Income tax cuts `should focus on low-paid'

The National Economic and Social Council has recommended further reductions in income taxes and stronger measures to stamp out…

The National Economic and Social Council has recommended further reductions in income taxes and stronger measures to stamp out tax evasion and fraud, and has called for consistency in policy on tax reliefs.

Income tax should be reduced through increases in the standard personal allowance and a widening of the income band at the standard tax rate, it says.

These are measures which would help the lower-paid, as well as ensuring that the amount of income subject to the higher tax rate is reduced.

An increase in the standard personal allowance (which is due to be converted to a tax credit) would raise the threshold at which people would enter the tax system and would remove some people from the income-tax net altogether.

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The current personal allowance - the amount a person can earn before he/she becomes liable for income tax - is £4,200 for a single person and £8,400 for a married couple.

Increasing this would be "the most effective way of helping the low-paid while at the same time providing tax reductions of equal amounts to most taxpayers in a straightforward way", according to the NESC.

In its report, the NESC said it "also attaches significant priority to an increase in the income level at which people become liable for the higher rate". This could only be achieved by widening the current band of income which is taxed at the standard rate.

Since the 1999-2000 Budget the first £14,000 of taxable income of a single taxpayer (£28,000 for a married couple) is taxed at 24 per cent, with the balance then charged at the higher rate of 46 per cent.

But the council warned that the current "proliferation of new forms of tax relief without any guiding principle" could encourage tax avoidance and evasion.

Accepting that some tax reliefs serve a useful purpose, it said that "a complex system of reliefs and allowances tends to encourage tax avoidance and evasion and causes resentment among those not in a position to benefit".

It called for more regular evaluation of tax relief measures and for the publication of these evaluations.

Taxation policy should now pay attention to promoting the environmentally sustainable development so critical in terms of long-term development, the NESC advised.

It recommended that user charges for environmental services such as water, waste water and solid waste disposal should more adequately reflect the cost of the provision of the services and should be volume-based wherever possible.

Environmental taxes, charges and incentives have a role to play in addressing environmental issues, according to the NESC. These measures should take account of equity and competitiveness and of regional differences.

Calling for environmental issues to be addressed as a matter of urgency, the council suggested that resources of the relevant Government Departments may need to be strengthened.

Describing recent evidence of DIRT and other tax evasion as "a cause of concern", the council called for "a stronger approach" to tackling evasion either through more effective implementation of existing legislation or new legislation.

It welcomed "the significant measures" in the 1999 Finance Act to strengthen the powers of the Revenue Commissioners and said that the outcome of the Public Accounts Committee inquiry and the Moriarty tribunal should be helpful in identifying the measures required to tackle evasion and fraud.

On local taxes, the council said these were low in Ireland. But any increase in local taxes would have to be offset by reductions in income tax so that the total tax burden would not be increased.