Michael D'Arcy (Wexford, Fine Gael) | Oireachtas source

The Government has no plans to introduce a wealth tax, although all taxes and potential taxation options are of course constantly reviewed. Wealth can be taxed in a variety of ways, some of which are already in place in Ireland. Capital gains tax, CGT, and capital acquisitions tax, CAT, are, in effect, taxes on wealth, as they are levied on an individual or company, on the disposal of an asset in the case of CGT or the acquisition of an asset through gift or inheritance, in the case of CAT.

The local property tax, LPT, which was introduced in 2013, is a tax based on the market value of residential properties. The domicile levy introduced in budget 2010 also constitutes a form of wealth tax. It is aimed at high wealth individuals with a substantial connection to Ireland, whether they are tax resident or not, to ensure they make a tax contribution to this country in a year of at least €200,000. The rate of deposit interest retention tax, DIRT, on deposit accounts is now 39%, having been 41% from 1 January 2014 to 31 December 2016. It was reduced by 2% in budget 2017, which also provided for further 2% cuts from 1 January in each of the next three years, so that the rate of DIRT will be 33% from 1 January 2020. There is a stamp duty levy on the transfer of shares which yielded €391.94 million in 2016.

As part of the joint research programme agreed between the Department of Finance and the Economic and Social Research Institute, ESRI, covering macroeconomic and taxation issues, a research project involving detailed analysis of household wealth distribution in Ireland and taxation was recently undertaken. The research was based on data collected by the CSO in 2013 as part of the household finance and consumption survey and involved analysing a wide variety of wealth tax scenarios, including scenarios based on wealth taxes currently in operation in a number of European countries that could hypothetically be applied to households in Ireland. The research aimed to provide as comprehensive an analysis as possible of the wealth holdings of Irish households as of 2013 and the potential implications that a wealth tax could have if applied on the prevailing structure of assets and household composition.

To provide a broad range of estimates and to illustrate the different effects of adjusting threshold levels and including or exempting specific assets, wealth tax revenues and households liable were calculated using two different approaches. The first took the existing wealth tax structures of a number of European countries and applied them to the Irish household structure. The second used a range of hypothetical combinations of threshold level and asset exemptions to go more deeply into their respective impacts on the revenues and numbers of households that would be liable under different tax designs. The aim was not to make recommendations on any particular system but rather to provide a broad range of estimates to demonstrate the factors that would need to be considered in formulating a wealth tax and how they would impact the overall tax returns and the numbers and types of households that would be affected.

The results gave a wide range of possible scenarios. Applying other countries' models showed how variations in the exemptions and thresholds could result in less than 1% up to almost 50% of households being liable to a wealth tax. The alternative scenarios investigated show that varying the level of the threshold was the key determinant of the number of households which would be affected, which is in keeping with the concentration of wealth at the upper end of the wealth distribution. Given the numbers of households affected, the treatment of the household’s main residence, which is the largest asset for almost all households apart from the very wealthiest, is an important factor in the level of average tax payment and hence total revenues raised. Looking at the composition of households under the different tax scenarios, it was found that even with a narrow base and high threshold, some households in low income deciles were affected. This is because of the imperfect correlation between income and wealth. Applying an income restriction would remove many of the lower decile households from the tax net in most cases but would also reduce the numbers liable in the higher income deciles as well.

Wealth taxes form part of a broader taxation system and may operate as both complements and substitutes to other forms of taxation. The potential implications of wealth taxes would need to be considered in conjunction with the burden of these other taxes. From the wide variety of scenario outcomes, in terms of the tax base, revenue raised and the number and characteristics of households that can be affected, it is evident that the impacts of a wealth tax in Ireland would depend crucially on the detail of its design. The extent to which a value can be assigned to an asset varies substantially. For instance, it may not be possible for an individual to value or sell his or her human capital or pension funds, which can comprise a significant proportion of wealth. Additionally, accurately valuing assets which are not regularly bought and sold can be administratively burdensome.

The Department of Finance will continue to monitor and consider any additional information and data that comes to light and will continue to examine potential taxation sources on an ongoing basis. Having regard to the foregoing I do not intend to support this amendment.