| Lobbying the Minister |
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| The key provisions of the December 6 Budget will be decided over the next several weeks. The Minister’s focus has to be sharply on jobs. Not just those of his colleagues facing an election in the coming year, but more particularly the jobs of those who will vote in that election. Should the Minister tire of such weighty issues, there are several more minor but worthy areas to which he might usefully turn his attention. |
Car allowances and capital allowances
Businesses are not entitled to fully recover either the running costs or capital costs of passenger motor vehicles (save in exceptional cases). Presumably the thinking is that the Exchequer should not subsidise unnecessary luxury.
That approach ignores the fact that a business’s income belongs to itself and not to the Exchequer, so the Exchequer subsidises nothing but rather the business subsidises the State.
The restriction on the deductibility of capital allowances and car expenses may sound a minor matter. But it leads to a considerable administrative cost. The original acquisition cost of every single motor vehicle has to be recorded and calculations carried out every year so as to restrict the expenses specific to that individual motor car, on a car by car basis.
There are tens of thousands of passenger vehicles in use in company trades. The money raised surely does not justify the heavy administrative burden placed on companies.
The Minister might like to reflect that the limit to the cost of a car on which there is full recovery of expenses is about one third of the cost of the average ministerial Merc. Why not abolish this stupid restriction?
Plant capital allowances
With some exceptions, plant attracts tax depreciation at the rate of 20 per cent per annum straight line. When plant was steam driven, that would have been a generous rate. Modern plant tends to be ‘chip powered’ rather than steam powered. Ask your school-going child what he thinks of a five year old computer! The rate of capital allowances on plant should be increased to 33.33 per cent p.a.
While the Minister is looking at this area, he might consider whether the present system, whereby cost price and ultimate sales proceeds of every individual item of plant must be separately recorded could be simplified. The recording is necessary in order to calculate ‘balancing allowances’ or ‘balancing charges’ on the occasion of a disposal. Could this requirement be confined to items of plant costing over, say, ?50,000? This would involve ignoring balancing allowances and charges on the disposal of items of plant with a lower cost. It would be a significant simplification at little cost.
The levies
The levies are additional charges of income tax that dare not speak their name. To disguise their reality they are computed in a slightly different form to the manner in which income tax is computed. This form is entirely irrelevant to the issue of collecting revenue for the State but imposes complexity and administrative costs on those who have to compute the levies. Why not simplify it by rationalising the levies as an additional 2 per cent on taxable income? By all means keep the separate name if it is thought to fool anyone.
Entertainment
Entertainment expenses are not tax deductible, nor may VAT be recovered on them. A deduction is not available if a business buys lunch for a visiting buyer. On a strict interpretation of the law, the free product samples handed out as railway stations and traffic lights are also not tax deductible to the business distributing them as a means of marketing.
It is understandable that when corporation tax rates were at 50 per cent (as they once were) there may have been concern by the Minister of Finance that the cost of bottles of Chateau Petrus (with which some former Ministers were rumoured to be acquainted) should not be tax deductible. With corporation tax rates settling down at 12.5 per cent the task of separately identifying entertainment costs, and of having Revenue auditors trawl through records in an effort to locate them, is really not worth the candle. Surely it is time to strip off the puritan hairshirt?
Capital duty
This is an EU harmonised tax charged on share capital raised by limited companies. The EU policy is that the tax should be abolished, but abolition is not mandatory. Many countries in the EU, including our nearest neighbour and competitor for inward investment, the UK, have abolished capital duty.
Incoming investors are often astonished to be told that they will have to pay tax on the very first act of investment here – the setting up of a company. Perhaps it is time that this tax should receive the Minister’s favourite prescription – halve the rate?
Capital acquisitions tax
In a previous Budget the Minister made a mistake in relation to CAT. Actually he made two. His first was that he did not abolish it. The second, and the one which will have to be addressed sooner or later, was the decision to make resident but non domiciled persons liable to gift tax and inheritance tax on a world-wide assets basis.
We may no longer need the 200,000 workers that Ms Harney foresaw arriving here, but we will always need foreign senior executives, skilled persons, and business people, to be willing to live here for a number of years as new businesses are set up, and as businesses globalise. Under present rules, from 2004 onwards the threat of gift tax and inheritance tax will hang over such expatriates after they have been here for five years.
Given the virtual absence of double tax agreements covering gift and inheritance tax and the inadequate unilateral credit arrangements, double taxation, and not merely punitive Irish taxation, would be in prospect for many of them.
Nothing could be more clear but that this unwise decision will have to be reversed before it bites in 2004. Perhaps the Minister would like to clear up this one now.
PRSI
Lifting the cap on employers’ PRSI contributions in the last budget was a tax on job creation in the high tech area. It looked unwise at the time. It now looks downright suicidal. The Minister has promised to revisit this area. It will take courage to admit a mistake and to reverse what he has done. But that is what he should do.
He might also do what he did not do and should have done last year, which is rationalise the forest of rates, of exemptions, and of reliefs that make PRSI a mind boggling, computer challenging tax.
The Bacon legacy
The various interventions in the housing market, involving a denial of interest deduction against rental income, the set aside of land for ‘social housing’ and the imposition of punitive stamp duty rates of up to 9 per cent on house transfers, have had the results predicted by many when they were first introduced. The rental housing market is in chaos and housing starts have fallen. That is hardly the ideal solution in a situation where demand for housing has exceeded supply.
The recent down-turn in prices in some sectors of the housing market caused by the high tech recession should enable the Minister to take the big step of reversing the Bacon measures in their entirety, restoring full interest deduction to the rental housing market (including for those houses purchased during the period when interest deduction was denied), removing the social housing requirements and sharply reducing the stamp duty rate on housing transfers.
Surely the one thing any dynamic economy requires is labour mobility. How do you render workers mobile with a 9 per cent stamp duty cost when they move house? How do you do it with a tax system that penalises the renting of houses as opposed to their purchase?
Childcare and cr?ches
Where a parent is neither in employment nor self employed, the use of childcare facilities is often a life style choice. It should have nothing to do with taxation nor with State provided facilities. Where both parents of a child are working, childcare facilities are a cost of going to work. That cost should not have to be met out of after tax income. Misconceived political correctness has tended to prevent these simple realities being reflected in the tax system. I fear we may wait in vain for any change in that situation.
The changes suggested above are all worthwhile reforms with little cost in terms of lost revenue. They are not headline grabbers, but let’s hope some of them recommend themselves to the Minister nonetheless. |
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| Article appeared in the October 2001 issue.
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