution of income tax and USC (universal social charge). It found that the top 10 per cent of the country’s top earners (those earning more than €102,000 annually) now pay almost two-thirds of all income tax and USC while the top 1 per cent of earners (those earning €290,000 and above) pay almost a quarter of receipts (24.4 per cent).
The paper wonders out loud if the State’s tax system is in fact too progressive. “The risk is that high marginal tax rates may have adverse consequences inter alia for work incentives and competitiveness including the ability to attract inward investment linked to the availability of high-skilled workers,” it says.
Congestion charges could be on the way
Attempts to address air pollution and curb transport emissions has become an increasingly divisive battleground. While restrictions on city vehicles have generally been welcomed in urban centres with good public transport systems, they’ve triggered strong public backlashes in areas with poor transport networks and where there is a heavy reliance on cars. The latter describes Ireland to a tee.
The TSG papers noted how the 2022 census found there is “heavily reliance on private cars for travel to and from work” nationally with cars used by 59 per cent of commuters. It concluded that non-tax measures like congestion charges, low emissions zones and remote working policies could achieve the same objectives as a car parking levy but in a more “efficient” and “equitable” manner.
The return of 9% VAT for hospitality, forget it
For several months, firms and hospitality industry groups have been lobbying the Government hard to have the reduced 9 per cent VAT rate reinstated to stem the surge in costs linked to changes in employment law and higher energy prices. It seemed like a long shot given the negative reactions of Ministers and the perception that hotels, particularly in Dublin, were gouging on price; now it’s seemingly dead in the water. The department costed its reintroduction at €764 million for the full year or €545 million if the measure was confined to food service businesses before concluding either option would constitute an enormous and unjustified “fiscal transfer of taxpayer’s money to the sector”.
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