OVERVIEW:The commission report is designed to be revenue neutral
THE 500-page report of the Commission on Taxation is intended to be an integrated package of measures designed to improve the operation of the tax system over the coming 10 years.
In broad terms it recommends some areas where additional tax can be raised so that the pressure to harvest taxes can be lessened in other areas.
It wants to spread the tax burden so as to shift it towards those areas where the imposition of taxes serves to least dampen economic activity. In that regard, and with corporation tax already at a low 12.5 per cent rate, it wants to shift the burden of taxation away from tax on labour.
A second guiding principle has been to create a more stable, less volatile tax base.
For example, it sees an annual tax on residential property as a more stable source of revenue than stamp duty on principal homes. “Tax those factors that cannot avoid the charge to tax,” as the commission chairman Frank Daly put it at a press briefing yesterday morning.
In terms of the new revenue raising areas, the main recommendations are: an annual tax on residential property; a tax on fuels; water charges; and the elimination of a whole range of reliefs.
The setting of rates is a matter for government and the commission does not recommend particular tax rates, but in very broad terms these four main items would raise in the region of €3 billion.
The measures recommended by the commission could see revenues of €1 billion being raised from an annual tax on residential property; half a billion being raised from water charges; roughly the same again raised from a tax on fuels; and up to €1 billion being saved from the abolition of tax reliefs.
Stamp duty would be abolished, the tax on fuels might be targeted towards energy-saving schemes, and a compensating cut would occur in the taxation of labour.
As well as major policy measures, the report is a comprehensive list of suggested changes. Windfall gains arising from land rezonings should be taxed; child benefit should be taxed; tax exiles should be subjected to rigorous qualification tests; and persons who are laid off should be able to claim certain retraining costs against income from previous years.
On pensions, the commission wants an end to the situation whereby some qualify for income tax relief at 41 per cent while those on lower earnings qualify at the 20 per cent rate. It recommends that the Government contributes towards pension provision much in the way of the SSIA scheme, but accepts that its proposals are but a contribution to the wider debate needed on pension provision.
The report has comprehensive measures to encourage business, including measures to encourage new business and RD.
The commission has laboured hard over an 18-month period, and the report contains more than 230 recommendations. It represents the product of an indepth review of the tax code but also the terms of reference ascribed to it by the Government, and the make up of the panel itself.
The terms of reference included keeping the overall tax burden low and enhancing the rewards of work, while increasing the fairness of the tax system.
The commission was also charged with considering environmental issues and the introduction of a carbon tax, suggesting measures to encourage providing for retirement, and considering options for the financing of local government. (The property tax should in the coming years be used to fund local government, and local authorities should have a role in the setting of the rates, the commission says.)
Mr Daly said the commission does not recommend an increase in the overall level of taxation and its advocacy of a low tax model reflects not just the terms of reference but the view of all of the commission members but one.
This was a reference to Siptu vice-president Brendan Hayes, the only member of the commission not to sign the report. A letter from him in the report praises the commission for how it went about its work which he said would broaden the tax base and eliminate some serious inequities, but says he could not on balance support the report for a number of reasons, not least that it reinforces “a low tax model of the economy and of society that I do not support”.
The report is meant to be viewed as an integrated whole, with taxes raised in some areas being used to offset taxation pressures elsewhere, with the outcome being tax neutral overall.
Mr Daly was asked yesterday about reports that the Government is against the imposition of a property tax. He said the commission would like to see the report “implemented as a coherent package” but that was a matter for Government. It would have a greater impact if treated as a package, he said. The commission had worked hard for a year and a half to devise a tax system for the coming decade “starting now”. He asked that people look at the report as an “integrated package and see it as worthwhile”.