Dr. Barra Roantree:

As we have highlighted in our report, there is already a potential over-reliance on corporation tax revenues. One of the issues with this is that many corporations, particularly foreign multinationals, are very mobile and responsive to tax treatment so that creates a risk. Even in the event that we do not change anything, if the US Government changes something, those companies might change their structure and that might significantly impact on our corporation tax receipts. I would, therefore, caution about thinking we could or should be getting an extra €6 billion or €7 billion if we changed the allowances. It is likely that a lot of the profit to which the allowances relate is highly mobile. I am not sure we should necessarily be looking at that and saying we could be raising additional money from corporation taxes because we are already over-reliant on them, especially relative to other countries. That is one note of caution I would apply to some of those discussions.

As regards pensions tax, we are on the same page as Dr. Collins about the tax-free lump sum being a very poorly targeted form of tax relief. We have gone into detail and talked about that so I think we are on the same page. However, we differ quite a bit on the overall system of tax relief. I have argued previously, and quite strongly, in favour of a system broadly along the lines of what we have, whereby people defer the tax they pay at the moment. They make pension contributions in their pre-tax income and then pay tax when it is drawn down. That is a broadly sensible system. In the literature it is called an exempt-exempt-taxable, or EET, system. That has a lot to recommend it. If operated properly, it should be neutral between consuming today and consuming into the future. From that point of view, economists would say it has a lot to recommend it and it is a coherent benchmark system to have in place.

Our system involves a number of departures from that and that is where we could find more common ground. People never end up paying PRSI on income that is saved in the form of a pension. If they have a pension accumulating, because they do not pay PRSI after they retire, PRSI is never charged on a pension. That is a gap in the system. One issue I would raise is the often proposed idea of restricting relief to a standard or blended rate on pension contributions.

An issue with that is how to treat defined benefit pensions. People do not pay into a pension pot from a defined benefit pension. The pension is stored up and the person will get income from it in future. We know these are the most generous type of pensions in operation today and they are primarily public sector in nature. There is an issue there from the point of view of possibly moving to a blended relief-type structure or restricting relief to the basic rate. In essence, that would be imposing greater tax on those with mostly defined contribution private sector pensions, whereas those in receipt of public sector pensions will still avail of that geometry. It is very hard to price what the contribution to a defined benefit pension is if relief is not going to be applied at the marginal rate, which is essentially what we are doing at the moment.

I have raised a number of issues. I will be happy to send the committee some materials. We made a submission to the interdepartmental group on the taxation of pensions which sets out some of these points. There are a number of tricky issues but there is considerable common ground as regards the tax-free lump sum being far too generous at the moment.