Professor John FitzGerald:

To respond to the question asked by Deputy Joan Collins about where the money had gone, at the top end I suspect there were people who were making money from property. A company was seeing capital gains as office buildings increased in value and it was taken as income, but that has disappeared and a lot of money has disappeared.

On the question of raising more from people who are richer, an idea I support, the answer is not to raise the marginal tax rate but to find other ways of doing it. There are many allowances at the top end and getting rid of them would have a major impact. The nice thing about the USC is that there are no exemptions at the top end. Switching USC for income tax at the top end was a good idea. It is, therefore, a question of finding different ways of doing it. Doing it at the marginal tax rate discourages people and there is a lot of evidence to support this. People tend to think of the marginal tax rate as applying to really rich people, but it could apply to a couple one of whom is earning €80,000, while the other is earning €30,000. Raising the marginal tax rate, because of the cost of child care, means that it is not worth both of them working and it disproportionately hits women. It means that we could well see a further reduction in the female participation in the labour force. If it is applied to property tax, people may have to go out to work to pay the property tax. As an economist, having a property tax is a really good idea because it does not distort these incentives. A couple pay the tax and can work out how to do so. There is major evidence that property taxes do much less damage than other taxes in terms of people's work behaviour. That is why economists tend to favour them. While there are distortions, a 50% rate is okay, but going much above it could lead to a problem.

In 1999 and 2001 I proposed increasing the rate of corporation tax a decade hence to 17.5% and there was uproar. I would not do it today. However, the funny business around it means that we need to tighten the rules because it is doing huge reputational damage to us around the world. It could have upset the apple cart in terms of the bailout as people wanted to be really nasty to us because of it. Some 12 or 13 companies are referred to as redomiciled plcs. Although located in Ireland, they are doing nothing. People fly over once a year for an AGM in a hotel and we are paying between €50 million and €75 million in tax on their income which we never see to the European Union in a budgetary contribution. If we could chase them out, we would be better off by between €50 million and €75 million. I have talked to multinationals that are concerned about the funny business because they create real jobs and are really important to us. They are afraid that Ireland might be screwed on this issue and that they might be screwed as a result. They think they can justify the 12.5% rate on what they do. There is a reputational issue.

Dr. Donal de Buitléir dealt with the issue of the self-employed who, with regard to PRSI, obtain very good value, as it more than pays for their pensions. I totally agree on the other points made and with what he said about tobacco.

Senator Marie-Louise O'Donnell picked me up on an issue raised by the Chairman. A middle income figure is not less than €100,000. I changed the reference in one place but not the other. The Senator picked me up on something that I deeply regret when I referred to someone earning less than €100,000 as a middle income earner.