Ms Sarah Perret:

I thank the Chair and the committee very much. I am here with my colleague, Mr. Bert Brys. We are very happy to be here to discuss chapters 6 to 8, inclusive, and 14 of the Commission on Taxation and Welfare report

Many of the issues that are highlighted in the report are quite common across OECD countries, including high levels of income and wealth and inequality, with trends towards an increasing concentration of income and wealth in a number of countries, reductions in housing affordability, with an unprecedented growth in house prices since the 1990s that accelerated even further during the pandemic, and declines in homeownership rates among younger generations, as well as increases in public debt levels.

Tax systems have an important role to play in addressing some of those issues. The chapters we are discussing focus in particular on taxes that can play an important role in strengthening horizontal, vertical and intergenerational equity.

The OECD has recently done work on a range of taxes that are discussed in chapters 6, 7 and 14. In 2018, we released two reports, one on taxation of household savings and the other on net wealth taxes. In 2021, we published a report on inheritance taxes. Earlier this year, we released a report on housing taxation in OECD countries. Our studies have generally shown that the taxation of household savings is highly heterogenous across types of assets and is sometimes regressive. The reports also show that taxes such as inheritance taxes and property taxes can play an important role because of their comparatively less distortive economic effects compared with other types of taxes and also because of their good properties from an equity point of view. In practice, however, we observe that these taxes are often underused and poorly designed in OECD countries, which leads to reductions in revenue, equity and efficiency.

Our study on net wealth taxes concludes that there might be less justification for such taxes in countries that adequately tax personal capital income, including interest on dividends and capital gains, and wealth transfers. Where this is not the case or might not be possible through reform, there may be more justification for a wealth tax. However, a country deciding to put in place a wealth tax would need to ensure it is well designed to avoid the pitfalls of previous taxes of this type. We are conducting ongoing work on the design and impact of taxes on personal capital income, mainly dividends and capital gains. This is an area in which we believe there is scope for reform, especially given the progress made on international tax transparency and the fight against offshore tax evasion, most notably through the automatic exchange of information, AEOI.

In general, our work has shown that the tax systems of OECD countries could be reformed in ways that simultaneously enhance efficiency, equity and tax revenues, although we recognise such reforms may be politically challenging. Of course, the need for reforms depends on country-specific circumstances, but international comparisons are always helpful. For instance, Ireland's total tax revenues amounted to approximately 20.2% of GDP in 2020, compared with an OECD average of 33.5%. This was the fourth-lowest tax-to-GDP ratio in the OECD after Mexico, Colombia and Chile. In terms of the composition of tax, Ireland collects a comparatively larger share of total revenue from income taxes and a lower share from social security contributions compared with the OECD average. It collects relatively similar shares of total tax revenues from property and consumption taxes. We hope our participation in this meeting will provide the committee with useful elements of international comparison.

It is critical to remember that taxes are only one of the instruments governments have at their disposal to address policy issues. In general, no matter what the objective, taxes cannot on their own address issues. When it comes to inequality, three quarters of the reduction in income inequality in OECD countries, on average, occurs through transfers and only one quarter directly through taxes. This highlights the importance of transfers but also of taxes that might appear less directly connected to inequality reduction but may nonetheless play an important indirect role by raising the revenue needed to fund redistributive transfers.

Housing market affordability is another area in which taxes need to be considered alongside other policy instruments. In fact, it is an area in which non-tax policy tools may be more effective. In most cases, non-tax policy measures to encourage housing supply will be more effective than tax measures in enhancing housing affordability.

I thank the committee again for inviting us. We look forward to the discussion with members.