State spends €15.8bn a year on ‘discretionary’ tax expenditures

The Government is spending €15.8 billion a year on 85 so-called "discretionary" tax expenditures, the Oireachtas Committee of Budgetary Oversight has heard.

These tax-relieving measures cover a range of allowances, reliefs and reductions afforded to individuals and families under income and other taxes.

While many are well targeted, "others have a less robust basis for defending their cost and effectiveness," University College Dublin economist Micheál Collins told the committee .

Within the context of broadening the tax base, Mr Collins said the Government should consider limiting certain tax reliefs associated with pension savings, which cost the State €2.7 billion annually in " revenue forgone".

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This might involve limiting all pension contributions to tax relief at a single rate of income taxation.

Currently this is offered at the marginal rate meaning the State supports the savings of higher income earners more than those on lower incomes, Mr Collins said.

Sarp

The Government should also restrict the tax-free lump-sum payment to a value equivalent to two-thirds of average earnings, he said. Currently, the first €200,000 of pension savings (or 25 per cent of total pension savings) can be drawn down tax free.

Mr Collins also took aim at the so-called Special Assignee Relief Programme (Sarp) for foreign executives.

The scheme provides for full income tax relief on 30 per cent of income over the €75,000 threshold. In 2018 the scheme cost €42.4 million, was availed of by 1,481 individuals at an average benefit of €28,629.

This suggests the average recipient has an income of €313,000, Mr Collins said.

“This would put them in the top half per cent of the earnings distribution. While there are economic benefits to a schemes such as this, one could make similar arguments for many other jobs and roles,” he said.

“However, do earners at this level of income need a tax reduction? On the grounds of fairness, I think the scheme is hard to justify; there are better uses for these resources,” he said.