Congress tells Dail Committee Tax Breaks "unfair, expensive and distorting"

26 Oct 2005

Congress has called for the abolition of most tax breaks, arguing that they are grossly unfair and serve to distort the market.

Speaking before the Oireachtas Joint Committee on Finance & Public Service, Congress General Secretary, David Begg said: "The reasons for the abolition of most of the existing tax breaks are compelling and Congress believes that most should have been terminated a long time ago."

"They are grossly unfair, they have subsidised overheating sectors of the economy and they also serve to distort the market."

Mr Begg said Congress was also surprised to hear that the current rationale for possible abolition of some tax breaks was because high earners utilised them to avoid paying tax. High earners, he said, should pay tax like all others.

Mr Begg and Congress Economic Advisor, Paul Sweeney, presented evidence on the issue of tax incentives (tax breaks) to the Committee.

Mr Begg noted the "substantial loss" to the economy, arising from various tax breaks.

"It is substantial. In the 1980s, we know these various schemes cost us - the taxpayer - some IR £180 million. By the end of that decade, that loss had risen to IR £1.4 billion. We have no information for recent years, but we can be certain the figure is substantially higher."

Economic Advisor Paul Sweeney set out key Congress objections to tax incentives, namely:

  • Tax expenditures are difficult to quantify in advance;
  • They are subsidies and have anti-competitive effects;
  • Some property based schemes have also led to some urban and rural blight;
  • They have unintended consequences;
  • Property based schemes have boosted construction inflation;
  • They should have a limited time span because of the 'diffusion effect', where there is demand for their expansion at the cost of their impact, but generally they are very difficult to terminate;
  • Tax expenditures can be very regressive.

"The reduction in tax rates over recent years," said Mr Sweeney, "should have been accompanied by the elimination of virtually all of these tax expenditures, simultaneously, so that the marginal and average effective rates came closer together. The elimination of these tax subsides will raise revenue and go some way to making the tax system fairer."

Those tax breaks that remained - or were introduced at a future date - should operate according to some very simple principles, Mr Sweeney concluded:

  • Full quantification of each tax break, each year
  • The beneficiaries should be broadly identified, along with the losers
  • Positive and negative impacts fully quanitified
  • The equity impact of each tax break should also be quantified.

ends