Ms Deirdre Donaghy:

It is difficult to do ex post analysis beforehand. The reviews that are done during the life of a tax expenditure tend to look at a broader scope. For example, the film relief review which we have already referenced was a cost-benefit analysis. It looked at the wider costs associated with the relief. That is probably closer to that final revenue forgone metric.

When costing a new measure the difference between initial revenue forgone and other metrics is looking at things like behavioural impacts. When bringing in an entirely new measure we have to take into account a certain level of behavioural impact. Otherwise costs will always be nil because the measure did not exist before. One has to assume that whatever the relief or incentive, some people will take it up. Therefore, one has to assume a certain level of behavioural response and try to bring it in.

When it comes to the wider behavioural responses, if we were to start looking at those methods of costing, it would be very important to be clear on how we would go about doing that and what we would take into account. For example, I am reliably informed that every tax relief suggested to me will cost nothing and that whatever we forgo in corporation tax, we will gain in pay as you earn, PAYE, receipts from increased employment or value added tax, VAT, from increased transactions. Incorporating those factors can provide ways of saying that a measure does not have a cost. As such, there are many reasons the initial revenue forgone method has its own benefits. That is the reason it is the most widely used method.