Dr. Tom McDonnell:

I do not have a full answer on that. We are above average in certain types of professional jobs associated with the IFSC, FDI, lawyers, accountants and so on. We have a larger percentage of those jobs and they tend to be highly paid. We also seem to have a large proportion of low-paid workers in Ireland. That seems to be the pattern in English-speaking economies compared to continental economies. It is not unique to us. There may be other aspects associated with the structure of the economy. For example, IT jobs are very highly paid and we tend to do reasonably well in that area. However, I do not have a full answer to that, although I would note that part of our research programme in 2017 and beyond will be looking at enterprise policy and the overall structure of the labour market. Hopefully, in future years I will be able to give a much more informed response.

There are issues of broadening the tax base, tax compliance and additional resources for the Revenue Commissioners. We are concerned about and wonder why, when there is a housing crisis, the Government would be looking at increasing thresholds for inheritance and gift tax, for example, which would be extremely regressive. In the hierarchy of taxes, other property taxes along with current property taxes and VAT tend to be the least damaging to growth. If we are looking for inclusive growth, there are no arguments that increasing thresholds from capital acquisitions tax will stand up from a growth or equity perspective. The business and agricultural reliefs, as they stand, also do not stand up from a growth perspective. We have written in our summer quarterly observer, will write further in the autumn observer and will be producing more working papers on the subject of the debilitating impact of tax expenditures from an equity perspective and an economic growth perspective. My colleague, Micheál Collins, who I do not wish to pre-empt, has a paper on pension tax reliefs coming out in late September that will look at the distribution of the benefits of those reliefs. The most recent work done on this showed that 80% of the benefits went to the top 20% of earners. Standard rating in respect of or reforming those types of reliefs would allow for a reform of the tax base. The latter would allow for a reform of marginal rates or provide an opening in respect of them on a tax-neutral basis. Potentially, it could also open up additional space for public spending.

We have identified other areas. We note it is not so much that Ireland is a low-tax economy, as it actually is not; Ireland is a low-revenue economy. As to what I mean by that, it means social security contributions are very low in Ireland. Again, labour taxation is not particularly low but if one looks at the implicit tax rate, which is the effective tax rate over the base in the economy, taxes on labour are low overall but not necessarily those paid by employees. The contribution paid by employers was 3.3% of GDP in 2014, that is, before the GDP numbers went haywire last year, compared with 7.7% for the EU. This is quite a difference and in the context of labour force participation, the type of additional welfare benefits could include things like child care subsidies, which would have advantages in preserving second earners and lone parents, for example, in the workforce. Obviously, it would be necessary to work out the details of policies like that and perhaps that is something at which the committee could look. If targeted at employments of more than €100,000 only, it would affect only 50,000 employments and yet could bring in well over €100 million. Consequently there is scope in this regard and it would not affect the marginal tax rate. Obviously, part of the incidence would fall on the employee, as well as the employer.

We are concerned about the non-indexation of property tax bands. The property tax as it currently is structured is not fully progressive and the Department of Finance's own research has pointed that out. It could be progressive, however, and one could deal with the situation whereby someone on a very low income must pay property tax - or indeed a wealth tax for that matter - by putting a lien on the property. Consequently, when it was transferred or inherited, Revenue would get first call whereby the property tax due would then be paid to Revenue with an interest carry on that. Therefore, over the long term, Revenue would be getting those receipts and would be able to pencil them in. I refer to situations of hardship, which would be quite rare, but obviously it would be possible to apply a more progressive structure in respect of the rates applied to different valuations. We know, from an economic growth perspective, that the recurrent property tax is one of the best taxes - land tax arguably is even better - and if one can construct a property tax which does not cause inequity and does not cause hardship, there then is a strong rationale for developing such a tax. Perhaps the committee could look at ways to reform the property tax and make it fairer and more growth-friendly. It certainly is not something that should fall behind a couch as a revenue-raising measure.

Another area that rarely gets touched upon is that of a wealth tax. It would not generate a huge amount of income but has advantages in terms of tax compliance. Were one to pursue it, I would set it with a minimum of reliefs and a very high threshold of possibly €1 million. That would only affect 1% to 2% of households and would be likely to be a highly popular tax. Obviously, as there would be much resistance to it, it should be set against the household in order that it then has no effect on foreign direct investment, FDI, those particular structures and so on. Basically, when I refer to sources of revenue, I am considering those within the literature that would minimise the hit to economic growth but which also would be consistent with social fairness. The Organisation for Economic Co-operation and Development, OECD, has identified these types of taxes and the Nevin Economic Research Institute, NERI, itself has done so in the past. These are the kinds of areas at which we would be looking and again, this is not about billions and billions but about reforms that still could open up additional space.