Opinions & Ideas

Category: tax


The Report of the Commission on Tax and Social Welfare contains some proposals that would have a dramatic effect in rural Ireland.

 The Commission, which reported last week,  was set up in fulfilment of a commitment in the Programme for government. It was given a very tight deadline to complete its work, and this may explain the gaps in its analysis.


The Commission was chaired by an academic. It had two civil servants in its membership, a tax consultant, an accountant, two members from economic research institutes, one person from a homeless charity, a businesswoman, one from an environmental charity, someone from IBEC…..but NOBODY representing agricultural or rural interests!

In addition, it received at least 28 submissions, mostly from other civil servants, state agency employees and academics but not one, as far as I can see, from the food and agriculture sector. This is surprising.


The terms of reference of Commission seem to assume that a steadily rising level of spending by government in Ireland will be necessary, equitable and inevitable.

Its task, as it saw it, was simply to

“ensure sufficient resources would be available to meet the cost of public services” as if that cost was a given that could not be altered.

More “resources” in the form of more taxes are simply assumed to be required.

 Deciding on the details of the tax changes the Commission recommends, as a consequence of this assumption, is to be left to elected representatives.

 The Commission offers them a long , and  unpalatable,  menu of tax changes from which they may  choose.

 But the Commission does not look at the expenditure side of government at all!

 Over the last fifty years, the functions taken on by government have steadily increased. Child care, Free GP services, subsidised elder care, and insurance against use of defective building materials, are examples of responsibilities being shifted onto the shoulders of the general taxpayer in recent years.

 We are also about to substantially increase our armed services, and  to increase benefits for those affected by the energy cost squeeze.

 Do we have an agreed basis for prioritizing these expenditures? I do not think so.

 Should a Commission have provided politicians with advice on how to prioritize spending, before advocating tax increases? Yes, I think it should.

A more balanced approach by the Commission would have started with a rigorous analysis of present and future spending commitments, on the basis of explicit criteria.

 Such an approach might not necessarily have meant the rejection of the Commission’s tax proposals, but it would have made them more understandable.  Ideally, the Commission should have identified different levels of government spending relative to GDP, and what each would have meant in service and taxation levels. 

Unfortunately the tight time limit set for the Commission would not have allowed the time to do an exercise like this.

In fairness to the Commission, it does suggest that our ageing population will mean increases in present levels of health and pension spending. It says adapting to climate change will cost a lot of money. Corporation tax revenues will fall from their presently artificially high levels.


The Commission report contains a number of unpalatable proposals .

Below are some examples

  • It says a tourist tax should be imposed on accommodation.
  •  PRSI should be extended to incomes below 352 euros per week.
  •  Pensioners should pay PRSI.
  • Capital Gains tax should apply to gains made on the sale of family homes.
  •  The Local Property Tax on houses should be increased and a higher rate of tax applied to second homes.
  • The lower rate of VAT should be increased and zero rate VAT restricted.
  • Parking spaces should be taxed and road use charges introduced.
  • It advocates this on the basis of what it calls the principle of equity.
  •  It defines equity as treating people in similar situations similarly.


But it  favours the infamous principle of “individualisation” in the income  the tax code, which does the exact  opposite. A taxpayer on 50000 euros a year with a dependent spouse and 5 dependent children is not in the same position as a single person on 50000 euros a year. But under individualisation they would be treated for income tax purposes as if they were in a similar position.


Turning to Agriculture, all land, including agricultural land remote from towns, should be subject to a Site Value Tax according to the Commission. This Site Value Tax would eventually be merged with Commercial Rates.

Obviously agricultural land. that had little prospect of being needed for housing or roads , would be valued and taxed at a lower level than agricultural land near a town. .

But land that had the POSSIBILTY of being needed for housing, might go up in value and thus  in tax liability, even though the housing development might never take place .

This proposal amounts to a reintroduction a centrally administer red form of agricultural rates.

Let us not forget that the Site Value tax would have to be paid  out of after tax income, by borrowing or by selling of  land or stock.

 I can see a Site Value Tax becoming the subject of a lot of litigation between landowners, the Valuation office and the Revenue.

 The Commission gives no idea of the likely rate of Site Value Tax….would it be 1%, 2%,  or 0.5% per annum? How might the rates be altered and by whom?

It is impossible to assess the social effect to this proposal without having answers to these questions.

As well as paying the is annual Site Value Tax, the Commission recommends that holders of agricultural land pay substantially more Capital Acquisitions Tax (CAT) on the transfer of the farm to their children.

 The CAT exemption limits for transfers to children would be reduced.  Again the Commission does not say by how much .

 Again the “experts” on the Commission leave that unpalatable task to the politicians!

 The present system, whereby agricultural land is valued at less than market value when it is being passed to a child, whose main assets after the inheritance are agricultural land, is also to be curtailed.

The inheriting child would have to be active in the business to qualify for the relief.

 Again, this additional CAT would have to be paid by the inheriting child by borrowing, by selling property, or out of income saved and not spent in past years.

The combined effect of these proposals, affecting farms, would reduce the value of agricultural land in Ireland quite substantially. The suggested restrictions on livestock production in the interest of reducing methane emissions will push land values down further.

It is unlikely that recommendations of this Commission will be acted upon in the near future. The government has enough on its mind.

 But they will be used in negotiations for the formation of future government. They may also be turned to if a Minister for Finance finds herself short in a particular year.

 Given that the farming community had no input at all to the Commission, their representatives should go through the report with a fine comb to be ready for the arguments of the future.

Ireland Has The Most Progressive Income Tax System In The EU

This note examines the latest OECD data (Taxing Wages 2017) on the progressivity1 of the Irish income tax system in comparison with other OECD countries. It finds that according to OECD measures the Irish system is the most progressive and that taxes in Ireland are relatively low on those with average incomes and below.

Income Tax

Ireland has the most progressive income tax system (including employee social insurance contributions) in the EU. The tax paid by a single person on two-thirds average earnings(average earnings are just under €35,600) is the fifth lowest in the OECD (out of 35 countries) after Mexico, Chile, Korea and Israel. If raised to Danish or German levels, a single person in Ireland would pay over €5,000 more in tax on an income of about €24,000.

The tax paid by a single person on average earnings is the 28th highest in the OECD. A single worker on an average income pays about €14,500 in income tax and social insurance contributions in Belgium compared to over €6,830 in Ireland a difference of over €7,650.

The tax paid by a single person on one and two-thirds average earnings (€59,400) pays €18,660 in tax which is slightly above the OECD average. A person at the same income level in Belgium would pay €28,800 in tax- just over €10,000 more.

A major reason for the relatively low direct tax burden in Ireland is that PRSI is lower here. In many higher tax countries PRSI funds pay-related unemployment, pension and health benefits while the Irish system provides flat-rate benefits only. Irish employees (and their employers) have to fund supplementary pensions separately. For example, Irish employees pay about €2 billion (after tax relief) towards their pensions annually. In many higher tax countries, these are funded through the tax system.

If we look at the tax payable (excluding PRSI), the tax paid by a single person on one and two-thirds average earnings is the 10th highest in the OECD .

Marginal Tax Rates

How do marginal tax rates in Ireland compare with other countries ? For a single person on two-thirds average earnings, the marginal rate in Ireland is 29.5 per cent compared with an OECD average of 32.1 per cent. The UK rate is 32 per cent. We are the 20th highest in the OECD at this level of income where rates range up to 54.6 per cent found in Belgium.

At average earnings a single person in Ireland faces a marginal tax rate of 49.5 per cent: the third highest in the OECD (average 36.2 per cent). Again Belgium is the highest at 55.9 per cent while the UK rate is 32 per cent.

At one and two thirds average earnings, the marginal rate of tax in Ireland (49.5 per cent) is the 9th highest in the OECD and above the OECD average of 43.4 per cent. Sweden is highest at just over 60 per cent and the UK is at 42 per cent.


Compared to other OECD countries

  • The level of direct tax paid in Ireland is low particularly for those below average earnings
  • Employee PRSI in Ireland is less than half the OECD average2
  • The Irish system is the most progressive in the EU
  • The top marginal rate is not particularly high but it applies at a relatively low level of income


Source: Taxing Wages 2017, OECD 2017



1 The measure of the progressivity of the tax system is obtained by comparing the tax due by a single person on 67% of average income with that payable on 167% of average income. Tax includes income tax, universal social charge and employee social security contributions.

2 In many higher tax countries PRSI attracts pay-related unemployment, pension and health benefits while the Irish system provides flat-rate benefits only





apple-euThe EU Commission decision that Ireland must collect 13 billion euros in back taxes from Apple has created quite a sensation. Most people agree that multinational companies can, and should, pay more tax. That general goal of the European Commission is widely supported.

The key question is whether Apple was given selective aid, and , if so, if this breached EU  competition rules.

It is therefore important to say that the Irish government never “selected” Apple for subsidy.

Apple, of its own accord, simply applied for, and was given, an interpretation of Irish tax law as it stood at the time (in 1991 and again in 2007). Any other company, in a comparable legal and factual situation, could have applied for, and got, a similar ruling.

It is important to stress that, in its interpretation of the meaning of Irish tax laws, the Irish Revenue Commissioners act independently of the government. Their relations with individual taxpayers, large and small, are confidential. They hold themselves to a high standard of objectivity and integrity.

The Commission ruling, going back and revising ten years of tax liability on grounds of competition policy, rather than of tax law, creates uncertainty for many other companies about their present liabilities.

At a time when too many companies are failing to invest and are, instead, paying down debt or accumulating piles of cash, this added uncertainty is not good for the revival of the European economy.

It may even encourage some companies to incorporate or invest outside the EU, where the Competition directorate of the European Commission will not have the same power to issue retrospective directives to national tax authorities.

The Commission decision in the Apple case attempts to change the way in which profits can be attributed, for taxation purposes, as between different parts of a multinational company’s structure.

Previously, companies could get authoritative guidance on what was permissible in this respect from the relevant national tax authorities. This was possible because taxation was understood by companies to be primarily a member state, rather than an EU, competence.

Now companies will no longer be able to rely in the same way on these rulings, but will have to seek clarity from the European Commission on whether a ruling could be construed as offering a “selective” advantage to the company. In light of the Irish experience, revenue authorities of member states will be very cautious. All doubtful cases will tend to be referred to Brussels. This will add greatly to the burden of work of the Commission, and will entail an extension of the Commission’s field of activity. Commissioner Verstager herself has said that companies should double check the compatibility with EU Competition and State aid rules of the rulings they have been given by their national tax authorities.  

As the corporate structures of multinationals vary considerably, the national tax ruling on each of them will have to be individually examined and adjudicated upon as to whether “selectivity” of some kind is involved.

The test of whether a ruling is illegal, in the Commission’s eyes, is whether it is “selective”. “Selective” is defined as giving a company an advantage over other companies in “comparable legal and financial situation”. As the factual situation of every company is different, this leaves a lot of room for subjectivity and argument.

The Commission will have hundreds of thousands of tax ruling of the 28 member states to review, and so far it has only looked at a thousand.

The Apple ruling also raises  new questions about which country is responsibility for collecting the taxes on particular profits, depending. Up to now, it was understood that a country was expected to collect taxes on profits on activities within that country. Now, Ireland is being told it must to collect the 13 billion euros from Apple even though, in Commissioner Verstager’s own words, “other countries” may actually be owed the money, not Ireland.

Much of the profit may actually be derived from activity undertaken by Apple in the United States, and any tax to be collected it may belong to the US. But Ireland now is told it must collect the money anyway. This is new form of universal jurisdiction!

This precedent will increase uncertainty, jurisdictional disputes, and compliance costs. Yet the Commission is promoting TTIP, precisely in order to reduce uncertainty and compliance costs. The form of the Apple decision sends a directly contradictory signal.

I believe it would have been wiser for the Commission to concentrate its attention, in a forward looking way, on ensuring the uniform and rigorous implementation of the EU Anti Tax  Avoidance Directive which has already been approved by all member states, including Ireland.

The determination of the amount, and the collection, of back taxes should be left to national tax authorities, who, after all, have plenty of incentive already to go after the money!



I believe that, across the western world, we may be reaching some sort of limit in the complexity of rules governing business. The response to the financial crisis has been ever more complex rules, that only a tiny number of professional advisors could ever hope to remember, or understand properly.
In the United States, the Glass Steagall Act, introduced to regulate banking after the Depression of the  1930’s ran to  37 pages .In contrast,  the Dodd Frank Act, introduced in the wake of the recent crisis, runs to  848 pages of basic text, plus 30000 pages of implementing rules.
In the UK, the 1979 banking act ran to 75 pages. The 2012 Financial Services act runs to 534pages.
It is the same with taxation. In 1997,Tolley’s  guide to the UK tax system had around 5000 pages. The latest edition has 17,795 pages.  I have no doubt the pattern in similar in other countries and in other areas of regulation.
Why is this happening?
I think the explanation is ethical, political, and legal.
Ethics may have declined in many organisations to a point that something  is  deemed acceptable so long as it is legal, even if it may be very unfair to customers, creditors or the taxpayer. This may be accompanied by other excuses like, “everyone else is doing it” or “we must do this to keep market share”.
In politics, the” gotcha” principle may be at work. No politician or administrator wants the buck to stop with them if something goes wrong. As a result, they make ever more complex rules to pass the responsibility on to some other body, preferably to an anonymous quango. 
Also businesses themselves lobby for “certainty” in legislation, which often involves more and more complex exceptions and qualifications.  
The ingenuity of lawyers in devising complex ways of getting around rules also drives rule makers to introduce new complexities to close loopholes.

Some of these new laws are so long that parts of them are never properly debated, or even understood, in parliaments.


Complex rules are a sort of regressive tax.

They give an artificial advantage to those  who can hire  “ the most sophisticated risk modeller, the slickest tax accountant” as Andrew Haldane of the Bank of England pointed out in a speech earlier this month.
These complex rules carry huge economic costs. They divert talent, time and money away from productive activity, to activity that adds nothing to the competitiveness of our economies in international markets.
Andrew Haldane asked the question
“If complex frameworks come with economic and social costs-why has society not done more to tackle them? Resistance is strong, particularly among those who gain most from squeezing through the loopholes. There is also an inbuilt professional inertia among regulators, lawyers and tax accountants with large amounts of human capital invested in complexity”
Simplifying regulations must be part of any serious effort to make the European economy more competitive.


Rather than ever more complex rules, covering every conceivable thing that could go wrong, we may need to return to simpler, more general rules and rely on the courts to decide whether people acted in accordance with the spirit and intent of those rules.

For example, instead of prescribing in ever greater detail what companies must put in their annual reports, we may need to simply lay down a rule like
”the company must disclose all material facts that shareholders, customers, and creditors would need to know in their own interests.” 
Then leave it to the courts to decide if the company has disclosed all those material facts, and provide harsh penalties if the courts decide they have not.

That may mean businesses living with more uncertainty. Rather than know for sure whether some short cut they are proposing to take is legal or illegal, and if it legal feel free to go ahead with it, businesses in future may have to ask themselves the question ,

 “is this action right, fair to my customers, fair to my shareholders, and fair to the general public?”

And the answer is “no” to any part of that question, they should decide, of their own accord without consulting any regulator or professional advisor, that they will not do it.


Work is now intensifying on the preparation of the budget for 2013.

It is part of a process of reducing the gap between revenue and spending (including spending on interest payments) to   3% of GDP, in accordance with EU rules and the Maastricht Treaty which the Irish people approved in 1992. This reducing of the gap is called ”fiscal consolidation”.

In 2009, the fiscal consolidation was 7.6 billion euros, 
in 2010, 6.4 billion,
in 2011, 6.1 billion, and
in 2012, 3.8 billion.

In the budget now under preparation, a consolidation of a further 3.5 billion has to be made for 2013.
For 2014, a consolidation of an extra 3.1 billion euros must be made.
And , finally, to  get on target, yet another consolidation of 2 billion  must be made for 2015.
While these figures show that a consolidation of 22 billion has already been made, and the remaining consolidation is “only” 6.6 billion, the truth is that the further one goes along a road like this, the harder it gets.
The “easy” tax increases or spending reductions are made in the earlier rounds, and the much harder ones tend to get postponed to the later stages. We are now getting to the hard part.

I think there is a strong argument for announcing, upfront next month, a full programme of all the  cuts and tax increases  for all three remaining  years- 2013,2014 and 2015. We should have a three year budget, rather than a one year one.
Doing the job one year at a time adds to the uncertainty, and does not reduce the pain. It also prevents people seeing what the real alternatives are.
The last time Ireland faced a similar crisis , in 1981, I was the Minister for Finance. Within 4 weeks of taking office I introduced and passed an emergency budget in July 1981.
I then prepared a White Paper on how the country could avoid getting into the same sort of mess again.
It  was entitled “A Better Way to Plan the Nation’s Finances”. Unfortunately, because the Government had no Dail majority, and fell on the proposed budget for 1982, I did not get a chance to implement the reforms I had proposed in the White Paper.
But the reforms proposed in that paper are just as relevant to today’s problem, as they were to those of the early 1980’s.

In “A Better Way to Plan the Nations Finances,  I suggested a new timetable for budget preparation for the following year which would see the proposed tax and spending measures published  in the previous October, allowing 2-3 months for debate, and even changes, before the measures took effect.
The 1981 White paper suggested that the budget be  accompanied by estimates of the tax changes and spending  changes that would be needed to stay on track for the subsequent  two years….a sort of three year budget. That would have taken a lot of the secrecy out of budget preparation, and given everybody a greater sense of involvement with the choices that had to be made, and a sense of   how difficult they were.
By having the debates ahead of time, the possibility would be opened up of making amendments in a non dramatic way.  It would not be so much a question of dramatic “climb downs” and “U turns”, but rather of listening and learning from rational debate.
And the  1981 White Paper suggested a  change to Dail procedure to allow opposition parties to make detailed  proposals for amendments to spending plans, so long as they put forward equally detailed alternative ways of bridging the gap.
It also proposed an independent Public Expenditure Commissioner who would analyse the choices for the Dail.

It seems to me that it would be very helpful today if information was published, on a regular basis, by someone like a Public Expenditure Commissioner, comparing different types of public spending  and tax breaks here, with those applying in other  jurisdictions, like Northern Ireland, Germany or Spain.
For example, we could usefully know how things like

 medical consultant’s salaries,
 teacher’s salaries,
 public service pensions, and
 jobseekers allowances,
 here compared with the other places.
It would also be useful to be regularly informed what particular medical procedures cost in different hospitals in Ireland, and in hospitals in other countries.
One could also compare the unit costs of the courts and legal proceedings, and of prison services here with other countries.
Publishing this sort of information routinely, and setting out the budget over three years ahead, would make the Government’s political task easier. And  it would help people to see where their money was going and why.

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