Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

First, I do not disagree with Deputy Pearse Doherty. It is important that we constantly keep tax breaks under review. Tax breaks which are designed to influence particular social or economic behaviour often do not have the incentive value as time goes by and when circumstances change. While a tax break might be valid for a year or two, it may lose its validity as time goes by. I agree with the general principle.

I practice that principle as well.

We published a full review of incentives for film production in the country. We had a full review of research and development and of the application of the building and development tax incentives. While my predecessor, Mr. Brian Lenihan, commenced the winding down of the latter incentives, we carried out the bulk of the work in the 2011 budget. We are not restoring the incentives. The principle of a review is totally acceptable to me. In the case in question, however, I justify my position because SMEs are starved of investment funds and equity. Where an investor's investment in enterprise is at high risk, he requires either the promise of above-normal rewards or, if the State wants to influence the matter, some kind of tax break. That is why we are providing for it here.

The employment investment incentive scheme stipulates a cap of €150,000 on any particular investment but a condition is that shares have to be left in for a period of three years. Therefore, the investment must stay in the company for three years. There is not much point in announcing a review next year. Who would invest if I announced a review next year that could result in one not getting what was promised at all? Some certainty has to be given. The certainty is provided by saying certain incentives may be enjoyed if the money is invested for three years. That is how we will proceed. We will review the measure after three years.

Deputy Doherty asked how the restriction on high earners was working. I have some information to hand from a Revenue Commissioners report in which I believe Deputies will be interested. The restrictions were first introduced in the 2010 tax year. The restriction works by limiting the total amount of specified reliefs that a high-income individual can use to reduce his or her tax liability in any one tax year. That is what Deputy Boyd Barrett was advocating. Individuals now become subject to the restriction and the associated taper where adjusted income is €125,000 or greater and where they claim €80,000 or more in specified reliefs. No matter what scheme one is in or what tax break one seeks to avail of, the maximum one can claim is €80,000.

The results show that 286 high-income individuals with an adjusted income of €400,000 or more where the restriction fully applies paid income tax at an average effective rate of just over 30%. This meets the objective set out for the measure. The additional tax collected from the 286 taxpayers was just above €40 million, representing an increase of 101.5% on the tax they would otherwise have paid if the restriction had not applied. The important outcome is that 35 individuals with adjusted incomes of €400,000 or more and who would not otherwise have paid tax in 2010 were brought into the tax net for that year. The report also shows that 857 high-income individuals with an adjusted income of up to €400,000, where the restriction applies on a graduated basis, paid income tax at an average effective rate of 19.21%. The additional tax collected from the 857 taxpayers was €23.6 million, representing an increase of 119% on the tax that would otherwise have been paid if the restriction had not applied. Some 174 individuals with adjusted incomes of up to €400,000 who would not otherwise have paid tax in 2010 were brought into the tax net for that year as a result of the restriction. The total additional tax collected in 2011 arising from the application of the restriction in that year was €63.6 million. By comparison with the figures in the 2011 report, the total additional tax shows a reduction of €16.58 million. A total of €80.18 million was collected in 2010 by comparison with €63.6 million in 2011. This decrease results from two main factors, the general economic downturn and the changes introduced in FIA, the reduction in the amount of income that can qualify for the artist's exemption, and the removal of the exemption for patenting. In addition, the changes to the restriction may have led to behavioural changes among those who traditionally availed of the specified reliefs.

The provision is working. My figures are for 2010-11. The Revenue Commissioners do constant reviews. I have outlined the latest available information from the Revenue Commissioners. As new statistics become available, I will give them to the Deputies on occasions such as this or in reply to parliamentary questions. The system is working.