Dr. Tom McDonnell:

There was a variety of questions from the three members, all related to various types of capital taxation and the broader tax system. I will make a couple of brief points. The questions were about wealth tax, capital acquisitions tax, capital gains tax, corporation tax and the appropriate rates for each of those. The members of the committee asked us to look at wealth tax last year. We have done that for this year rather than going for corporate tax which is much more intricate in terms of the policy changes required because it is not simply a case of increasing the rate from 12.5% to between 15% and 17.5%, the problem is the interaction with other tax jurisdictions. That is not to say that we will not do something in the future. We have not costed it and therefore we have not incorporated specific proposals for this budget. Instead we have looked at wealth taxation and at capital acquisitions tax. There is strong evidence that taxing inheritance, gifts and passive income causes the least distortion and damage to the economy and therefore we have focused particularly on those areas. They are also some of the most progressive types of tax so in many respects they are the perfect taxes. I can speak at greater length later about the wealth tax or give individual briefings on it because otherwise I would probably go on for too long.

In response to the question of why focus on capital acquisitions tax rather than capital gains tax they are, despite their similar names, very different beasts. Capital acquisitions tax is a form of wealth tax. Capital gains tax is a transfer tax albeit on wealth assets. We believe that in the long term all income should be taxed progressively but also collectively but we are a long way from being anywhere close to that and there are technical difficulties including capital gains and income from other sources.

In respect of increasing the universal social charge for high earners, we are attempting to glean €160 million plus through the employer PRSI measure which, in response to Deputy O'Donnell's point, will not actually increase the marginal rate. Deputy Boyd Barrett is absolutely correct that USC is quite regressive in its impact on low-income workers compared with other taxes. He is also absolutely right that the employment effects are most damaging at the bottom and although we have not called for a specific reduction in USC at the bottom in our submission, we absolutely accept the point that those forms of taxation are very damaging to employment and should be avoided at all costs in the same way that, for example, a reduction in tax credits should be avoided at all costs. Unfortunately, we have seen some policy choices with which we would not have agreed in that area quite recently.

In terms of investment, I echo Dr. Healy's point that investment in Ireland is at a horrifyingly low level. It is not even sufficient, arguably to account for deterioration year on year and depreciation in the capital stock. For a country to thrive into the future and to maintain a high level of potential output and high quality of life for its citizens, it needs to invest year on year. It needs to invest in its economy. That means investing in human capital through retraining and upskilling the construction workers who do not have the skills for the future needs of the economy. It also needs to invest in physical infrastructure and in new technologies. Failure to do so condemns us to a lower level of potential growth for the foreseeable future and there is a vast body of empirical and theoretical work that supports that point. We urge that there be no cuts to the capital budget and that serious consideration be given to using the ISIF to invest in the economy. By investment I mean human capital as well as physical capital. The point is not stimulus in year 1, it is what the economy will look like in three, five, seven, ten and 20 years' time. I think that answers most of the questions.