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A Radical Curate’s Egg ? Back  
Budget 1999 has been described as radical tax reform. Its impact on personal taxes is probably good in terms of promoting economic development. Other aspects, not much focused on by the media, may be ill considered.
T he hissing of the plucked geese following the 1999 budget statement had a ritualistic air to it. It lacked true passion. The reason for this reaction is that the Minister had sufficient funds available to create a feel good factor in the area of personal tax. The focus of interest by the majority of commentators and of the public has rightly been on personal tax. The high rates of personal tax increase the cost to employers of providing employment and perpetuate a poverty trap by discouraging people from taking up employment. The Minister did well to tackle this area.
There was however much more to the Minister’s budget. The budget statement announced plans for wide ranging changes over many taxes.

l We have commenced the move to tax credits. We may expect to complete the transition in Budget 2000.
l A withholding tax on dividends and a reporting procedure has been announced.
l There is a proposal to extend the tax surcharge on undistributed trading/professional income of companies.
l The new nation-wide regime for corporation tax rates (12.5 per cent on trading income and 25 per cent on other income) has been spelled out.
l The rules relating to tax approved
self-employed pensions have been revolutionised, with pensioners permitted to retain the capital built up in their pension funds.
l The base year from which gifts and inheritances are taken into account in computing capital acquisitions tax has been moved up to 1988 but the tax is otherwise largely unchanged.

The range of changes is impressive in its scope. It may be truly described as radical. But is it enough to be radical? Radical change may be for the good, or it may be for the bad. Where it is for the bad, it is all the worse for being radical. Based on past experience we may expect that these significant changes to our tax system will receive only limited debate in Dail Eireann. That debate will take place largely without input from informed commentators outside the public service. This system, which we have endured for years, always has the potential to produce bad tax law. In a year in which we are considering radical transformation of our taxation system, it is unacceptable.

What is required is the publication of a Green Paper setting out the arguments for and against the various proposed changes. And there are arguments against most of them! These arguments may not be decisive, and the proposals may well be sound but they deserve scrutiny. Without a Green Paper they are not likely to receive the depth of scrutiny they require.

Some of the matters which a Green Paper might wish to address would include:
l The change to tax credits will render the income tax system more progressive, ie will involve a shift of the taxation burden from those on lower income to those on higher income. That sounds good. But just how progressive should the tax system be? What is the optimum level of progressiveness in the system? Is it always good that a large segment of the voting population should have little or no interest in the level of taxation?
l What impact would calendar year tax reporting have on tax agents? The system depends on their co-operation.

l Would the impact of a dividend withholding tax on discouraging foreign investment into Ireland be justified in terms of the minuscule tax returns expected?

l Why should a trading/professional company be surcharged on its trading income which it may require for reinvestment?

l What are the appropriate rates of capital acquisitions tax (definitely too high at present!) and why do we rebase only sporadically rather than in a planned fashion?

l Is the phasing in of the 12.5 per cent rate rather than its immediate introduction the best course, in the light of European developments, and in the light of the impact of its deferral on the financial services industry?

The chance that we will make serious errors that may affect levels of employment and standards of living in coming years is the greater where radical changes are implemented without public critical review. These proposals deserve a Green Paper, and deserve informed public debate.

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