High earners enjoyed nearly 60 tax reliefs

BY 2005 there were nearly 60 major tax relief and exemption schemes available to higher earners in Ireland. Some of them, such as exemptions for artists and for income from stud fees, had been introduced by Charles Haughey when he was minister for finance in the late 1960s.

But the majority were of more recent vintage. Some were introduced by Labour finance minister Ruairí Quinn in the 1990s.

The bulk were introduced by Charlie McCreevy during the Fianna Fáil-led coalition’s first term in government from 1997.

The majority of the reliefs related to property, covering everything from hotels and holiday cottages to nursing homes, hospitals, sports injury clinics, multi-storey car parks and urban and rural renewal schemes.

Thousands of developments were conceived on the back of those reliefs and helped pump up an already overinflated property bubble.

Other lucrative reliefs included the generous exemption available for patent income, as well as that for mining operations.

In 2005 the Revenue Commissioners carried out an analysis of the tax rates paid by the country’s top 400 earners (that is, those resident in Ireland for tax purposes) and the results provoked a shocked reaction, even at a time when citizens were largely indifferent to the public finances.

The analysis showed this group of people had fully exploited those schemes and that a substantial percentage paid zero tax or tax in single-digit figures. Minister for finance Brian Cowen addressed the issue of tax reliefs but he gave most a tailing-off period of many years before they were closed down.

However, following the publication of the 2005 report, the then government acted to try to increase the amount of tax this elite group was paying to percentages that were fairer and more equitable.

Restrictions on how much relief could be availed of were introduced in 2006 and were strengthened in 2007. In the early years, those changes yielded mixed results. They resulted in the 423 highest earners paying €40 million more to the exchequer, with the average tax rate of those earning over €500,000 per year increasing to nearly 20 per cent.

With the economic situation deteriorating, minister for finance Brian Lenihan introduced far tighter restrictions in 2010.

The earlier legislation did not allow the Revenue to touch the reliefs until they were above €250,000 in that year. Mr Lenihan lowered the threshold to €80,000. In addition, he made anybody earning more than €125,000 and claiming any of the 54 extant reliefs subject to the restrictions. The previous minimum income was €250,000. The result was that in 2010 the number of individuals captured by the relief tripled to more than 1,500 and the tax take from this high-earning group increased by some €80 million.

The group of 1,544 does not include everybody earning over €125,000. There are thousands in that income category who do not claim any reliefs.