Congress to lodge complaint with EU over State aid to business
19 Dec 2006
Congress is to lodge a formal complaint with the European Commission on the government's decision to extend the Business Expansion Scheme and the Seed Capital Scheme.
Congress Economic Advisor, Paul Sweeeny, described the measures - announced in the Budget - as "expanded vehicles for tax avoidance for wealthy people. They are also state aid to the business sector at a time when the economy is booming."
Congress is lodging the complaint with the Commission on the basis that, as state aid, the schemes require EU approval. Under provisions announced in Budget 2007 the amount an individual can invest under the schemes was increased from €31,000 to €150,000, while the amount a company can receive was raised from €1m to €2m.
According to Mr Sweeney, the schemes "may appear as if they are helping small businesses, but their main effect is to shield high income earners, who 'invest' in what are too often risk-free BES schemes, from income tax.
"The cost of these schemes to the taxpayer is likely to be far higher than the stated €178m, because most tax expenditures are underestimated. The tax forgone by the exchequer will be made up by working people."
He also pointed out said that the decision to extend and expand the schemes runs entirely contrary to stated government policy, which is to reduce rate of taxation and eliminate all tax breaks and loopholes.
Recently released figures showed that 14 millionaires paid no tax in 2003, by utilising such tax breaks and loopholes.
Mr Sweeney pointed out that Congress did not oppose genuine initiatives to support small businesses, but that tax-based schemes were not the way forward. "What is required is initiatives from the banks and other financial institutions to more readily give loans to small businesses. Greater competition in the financial services sector must be encouraged by government and regulators to make this happen," Mr Sweeney said.
He noted that a recent survey by Price Waterhouse Coopers found Ireland hade the 21st lowest cost of tax compliance, in the developed world.
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