Calls for greater scrutiny of billions lost to ‘tax expenditures’

The Committee on Budgetary Oversight has called for greater parliamentary scrutiny of so-called “tax expenditures” amid suggestions the State may be losing anything between €5 billion and €15 billion a year in revenue.

Tax expenditures refer to the wide range of tax reliefs and reductions allowable to individuals and families under the State’s tax code, but also the generous shelters allowed to companies and foreign executives domiciled here.

They include everything from tax credits for PAYE workers and mortgage interest relief to the research and development (R&D) tax credit for companies, income tax cuts for foreign executives and the State’s longstanding film relief scheme.

The committee’s report noted that 87 per cent of tax expenditures provided by the Irish State did not have a sunset clause, and 23 per cent had never been reviewed after their introduction.

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“Despite their scale, cost tax expenditures, once enacted, are not generally subjected to regular scrutiny by parliament,” the report said.

‘Revenue forgone’

“Although projections for the amount of tax revenue collected are published on a regular basis and are followed closely, there is less examination of the potential revenue forgone on foot of various tax expenditures,” it said.

Estimates of the cost to the exchequer differ depending on the definition of what constitutes a tax expenditure. The Parliamentary Budget Office (PBO) suggests that the aggregate cost to the State is in the region of €5 billion a year.

However, University College Dublin economist Micheál Collins suggests the revenue forgone could be as much as €10 to €15 billion per annum.

The committee recommended the Department of Finance prepare a report giving detailed reasons as to why sunset clauses were not attached to these tax expenditure measures.

It also recommended the department provide it, on an annual basis, with an updated list of tax expenditures and their estimated cost in terms of revenue forgone.

Work programme

The committee plans to incorporate scrutiny of the department’s tax expenditures into its annual work programme. It said it would focus this year on a number of measures that have seen a dramatic increase in cost, for example the R&D tax credit, special assignee relief programme (sarp) for executives, and film relief.

"One of the main issues highlighted in our hearings on this subject was that tax expenditures account for a high level of revenue forgone," chairman Colm Brophy said.

“The committee has prepared this report with the aim of assisting the Government in identifying how to make the review of tax expenditures a regular feature of the budget scrutiny cycle and to sharpen our ability to identify instances when these measures are no longer cost-effective or fit for purpose,” he added.

A recent capital gains tax (CGT) exemption for investors who held on to land for seven years, which has now been phased out, was linked to land hoarding in Dublin while at the same time chronic housing shortages were inflating prices.