Oireachtas Joint and Select Committees
Wednesday, 9 November 2022
Committee on Budgetary Oversight
Report of the Commission on Taxation and Welfare: Discussion
Neasa Hourigan (Dublin Central, Green Party)
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I welcome Dr. Micheál Collins from University College Dublin, UCD, Dr. Karina Doorley, Dr. Martina Lawless and Dr. Conor O'Toole from the Economic and Social Research Institute, ESRI, Dr. Tom McDonnell from the Nevin Economic Research Institute, NERI, and Ms Colette Bennett and Dr. Seán Healy from Social Justice Ireland. This is our first meeting on the report by the Commission on Taxation and Welfare. We will start by examining chapters 6 to 8, inclusive, and 14.
Before we begin I must explain some limitations to parliamentary privilege and the practice of the Houses as regards references witnesses may make to other persons in their evidence. The evidence of witnesses physically present or who give evidence from within the parliamentary precincts is protected pursuant to both the Constitution and statute by absolute privilege. However, if evidence is being given remotely from a place outside the parliamentary precincts, witnesses may not benefit from the same level of immunity from legal proceedings as does a witness physically present. Witnesses are reminded of the long-standing parliamentary practice that they should not criticise or make charges against any person or entity by name or in such a way as to make him, her or it identifiable, or otherwise engage in speech that might be regarded as damaging to the good name of the person or entity. Therefore, if their statements are potentially defamatory in relation to an identifiable person or entity, they will be directed to discontinue their remarks. It is imperative that they comply with any such direction.
Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official, either by name or in such a way as to make him or her identifiable.
I remind members of the constitutional requirement that they must be physically present within the confines of the place where Parliament has chosen to sit, namely, Leinster House, to participate in public meetings. I will not permit a member to participate where he or she is not adhering to this constitutional requirement. Therefore, any member who attempts to participate from outside the precincts will be asked to leave the meeting.
With all that said, I invite Dr. Martina Lawless from the ESRI to make her opening statement.
Dr. Martina Lawless:
I thank the Chair for the invitation to the ESRI to appear before the committee. I am joined online by my colleagues Dr. Karina Doorley and Dr. Conor O’Toole. We are happy to provide our views on the report of the Commission on Taxation and Welfare. Over the course of a year, the commission prepared a thorough and evidenced-based examination of the suitability and sustainability of the taxation and welfare systems in Ireland. One of the commission’s key findings was that, in light of challenges such as population ageing and climate change, the overall level of revenues raised from taxation and PRSI as a share of national income will have to increase materially over the coming years. This theme underlies many of the recommendations made in chapters 6, 7, 8 and 14, on which we will focus today.
Chapter 6 of the commission’s report discusses the need to broaden the tax base. In Ireland, low-income earners pay relatively less income tax than in most EU countries as the system of tax credits leaves many low-income workers exempt from income tax. Conversely, high-income workers pay relatively more tax by international standards as the top rate of tax kicks in at a relatively low level. This means that income tax receipts may be volatile in nature as a large proportion of revenue comes from a small number of taxpayers. The commission concludes that, thanks to reforms to the income tax system and the introduction of the universal social charge during the financial crisis, the tax base is sufficiently broad but should not be further eroded. A key recommendation of the commission, however, is to harmonise income taxation such that there are no differences in how it is levied by age of the earner or by source of the income. This would promote horizontal equity and increase taxation revenue. It would also facilitate revenue raising in an equitable and broad-based manner in the future if rate increases are deemed necessary.
Consumption taxes also present an opportunity to increase tax revenue while reducing economic distortions. Ireland is an outlier in Europe due to our extensive use of reduced and zero VAT rates. Both the OECD and the European Commission have repeatedly recommended broadening the VAT base in order to stabilise VAT revenues. The commission recommends gradually increasing the reduced rate of VAT of 13.5% and increasing the second reduced rate of 9% to 13.5%. This joint increase is likely to be regressive in nature so consideration may need to be given to using a small share of the revenue raised for compensation mechanisms through the welfare system. The commission also recommends that temporary VAT rate reductions should not be used as short-term stimulus measures as there is significant deadweight associated with such policies and there is much international evidence that these reductions are often not passed on to consumers.
The current system of taxing retirement savings can be broadly classified as exempt, exempt, taxed, which is an EET system. By deferring taxation on retirement savings until the income is drawn down in retirement and the marginal tax rate is likely to be lower, the EET system is considered more effective at incentivising retirement savings than a TEE system, which front-loads the tax. The possibility of withdrawing a tax-free lump sum on retirement increases this incentive in the Irish context. However, the system is characterised by a low level of contributors and contributions. The commission recommends that certain features of the system be reformed, such as the facility to extract tax-free lump-sums, which is a deviation from the strict EET framework and results in lower tax receipts while mainly benefiting high income individuals. The commission also recommends the removal of age-related contribution rates given the changing nature of work and equity considerations.
The commission's report recommends against the introduction of a new tax on wealth, concentrating instead on recommendations to increase revenues from existing taxes on capital transfers such as capital gains tax and capital acquisitions tax. The taxation of wealth has been widely discussed internationally in recent years but few countries have a recurring tax on wealth. Wealth is more concentrated than income with the top 10% of households holding half of total net wealth. The Gini coefficient measure of inequality is about twice as large for wealth as it is for income, giving rise to equity arguments in favour of a tax in this area. Although higher income households are more likely to have higher wealth, income and wealth are not perfectly correlated, which would have implications for the distribution of any tax on wealth. In particular, older households who have paid off any mortgage debt on their property are typically wealthier than younger households. However, wealth taxes are complex to implement with the potential revenues varying considerably depending on the liability threshold, exemptions and the tax rate itself. The need for regular valuation of a wide range of assets and potential negative incentives to move financial assets pose implementation challenges.
For these reasons, the commission instead focuses on recommending changes to other capital and property taxes. Currently, revenues from capital acquisitions taxes make up less than 1% of total Exchequer receipts. The receipt of inheritances is one factor that contributes to a different distribution of income and wealth across households. ESRI research showed that, typically, a household that received an inheritance would be 15 percentiles higher in the wealth distribution than a household at the same income level that did not receive an inheritance. Reductions in the thresholds for liability to capital acquisitions tax and changing the main residence exemptions to capital gains tax would widen the coverage of both. There is also considerable overlap in taxing wealth and taxes on property. According to the most recent statistics available, the main residence accounts for just over half of total assets held by households in Ireland while other properties and land make up a further 20%.
Following on from this context, the commission was tasked with considering the role of the taxation and welfare system in achieving housing policy objectives, with a particular emphasis on the merits of introducing a site value tax. The considerable challenges experienced in the Irish housing market over the past decade have been well documented but can be broadly characterised as acute bottlenecks in housing supply and affordability difficulties, in particular for new market entrants, which are affecting the supply of, and demand for, housing in Ireland. These include planning, construction sector capacity, general economic pressures, credit access for buyers and producers, and financial crisis overhangs. While many of these are outside the scope of the work of the commission, a range of levers within the broad fiscal policy architecture are considered and are worthy of comment.
As a general point, the commission suggests the deployment of a taxation system for housing that is longer term in nature, acts to stabilise prices and discourages the use of measures that act to stimulate the construction sector on a short-term basis. The emphasis on this transition is welcome as considerable volatility has been a feature of the Irish housing market for the past two decades, in terms of observed prices and rents as well as new supply. The core element of this transition is a refocusing on taxes on immovable property rather than property transfers which the commission states will improve efficiency and reduce inequality. Within this context, it recommends the introduction of a site value tax or land value tax that would be levied on all land not subject to the residential local property tax, with differential treatment for agricultural land and some other limited exemptions. The aim is to increase the efficiency of the land market, support density, and encourage productive land usage. The commission also noted that any site value tax could accommodate the principle of the zoned land tax, which imposes a tax on zoned but undeveloped lands, by increasing the site value tax rate on these sites. This would be important as a tool to activate housing supply. It also recommends continuing, with some changes, the existing local property tax system.
While introducing a site value tax could bring the noted benefits, the major challenge would be how to design and calibrate the measure, for example at what level to set rates and how to develop exemptions. Bridging data gaps in terms of the land market and land holdings would be essential, as would the methodology used to value the land units. For example, how are the land values to be set in areas where there are very few transactions to provide price and valuation information? A more detailed and specific review would be needed, with further exploration of international examples, to scope out any steps forward towards the implementation of this important initiative.
We thank the committee members for their time and the opportunity to discuss this important review and we look forward to answering related questions.
Dr. Se?n Healy:
I thank the committee for the invitation. Social Justice Ireland welcomes the opportunity to speak today on Chapters 6, 7, 8 and 14 of the report. While we have confined our statement to the chapters specified, we would welcome the opportunity to engage further with the committee on other aspects of the report. We are much more positive about some of these elements and we have a question or two about other aspects of the report.
When the commission was established, we welcomed it, in particular its broad remit, which reflected an understanding of the integrated nature of the taxation and welfare systems in the lives of individuals, families, companies and communities, and the importance of Government policy being framed in this overall context.
We have an established record of engaging on policy issues regarding the whole taxation system and the welfare system. These form central components of our annual work around things like our socioeconomic review, our annual pre-budget Budget Choices document and our annual post-budget material, together with other items we engage with, including our annual policy conference and engagements with Oireachtas committees and bodies such as the National Economic and Social Council, NESC.
We submitted a much longer than recommended opening statement which I will not read through. I will, however, highlight one or two pieces and the committee will have the rest of it, which gives more information than just flying across the top, if you like.
We welcome in particular the inclusion in chapter 6 of the need to broaden the tax base. This is a very important issue. Obviously, questions arise on Government decisions to raise or reduce overall taxation revenue and it needs to be linked to the demands the Government will have on its resources. These demands, in effect, depend upon what the Government is required to address or decides to pursue. We can see the kind of damage that can be done by looking back at the crisis we had more than a decade ago with the bailout and what subsequently happened, such the rapid increase in our national debt and many other things. We find ourselves today in a situation where, despite favourable lending rates, payback terms and so on, there remains a recurring cost to service this debt and that cost is likely to be rising. This debt is of a fairly substantial nature and it is just one of the demands the Government faces and which it has to meet. As a result, the idea we would widen the tax base is very positive from our perspective. I do not have the document with me on some work we have done on how much Government should collect in taxation, what the basis should be, what it might look like in practice and how that might be broken out in various ways.
One other issue I wanted to look at was the site value tax idea. We welcome the commission’s recommendation to introduce a site value tax, which is something we have advocated for many years. We believe it is a much fairer system than the current property tax and would prove to have many other positive consequences. It would, in particular, have the positive result of incentivising the use of land rather than leaving it unoccupied and unused. Consequently, we would be very positive about that as a core recommendation the Government should pick up, particularly recommendations 14.1, and following. We would make the qualifications the commission recommended that there should be differential treatment in the application of a site value tax to agricultural land, for obvious reasons in the context.
I will not deal with any more of our recommendations but we are generally positive about the various recommendations in these particular report chapters and we are quite happy to engage on any part of it on which the committee wishes to have further expansion. I reiterate that we have many comments in the document we have sent to the committee.
Neasa Hourigan (Dublin Central, Green Party)
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It is a much longer and comprehensive document, and I thank Dr. Healy for it. I take his point that we have limited the group today to a certain amount of chapters because the breadth of the commission's report was so great. Also, as it turns out, it has been the subject of great interest to come to this committee, perhaps because we did not have a forum within which to discuss this report to such a degree before. We are, therefore, receiving many requests from groups to come before the committee to talk about the report, so if we can fit Social Justice Ireland in again to attend before the committee, we certainly will.
I invite Dr. Micheál Collins from UCD to make his opening statement.
Dr. Miche?l Collins:
I thank the Chairman and the committee for the invitation to make a presentation on this topic. I am an economist and assistant professor of social policy at the school of social policy, social work and social justice at University College Dublin. I was also a member of the previous, 2008-2009, Commission on Taxation, and within the commission I chaired the subgroup that examined tax expenditure.
As a researcher, I am also part of an international research group focused on the links between taxation and social policy, and within that I frequently focus on the various equity principles, including those associated with taxation measures addressed by the chapters we are considering this evening.
I welcome the focus this committee is giving to the recent report of the Commission on Taxation and Welfare. Its report represents an important contribution to the policy formation process for our societal redistributive systems over the next decade or two. The commission was given ambitious terms of reference alongside an ambitious timeline, and while I would not agree with everything it has concluded, overall it has done a very competent job and provided a realistic and evidence-based review of the present system and a clear set of signposts for reform.
I am framing my brief remarks on chapters 6, 7, 8 and 14 of the commission’s report in the context of three views of the current Irish taxation system. These are that the system will need to collect a greater proportion of national resources in the medium term, that there is potential to make reforms to the current system so that it becomes fairer, and that there is merit in broadening the tax base so that taxation can be shifted away from labour to other areas.
On chapter 6, tax equity and base broadening, I welcome all of the recommendations of the commission in this chapter. They represent a set of proposals that would notably improve the taxation system and the recurring examination of it by committees such as this one. However, let me briefly focus on three points. First, the report recommends that the high-income earner restriction be broadened to include more tax expenditure measures, and I would encourage this, as I have in previous contributions to this committee on that point. As part of that reform, I would stress the importance of including the tax expenditure measures associated with pension savings within the restriction. Second, the recommendations to review frequently the tax expenditures associated with VAT are welcome and, in the context of a shift away from labour taxes, there is merit in increasing the current reduced rate from 13.5%. However, given that lower income households, many in retirement or exclusively dependent on welfare supports, tend to consume most of their income and are, by definition, more exposed to consumption taxes, reform here needs to be slow and undertaken in the context of broader reforms to the adequacy of welfare payments. Third, I support the idea of introducing an accommodation tax and suggest the ability to set this be allocated to local authorities and the revenue generated by it be earmarked by local authorities for investment in new or improved cultural amenities.
However, within its assessments of income, capital, wealth and equity, the commission’s report does not address the recent phenomenon of very high earnings and the new and stark income and wealth inequalities these earnings are generating. Although there are small numbers of super high-earners, and any new income taxation measures would generate relatively small amounts of overall revenue for the State, there is a strong case for a new high marginal income tax rate on earnings above a certain threshold of annual income, say €1.3 million or €25,000 per week, on the basis of societal fairness and harmony. Unfortunately, many companies are now no longer able to regulate pay levels and pay differentials within their own organisations and, as a consequence, there is a role for the income taxation system to intervene.
On chapter 7, taxes on capital and wealth, the approach taken by the commission in this area is also most welcome. It is correct to identify the potential to raise more recurring revenue from capital and wealth and that the best starting point is via reforms to the existing taxes on capital gains, inheritance and residential property.
As a member of the 2008-09 Commission on Taxation and Welfare and in various contributions since, I was of the opinion that reforms of these taxes would mitigate the need for introducing a recurring net wealth tax. I still hold this view.
I will focus on two of the recommendations in this chapter. The commission recommends that capital gains tax relief on principal private residences be restricted over time and points towards charging a small rate on these gains as the most equitable approach. This is a welcome proposal, one that would be most beneficial in bringing greater stability to long-term house prices rather than in raising revenue. It may be that the gains could be offset, or partially offset, where people were using the proceeds to buy a new home. The commission is also correct to emphasise the need to increase the yield from the local property tax as the more pressing priority.
The recommendation to reduce the group A inheritance tax-free threshold from its current level of €335,000 is also welcome. Reforms to this threshold are more about fairness in the intergenerational transfer of resources within our society than about generating a greater yield from capital acquisitions tax. The commission's text on pages 142 and 143 is telling regarding the generosity of this current threshold. It reads, "In 2020, an overall wealth of €335,000 would have placed an individual within the wealthiest 40 per cent of net wealth holders in the State". There is merit in linking this threshold to average earnings - say, two or three times average earnings, which is approximately €90,000 to €135,000 - and revising it automatically each year via a provision set out in a Finance Bill. Deferral mechanisms would also be needed to provide for some families, as per the established procedures for the local property tax or the fair deal scheme. Post reform, the prospect of a substantial tax-free inheritance would still remain.
Regarding chapter 8 on taxes on retirement savings, the decision by the commission to allocate an entire chapter to the tax measures provided for retirement saving is telling and most welcome. I have engaged with this committee in the past on the topic of the tax expenditure measures in this area. Overall, the cost of these measures, the inequity of their impact, their limited effectiveness and their current and expected future cost imply it is an area that deserves greater oversight and attention. The commission's report points towards the annual costs of tax reliefs and savings supports in this area heading towards approximately €3.4 billion per annum once the auto-enrolment system has been introduced. It is worth putting this figure in the context of the many other areas of public expenditure examined by this committee. Based on the budget 2023 annual current and capital expenditure allocations, an annual figure of €3.4 billion is more than the entire expenditure of each of 12 Departments, it is much the same as the annual expenditure by the Department of Transport and only the Departments of Health, Social Protection, Education, Housing and Further and Higher Education, Research, Innovation and Science spend more each year.
I welcome almost all of the commission's recommendations in this chapter. Overall, they have the potential to reform an expensive and inequitable system and bring the tax relief measures used to encourage pension savings closer to tax deferral measures, something they are far from currently. However, there is merit in highlighting three issues. First, the cost of this system is high and will continue to grow in the years to come. Given pension policy objectives on poverty avoidance and providing the expectation of a reasonable living standard in retirement, it raises a question as to whether there is a more effective and cheaper way of reaching these objectives. At the least, it implies some consideration of decreasing the costs of the system through, for example, providing tax relief on pension contributions at a single mid-point rate for all contributors. It may also highlight considerations of providing an enhanced universal pension to all those in retirement and simultaneously removing tax expenditure supports for pension savings. Certainly, it is difficult to argue that the current system is an effective and efficient use of State resources.
Second, the commission did not address how the auto-enrolment proposal, which is about to be introduced, will not provide tax relief on pension contributions to employees who put savings into these funds, yet will continue to do so for other workers making pension contributions, most of whom have higher and more stable incomes. While this inequity is partially offset by a Government-provided top-up to auto-enrolment savings, it is still a striking difference. Should we not treat all retirement saving the same?
Third, section 8.5.5 of the chapter highlights the data gaps regarding the ability to understand and review this area of tax expenditure. I strongly support this recommendation. Indeed, it reflects points I have made to this committee in the past. It may be that the issue arises from the current legislative definition of the role of the Revenue Commissioners, which is about the effective administration of the taxation system, something Revenue does very well. However, the collection and provision of policy-relevant data on taxes and the taxation system remains a secondary issue and priority for that organisation. The consequences of this are reflected in many of the recurring tax policy design struggles encountered by the commission and by those working on taxation issues, including officials in the Department of Finance and the Parliamentary Budget Office. A change in the statutory definition of the role of the Revenue Commissioners to incorporate formally its data collection, provision and policy process contribution is overdue.
I welcome almost all of the proposals from the commission in chapter 14, which examines the taxation of land and property. I agree that the local property tax should be retained, frequently rebased and increased in time. The commission's proposal for a site value tax, or land value tax, on all other land makes a great deal of sense, would represent a welcome move away from the current outdated and unsustainable commercial rates system and would better incentivise the efficient use of land, particularly serviced urban land and underutilised agricultural land. The proposal of higher rates for vacant sites and units and for second homes is also welcome and overdue.
There is merit in highlighting two issues in respect of this chapter. First, the commission recommends that the ability of local authorities to deviate their rates of local property tax or any new site value tax should be restricted. Currently, local authorities can deviate their local property tax up or down by up to 15%. This is an important measure to retain and should not be removed from local authorities. The 2008-09 Commission on Taxation and Welfare, in its work on designing the local property tax, specifically linked the tax to the funding and decision-making of local authorities so as to assist in strengthening the role of local government. Making decisions on how much to collect and what services to provide and-or reduce is an important area of accountability for local authorities and their annual decisions on the setting of the local property tax force elected councillors and council officials to engage on these issues. They also better link the local communities who pay these property taxes with their local councils and local services. While decisions give rise to some boundary or border issues between local authorities, they are a small price to pay for further enhancing the role of local government.
Second, the commission's report highlights the challenges of introducing any new site value tax. While that challenge is substantial and there will be inevitable resistance to change, it is a feasible reform and one that, like the introduction of the local property tax, can be achieved.
I will complete my remarks there and I look forward to engaging with the committee on the issues raised.
Neasa Hourigan (Dublin Central, Green Party)
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I thank Dr. Collins.
Dr. Tom McDonnell:
I thank the members and staff of the committee for the invitation to appear at this meeting. NERI is grateful for the opportunity to present our views on the report of the Commission on Taxation and Welfare. As a member of that commission, I would personally like to pay tribute to the professionalism, creativity and diligence of the commission's chair and secretariat and acknowledge the dedication and conscientiousness of the other members. We took the job very seriously.
Before I turn to the four chapters being examined, I must first note the fiscal context of the report. The commission is strongly of the view that Ireland faces major fiscal challenges and risks over the medium term and that these threats are of such scale that the overall level of government revenue will have to increase materially as a share of national income. This is the first recommendation of the report and by far its most important. The issue is therefore not so much whether taxes and social contributions will have to increase, but which revenue sources we should focus on increasing the yield from, given our five high-level policy goals of sustainability across fiscal, environmental, political and all other dimensions, reciprocity, adequacy, equity across all dimensions - horizontal, vertical and so forth - and efficiency, both in terms of administrative complexity and economic efficiency as regards minimising distortions.
The first part of chapter 6 focuses on horizontal equity. This is the principle that those with similar incomes should pay the same proportion of those incomes in taxes.
This means that taxpayers' age, legal status or where they are domiciled, their source of income or other factors unrelated to their total income should be irrelevant, at least in principle, for determining their tax liability. This is broadly the position of the commission, and it is a principle NERI fully supports.
The second part of chapter 6 focuses primarily on reforms of VAT. NERI agrees with the commission that the use of zero and reduced rates should be limited, that VAT reductions should not be used as a short-term stimulus, and that the 9% and 13.5% rates should be merged, and increased progressively, over time but of course cognisant of the current cost-of-living crisis. The timing of these changes should only begin to take place once annual inflation rates are brought back close to ECB target levels, and probably not even immediately then. While consumption taxes are often regressive in themselves, and increasing these rates are likely to be regressive, the revenues generated can be used to support our adequacy, equity and sustainability goals via enhanced resources for free universal basic services and for increased income transfers.
It is worth noting that many of the recommendations in other chapters are relevant in the context of this matter. The recommendations made in many of those chapters to do with welfare should be understood. These recommendations should be understood in terms of their happening within the context of those other recommendations, in particular around benchmarking and so forth, also happening.
In addition, NERI supports the chapter 8 recommendations regarding the overall level and tax treatment of the lump-sum, the benchmarking of the standard fund threshold and, as noted already, the ending of concessionary tax treatment based on age.
Chapter 7 notes the scale of wealth and wealth inequality in Ireland, the very low tax yield from wealth compared with income and consumption, and the need to increase the yield generally from capital taxes. The Commission’s recommended approach is that there be a substantial reworking of existing taxes on capital and wealth in order to deliver a much higher tax yield. On the other hand, it notes that attempts to introduce a new tax on net wealth should be put into temporary abeyance until the outcome of these attempts to amend existing taxes on capital and wealth was known. So capital acquisitions tax, CAT, and capital gains tax, CGT, should be tried first.
The report notes the major deficiencies in the way capital gains tax and capital acquisitions tax are currently structured, and the deleterious impact on the amount of tax collected on intergenerational asset transfers. The current highly regressive system of tax breaks effectively imbeds inequality of opportunity across generations and does so without any economic justification or rationale. In particular, CAT is a tax on windfall gains, and is likely to have much less of a negative economic impact than taxes on income and consumption.
In such circumstances, NERI strongly supports the recommendation that transfers of assets on death be treated as a disposal for CGT purposes, that the CAT group A threshold should be substantially reduced, and that the level of agricultural and business relief from CAT be reduced and reformed. Enterprise policy should focus instead on supports for new businesses and innovation not on supports for the intergenerational transfer of wealth and assets. In addition, we agree that the CGT principal private residence relief has no economic justification, benefits better-off households and should be materially restricted over time. We support the recommendation that a modest capital charge be applied to gifts and inheritances generally.
I turn finally to chapter 14. The main residence, other property and land cumulatively make up three quarters of household wealth. There are many economic and social arguments for materially increasing taxes on property and land. We know that the tax structure influences growth and that the economics literature generally finds that recurrent taxes on immovable property are the least distorting to economic activity. Therefore, they are the least damaging or most beneficial to long-run growth prospects. The taxation of land is the optimal form of tax from an efficiency perspective as it has no effect on supply and does not discourage development of the property. On the other hand, property taxes are preferable from a vertical equity perspective. Ireland has an extremely modest tax on property and no site value tax on land. NERI agrees with the view of the commission that the composition of taxation should materially shift towards the taxation of land and property. This is for equity, efficiency and sustainability reasons, all of which I am happy to elaborate upon.
Our view is that the local property tax should be significantly increased, made progressive and contain surcharges for vacancy and non-principal private residences whether for the owner or a registered tenant. This should be accompanied by the gradual introduction of a site value tax over time with a yield significantly in excess of the current yield from commercial rates.
As a quick clarification, the commission recommends that local authorities should lose the ability to reduce the rate but not necessarily lose the ability to increase it. Effectively, the rate would become the floor but there would still be the capacity for democratic engagement at the local level to allow those decisions to be made. At the same time we are cognisant of asset rich and income poor situations. The best way to resolve this problem is through a generous deferment system. The deferred amount along with interest could in these cases only be payable on the sale or transfer of the property. This resolves the hardship issue and simultaneously protects Government revenue over the longer term.
We agree with the commission that tax incentives, for example, section 23-type reliefs and the help-to-buy scheme, should not be used in order to stimulate the supply of or demand for housing. Past interventions in this area have been calamitous resulting in distorted incentives and significant deadweight. The Government should desist from using the tax system as a means to fuel the property market.
I am happy to take any questions.
Neasa Hourigan (Dublin Central, Green Party)
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I thank everyone for their comprehensive contributions. We did try to limit the number of issues. Even with that, however, there is still a huge number to cover. I invite Deputy Farrell to make her contribution.
Mairead Farrell (Galway West, Sinn Fein)
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Gabhaim buíochas leis na finnéithe as teacht. Tá sé go hiontach go bhfuil grúpaí éagsúla anseo. We would have read all of the opening statements prior to this meeting. It is good to have a comprehensive number of people and views here this evening.
I will start with NERI, which noted that "The current highly regressive system of tax breaks effectively imbeds inequality of opportunity across generations and does so without any economic justification or rationale". Tax expenditure is an issue that the committee has considered in recent times. From sitting beside Deputy Boyd Barrett at many of those committee meetings, he always used the phrase that tax expenditures form "a shadow budget" so they should satisfy the three themes of being timely, targeted and temporary. Often, there are concerns that a tax expenditure while perhaps initially meeting these criteria does not after some time has elapsed. Although a tax expenditure may continue after it has outlived its use or purpose and perhaps due to pressure from those who would benefit. Recently this committee produced several recommendations on this matter and I would like to hear the thoughts of the delegations on two of our recommendations. The first recommendation was that the Department of Finance and the Revenue Commissioners agree a definition and publish a common list of tax expenditures. The second recommendation was that the Department of Finance engage with the Department of Public Expenditure and Reform to recruit the appropriate number of staff and obtain the resources necessary to review the number of tax expenditures. I will start off with that. I advise the Chairman that I have quite a few questions.
Neasa Hourigan (Dublin Central, Green Party)
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There is no time limit today.
Dr. Tom McDonnell:
I agree with Deputy Farrell that the Department of Finance and the Revenue Commissioners should do this work. It is confusing as to why they have not agreed a definition so far. Obviously, people have their hobby horses and preferred definitions. Perhaps that is where the issue is but surely some high-level group could easily reconcile any issues, at least provide a range or compare and contrast. Certainly the list of tax expenditures between the Department of Finance and the Revenue Commissioners should be reconciled. Seated on my right is Dr. Collins. He chaired the subgroup on this issue in 2008 and 2009. He has written extensively on the issue and is perhaps better placed to give a more comprehensive reply.
Dr. Miche?l Collins:
I thank the Deputy for her question. This committee has made enormous progress in its engagement on this issue, and its recommendations are very welcome. The phrase "shadow budget" is absolutely accurate. It is one that has not been examined in anywhere near the level of detail that it should have over time for reasons of having space to do so, which this committee has been very good at creating. I compliment the committee on creating space and obtaining information in order to be able to engage with that as well.
I share the frustration of the committee that we, in a sense, have one issue and two wings of the State providing us with different pieces of information on it. That is frustrating. I encourage the committee to strongly pursue that recommendation for the two views to come together.
It speaks a little to my earlier points on the definition of the role of the Revenue Commissioners. The Office of the Revenue Commissioners is an extraordinarily competent organisation in doing what it is required legislatively to do, which is to run and administer the taxation system, and is among the top organisations internationally doing that. Missing from the Revenue Commissioners' remit, however, is an expectation that they explicitly provide information to contribute to the policy formation process. That is not to say they do not do it. They do, but it is very much a sideline or secondary issue for the Revenue Commissioners. From my observation of that over time, it seems there is potential to make a reform there in order that there be an expectation of a requirement to provide that information on an ongoing basis.
I echo the view that it is not just about getting the information but also, whether it is in the Department of Public Expenditure and Reform, Department of Finance or the Parliamentary Budget Office in these Houses, that there is an ability to process it. It is a very a big area and we should continue to look strongly at it.
Mairead Farrell (Galway West, Sinn Fein)
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That is Deputy Boyd Barrett's phrase, not mine.
Ms Colette Bennett:
This is a point we have made for quite some time. It should be part of the budgetary process overall that there be transparency in this regard. We would certainly welcome tax expenditures being timely, targeted and temporary. There should be sunset clauses embedded into them and any new proposals for tax expenditures should be robustly discussed and debated. We very much agree, as a first step in involving tax expenditures as part of the national budgetary process, that there be an agreed-upon list of what tax expenditures actually are and a review of how much they cost in real terms in order that we can have that robust debate annually.
Dr. Se?n Healy:
I will add one further point. Social Justice Ireland has argued for a while that the tax expenditure issue should be part of the budget. In fact, given that the allocation of money in a particular way as a tax break for this, that, or the other is a decision that is voted through each year, it should form part of the budget arithmetic as well. Consequently, if we opt to do that, we must have a list of the actual tax expenditures. That must be put in place as well.
The other point I will make is to reiterate and support what Dr. Collins said about Revenue. It is an organisation I have great time for and it does a very good job. Maybe I am misreading this, but I think the Revenue Commissioners feel constricted in that if they were to provide more detailed analyses of issues such as tax expenditure and so on, which we are talking about here, they might be too closely identified with policy recommendation. That should be removed from them by asking them to give us the reports, data and information and we will make the decisions. They are a little concerned that they might be typecast or something and people would blame them for revealing these kinds of things when, in fact, we could all benefit from their expertise. This House, in particular, could benefit further from their expertise, although it is benefiting quite a lot at present.
Mairead Farrell (Galway West, Sinn Fein)
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It is great that such a question has generated so much enthusiasm. We have the right group in the room so that is good.
I will move on to capital acquisitions tax. I note the ESRI's statement referenced the difficulty involved in wealth taxes that can arise from "potential negative incentives to move financial assets [which] pose implementation challenges". For that reason, the commission supports taxes on capital assets, such as capital acquisitions tax on property assets. This is something that has come up a bit in ordinary conversation. Why does the ESRI not believe an incentive might be present for someone with significant property assets to move them into a trust, for example, to dodge capital acquisitions tax? During a recent conversation I had with the officials from the Department of Justice, I think at this committee, I raised the concern about legal trusts being used as vehicles to hide assets and disguise certain transactions. The officials told me it is an issue of concern for them. With Ireland being the last common law jurisdiction in the EU, does the ESRI believe greater transparency oversight will be needed, when it comes to ownership of such trusts, if we are to increase capital taxation?
Dr. Martina Lawless:
On capital acquisitions tax, the broad point that this is largely a windfall tax from beneficiaries means looking more closely at how that tax operates, and broadening the base of it, is one of the recommendations of the report that makes a lot of sense. It does not have the same level of onerousness as valuing assets on a recurring basis. That is one of the big problems with the implementation of a wealth tax. There could still be ways in which, perhaps, assets could be shielded in some way from a capital acquisitions tax and trusts may be one of those that would need to be looked at in much more detail. It is not something we looked at specifically. We looked at information on transfers within households. It was reported on from the beneficiary perspective and questions were not asked about the legal formation of that. I do not have a very detailed answer but it is certainly something that would need to be carefully designed to make sure the base was as broad as possible and any distortions were limited.
Mairead Farrell (Galway West, Sinn Fein)
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Does anyone else has a view on trusts?
Ms Colette Bennett:
Yes, particularly on the use of trusts and corporate restructures for succession planning in order to perhaps remove assets from the net of capital acquisitions tax, there were some moves, probably about eight years ago, to ensure that firms advising on those kind of corporate restructures or succession planning tax structures had a duty to report to the Revenue Commissioners. That is certainly one measure but more could be done on the clarity and transparency of those structures, particularly those that are using offshore entities and unlimited companies.
Dr. Miche?l Collins:
I thank the Deputy for the question and for raising the issue. I am not an expert on trusts either. They are relatively uncommon but they are clearly in need of regulation. There is strong merit in that. We should not, however, get sidetracked from the larger area of action on capital acquisitions tax, which is around the very large inheritances that very few people can experience. The current structure of our system accommodates that very favourably for those very small groups of people. If we now find ourselves in a period where we have had very large increases in house and land prices over the past decade or two, which, as Dr. McDonnell said earlier, is the principal source of wealth in this country, we can expect that over the next two decades a very large proportion of that wealth will transfer from one generation to another. Our structures currently allow that to transfer very favourably and, therefore, will further concentrate wealth among a smaller group in our society.
That throws up a question. As a society, we may or may not be comfortable with that and proceeding in that way but we should certainly have that discussion. I personally think we should clamp down on or in some way limit it, as I said, and the commission's report points in that direction. It is certainly a discussion we need to have. If we do not, this transfer of wealth will happen automatically and we will end up in one or two decades' time looking at an even more unequal distribution of wealth and being concerned about that and the negative implications it tends to have for societies.
Mairead Farrell (Galway West, Sinn Fein)
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It is very interesting. A few years ago I saw on Twitter or similar that The Economisthad done some kind of study.
It was about what most millionaires have in common and whether their parents were millionaires. One would not really have needed to conduct a study to come to that conclusion.
It is quite an interesting discussion. I am interested in the issue of wealth and equality and intergenerational wealth and equality. I have watched how near-zero interest rates and quantitative easing over the past decade have caused significant asset inflation that is great for those with the assets but, as we all will be aware, there are plenty without, particularly younger people. I see it in my clinics involving all ages. It has been pointed out that my generation is likely to be the generation that will be less well-off than their parents. I can see the merits in all of this and how it needs to be looked at.
It is quite an interesting one. It is one of those issues where when the debate is had, it causes considerable anxiety and stress among people, even within the media. Much of the time, people will come to me and ask questions about it. They are not in that bracket. It will not happen to them.
I wonder what the guests think in general of the debate currently on issues such as capital acquisitions tax, CAT, and how it needs to be improved in terms of intergenerational wealth inequality, because I have seen that level of concern quite recently.
Dr. Tom McDonnell:
I thank the Deputy. It is a brilliant question. It comes down to the heart of the problem. Ultimately, the lack of taxation on capital gains and capital acquisitions, the loopholes and the existing system of tax expenditures are about political economy rather than economic decisions.
I know from speaking to people in Revenue that more effort goes on avoiding CAT than all the other taxes combined, of course, with the exception of corporation tax, albeit by different people. It is emotive because wealth gives power and privilege and people become defensive and threatened when their power and privilege comes under threat. When people talk about increasing or reducing CAT, they feel attacked and under threat. The reality, of course, is that a large majority of households are not affected by the current system at all. We have €1 trillion of net household wealth, yet the revenue that we yield each year from CAT is minuscule. Effectively, the rates are close to non-existent for a great many transfers.
We have a problem and the base needs to be broadened. The focus, in our view, was that this was one of the areas where there needed to be significant uprooting and overhaul, that the system was broken and did not work, and that there needed to be a significant shift in the composition of how we raise taxation towards capital stocks in general. That includes the site value tax and the local property tax, but CAT is very much to the fore of that debate as well.
Inheritances are, as the Deputy said, what makes someone a millionaire. More than half of wealth is inherited in many countries. We can see that the same families are often dominating generation after generation, regardless of competence or otherwise. It is the system overall. It is not about the rate. It is not even about the threshold. It is about the agricultural and business reliefs, and their enormous generosity. Median net wealth in 2020 was under €200,000. It is almost certainly higher now. The agricultural and business reliefs can effectively exempt one from paying on €3 million or so of one's assets. It is completely out of whack with what it should be.
I agree with Dr. Collins that we need an overall system where all of these things are effectively benchmarked against something. In my view, annual earnings is a good benchmark and setting thresholds for all of these things, including on the welfare side, should be in some way linked to annual earnings. That would be an appropriate way to do it. I would not have it at many multiples at all. Two or three would be appropriate to me. After all, these are windfall gains that are undeserved.
Finally, the economic impact of increasing CAT and the other property taxes is extremely modest compared to increases in income tax or the regressive impact of increasing taxes on consumption. I encourage the Oireachtas to engage with this issue, which is challenging from a political economy perspective. We need to have a mature and honest debate about inheritance tax and not have it based on media hot takes or whatever. We need to treat this issue seriously.
Neasa Hourigan (Dublin Central, Green Party)
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Can I bring in Dr. Karina Doorley, who has indicated she wants to come in?
Dr. Karina Doorley:
I will add some extra evidence, which may be slightly unrelated to the issues of equity and so on, to add to the debate.
Inheritances reduce labour supply. Somebody who receives or is expecting to receive an inheritance works less than a similar person who does not receive an inheritance or is not expecting one. Apart from the arguments around equity and equality of opportunity starting off in life, there is also the distortion that an inheritance or this expected windfall brings into somebody's labour supply decision. One could question whether allowing that to continue without taxing this externality is a good way to proceed in that it may stifle innovation, labour supply, economic growth, etc.
Mairead Farrell (Galway West, Sinn Fein)
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That is interesting. I never heard that before.
It is interesting as well that CAT is the most attempted to be dodged or dodged, or whatever way we say it.
Neasa Hourigan (Dublin Central, Green Party)
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I wish us all luck in having a grown-up conversation about inheritance tax in the Oireachtas. I am sorry; am I being too cynical?
Dr. Martina Lawless:
On the level of emotion and the difficulty from a political perspective of CAT, one of the issues going well beyond the economics is that this is a tax that people pay very few times in their lives. It is a tax that they pay at a time they are dealing with a bereavement. Often it is the first time someone gets a tax bill as opposed to a tax that is paid as he or she goes as in PAYE. There is the salience of the tax and its link with loss. It is also linked often with family disagreements or debates about who makes the inheritance. This makes it a strangely emotional tax for people, which makes it difficult.
There also tends to be a mistaken perspective that it is a tax on savings that the person who has passed away has built up through his or her lifetime and this is somehow a double taxation whereas the more equitable way to look at it is that it is a tax on the recipient who has not built this up from his or her labour income, hard work or innovation. The recipient is getting a windfall gain from this capital acquisition and that is where, from an equity perspective, the tax is focused on.
There is also an argument that, even with a relatively high tax on these sort of wealth transfers, it will not get rid of intergenerational transfers of privilege in any way because families with better-off, higher socioeconomic backgrounds will be throughout the lifetime of their children providing them with benefits on an ongoing basis. This sort of windfall at the very end is part of what contributes to the unequal distribution of wealth but it will not entirely remove the benefits that come from being a member of a well-off household, which I say to strengthen the equity argument in favour of taxing the windfall. It will not go all of the way to removing intergenerational inequality but it would go some distance.
Neasa Hourigan (Dublin Central, Green Party)
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Dr. Collins, did you want to come in?
Dr. Miche?l Collins:
First, I echo all the previous comments and I will not restate them.
This is very much a political economy issue. The first recommendation of the commission's report is significant. It is that there is an inevitability that we will have to collect more tax in the future, and so the question is: how? I suppose we need to think about that in the context of CAT or inheritance taxes. If we make a decision, as we kind of have been as a society for quite some time that we will not really collect much there, we have to understand that means we are collecting more from income, consumption and other taxes.
Perhaps we should begin to think more about that trade-off. Arguments in favour of reducing certain income taxes and so on are heard fairly frequently in these Houses. However, if you put that into the context of an overall need to generate more revenue, we must ask where taxes are to be raised if we are to follow that path. It is inevitable that this forms a part of it.
My second point comes back, to some degree, to the limited data available to the Houses as to who receives inheritances and how often. If I am right, the ESRI contributions point towards it being challenging to find enough usable data to analyse that. We do not know enough about that but we do know that, given the sums involved, we are talking about a small cohort of the population receiving these inheritances. I do not believe anyone is of the view that they should be eliminated. It is a question of reducing them and benchmarking against multiples of earnings in some way, as has been mentioned before. There is an obvious path to take there. It is an area of discussion society has avoided for quite some time.
Mairead Farrell (Galway West, Sinn Fein)
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Did Dr. Doorley have her hand up? No. What I love about committees is that we can tease things out and listen to different points of view. I had to write down my questions on the ESRI opening statement to keep myself in check because there were so many. In that statement, it was noted that the commission has set out that a site value tax could also accommodate the principle of a zoned land tax. That is very important. I am interested in hearing the witnesses' views on that. We have all seen evidence of swathes of land that have been zoned, sometimes for years, on which there has been no development. I have seen them in Galway. A person who is a bit cynical - although I am not saying I am - might say that it was never planned to develop some of this land and that it was only zoned to increase the asset value in an effort to engage in land banking. Could a site value tax or zoned land tax address this? If such a tax were to be designed, would a graduated tax that increased further the longer the land was allowed to sit idle, such as has been introduced in other countries, be the right way to incentivise usage?
Dr. Conor O'Toole:
I thank the Deputy for the question. In general, reading through the commission's proposals on this, it becomes very clear that there are economic benefits to having a taxation component that penalises the passive holding of immovable property, such as a site value tax. That can be coupled with additional layers, such as a zoned land tax, which increases the rate of taxation on the component of land one wants to activate, for example, for housing supply. It has been well rehearsed in many forums that activating housing supply has been one of the biggest bottlenecks we have faced as a country in recent years. One of the components of a more structural change in the land market will be the introduction of a tax like this so that there would be a cost to holding land, that is, a penalty for not activating land that has been zoned and is ready to go. There are good reasons to do that. The complexities in all of these types of measures lie in how they are designed. At what rates should they be set? Will those rates be effective in bringing about the behavioural response being sought from the land holders and the other actors in the market? How are these types of lands to be valued where there are thin markets in which there are very few transactions? That makes it complex to put a price on some of the land holdings. The complexities in things like site value taxes are more in the design and implementation phases than in the specific theoretical benefits of such taxation.
Mairead Farrell (Galway West, Sinn Fein)
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I thank Dr. O'Toole. I have another question for Dr. Collins. The report the commission has produced is an extensive document with a range of proposals. I note Dr. Collins previously served on the earlier Commission on Taxation. What percentage of that commission's report has been adopted by the Government?
Mairead Farrell (Galway West, Sinn Fein)
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Yes.
Dr. Miche?l Collins:
I enjoyed the opportunity of meeting with the current commission as it sat. One of the points I made to it, as both a lesson from the previous commission and a view I held as part of it, is that these reports are for the medium term. They are not for overnight introduction. They provide a set of signposts for where we should go and how we should think about these matters. I hope that is where this is going. It is unlikely that the report we are discussing this evening will be introduced over the next two or three years but I hope it will be over the next decade or two. I see the report of the previous commission in a similar way. I see it as a slow burner. It pointed towards, for example, the need to begin to engage with, discuss and think about tax expenditure. That took a few years to happen. To go back to my earlier comments, that is why I personally welcome the engagement of this committee on that issue because it brings it to the fore. Those discussions are ongoing and the issue is on the radar. In a similar way, the report considered the design of a carbon tax and the design of a local property tax, both of which have come in, and other reforms. Slowly but surely, reports get implemented. In reading this report, it is very clear that a lot of thought has gone into it and so, when these issues come to the fore in the years to come, it will be somewhere to be pointed to the overall changes that will occur. When we look back on this report in ten or 15 years' time, a number of the recommendations will have been achieved. That will be significant. That is how I see the last commission as well.
Neasa Hourigan (Dublin Central, Green Party)
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Before I move on to the next speaker, Deputy Boyd Barrett, would Dr. Collins care to hazard a guess as to the percentage? Having done the programme for Government negotiations, I carried out a desktop study on programme for Government documents and how much had been implemented. I reckoned it was 30% or 35%.
Neasa Hourigan (Dublin Central, Green Party)
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It is not a fair question anyway.
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I thank all of our contributors and the commission for what is a pretty enormous piece of work. I cannot say I have read every word of it. I am still working my way through it. The plain English version of the executive summary was helpful. There is so much in it. With regard to the principles outlined by the commission and echoed by all of our contributors here, there is a fair degree of agreement about where we need to go. Things need to be sustainable and equitable. I will refer to some of the specific measures that are being talked about. It is great that there is agreement on one. I have been calling for some time for scrutiny of the shadow budget, which Deputy Mairéad Farrell has mentioned. I know that many of the witnesses have been saying the same thing for quite some time. It is a vast area of expenditure of public money that is not properly scrutinised. As Dr. Healy has said, it needs to be examined as part of the budget every year. We need to be aware that decisions are being made that involve billions and we need accurate and easily understood information about these expenditures. I first stumbled across this stuff in a little table from Revenue that consisted of two or three pages of tiny writing but which had enormous figures attached to it. There is not even any consistency between Revenue, the Department of Finance and the Department of Public Expenditure and Reform so, in actual fact, there are three sets of figures as to these expenditures. Something at which I am amazed in the latest set is the figure for intragroup transactions.
That is €35 billion for one tax expenditure, which had jumped about €7 billion from the previous year. That is to do with the big multinationals shifting around profits through prices for royalties and paying themselves for the use of intellectual property. That is my take on it. That is just one tax expenditure. Deciding what is and is not in the base and all these things needs a consistent approach. They need to be examined thoroughly and I welcome the fact that everybody here is saying that.
I will get to the slightly more controversial things. I lean more towards what Social Justice Ireland says on specific measures. They echo many measures we argue for in terms of a financial transaction tax, looking more closely at corporate tax and at people who own multiple properties, second homes tax, taxes on underdeveloped land and empty houses and so on. On the site value tax, I am not entirely sure. I get a bit confused about property taxes, site value taxes, zoned land taxes and how best to approach that. As a broad principle, people should not be rewarded for sitting on land, doing nothing with it and making fortunes by flipping it, hoarding it or speculating on it. We have to do something about that. It is a scandal that it is facilitated.
Would the witnesses like to comment on the notion that the simplest solution is to nationalise much of that land? In Finland, where they have made great strides in dealing with homelessness in recent years, it was interesting to see about 70% of the land in Helsinki is controlled by the state. An even better way than taxing it is for the state to control most of the land and, if you want to use it, you have to have a good reason to use it and put forward the case for using it for development of this, that or the other. Maybe there is more complexity in trying to find the right taxation regime than in nationalising much of the development land and having a planned, rational and democratic approach to developing land for housing, infrastructure, services and so on. That is a question for all the witnesses.
On the slightly more controversial issues, the ESRI and the report say the property tax as it stands should be retained. I am for taxes on multiple properties but I have a problem with the tax on the family home. The Department of Finance in 2017 estimated the distribution of that enormous amount of wealth at up to €1 trillion, as Dr. McDonnell said, which is staggering. We do not do regular studies of the distribution of that wealth. I do not know if there have been any recent ones. We are operating in the dark if we do not have that. If I am right, in 2017, the Department of Finance did one such study and estimated the top 10% had 53% of that wealth, while the bottom 50% had 1.4% of the wealth. I am keen to tax very heavily the 10% but am also keen not to have a go at the 50%, some of whom own properties, but who only have 1.4% of the wealth. That is the difficulty with the property tax. When it is directed at the principal private residence, it is often directed at people who have little or nothing. Given that 70% of people in the country own their homes, that is what it is doing. Will the witnesses comment on that problematic issue?
It is interesting that the commission says we should leave our corporate tax strategy as it is. There is a glaring contradiction. There is a suggestion we should reduce the threshold of capital acquisitions, which we have done. It used to be €500,000 and is now down to €320,000 or whatever the figure is. By not moving it upwards, we are in effect reducing that threshold.
Neasa Hourigan (Dublin Central, Green Party)
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Corporation tax comes up in another chapter, which is probably why we have not covered it in detail. I will not constrain people if they want to comment.
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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That is fair enough. The point I am making is we should be looking more at trying to find out who has wealth in the proper sense of the term, as opposed to who just has a house.
Neasa Hourigan (Dublin Central, Green Party)
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Does the Deputy want to let the witnesses in?
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Yes.
Dr. Martina Lawless:
The CSO has started to do a regular survey of household finance and consumption, which is where these distributional numbers generally come from. The first was done in 2013. The 2017 study is the other one. It has just released some data from the 2020 survey. They show the principal private residence of the household makes up about half of total wealth. A wealth tax that excludes the principal private residence takes out a large part of the base for that tax.
There is an important distinction between the local property tax and a wealth tax, which is that the local property tax is on the value of the asset - the house as it stands - while a net wealth tax would subtract any outstanding mortgages. It would introduce a difference in how the tax operated. People in neighbouring houses currently pay the same local property tax but would perhaps be liable to different wealth taxes if they included the principal private residence because that tax would allow mortgages to be offset. That would change, in particular, the age distribution of a wealth tax as opposed to the local property tax because, as we said in our opening statement, older households are much more likely to have their mortgage paid off. If the family residence were taken out of a wealth tax, that issue would not arise but, distributionally, the share of total net wealth in the country is heavily concentrated in property. Half of it comes from the household's main residence. About another 20% comes from the ownership of land and other properties. Perhaps that is where the Deputy is talking about focusing the tax more strongly.
The commission recommends that local property tax be charged at a higher rate for second properties that are not rented out but, if I understand the report correctly, it does not recommend increasing property tax for ownership of other properties that have a regular tenant. That is informed by the issues concerning rental supply in the country. Additional taxes on rental supply might have negative externalities on that supply. It is important in all these taxes not to look at each aspect in isolation but to try to think of where there might be impacts in terms of other taxes or on behaviour.
I do not have the full numbers to hand, but only the top 10% of households from these data have substantial assets that are not in property. Almost all the wealth of the other groups is held in property, mainly in households' main residence. The lowest groups in the data, the bottom 10% or 20% of households, whom the Deputy would like not to pay any wealth tax, are typically those who do not own any property.
There is a big difference in terms of the wealth holdings of homeowners versus non-homeowners. That overlap between a wealth tax and a property tax is very high.
Dr. Miche?l Collins:
I want to come in later on rezonings and so on. On the local property tax, one of the things we should remember is the importance of that tax in linking households to local government and local authorities and, in a sense, the way in which that tax is and should over time as it develops, give greater links and ownership of the local government system to the people who are paying for it. In a sense, we have all paid, and still do, for local government all the time, up to the introduction of the local property tax, but it was coming through a central fund that was being redistributed out. To a degree, I have always noticed that as local authorities engaged with the people in their areas, they tended to give greater priority to the commercial activity in their area that was paying rates. There was a very visible flow of resources from them into the budget of the local authority and less so to the households in the area and the provision of resources for them for libraries, playgrounds or whatever the other things we can talk about, as local authorities do so many things.
One of the important roles of a local property tax is to make that link much more explicit in order that councils, councillors and individuals living in areas have a much more collective link to the governance and running of those areas. Local property tax is important in doing that. It clearly should be more progressive and there is much more potential for that to happen.
When it was introduced, if I remember correctly, there was - and still is - what might have been referred to at one stage as a “millionaire’s tax”. When one went past a particular threshold, the local property tax went up. It is an issue that arises I suspect in the Deputy’s constituency but only in a few parts around the country. However, there is some merit in that and there is potential for a more progressive structure to that tax as we go on.
I would have concerns that if we took that tax away, it would bring us back to a place that we were previously where there was not enough of a link between people in an area and the decisions that local authorities make on their behalf spending their resources and so on. The local property tax has an important contribution around that.
Dr. Conor O'Toole:
I wish to make two points further on both the local property tax and the proposed site value tax or, as the commission said, it is more just a land tax and a cost on land holdings, be they zoned land or otherwise. One other potential benefit of having a kind of broad-based local property tax that would transfer through to a land tax or site value tax is that they can act as a kind of stabilising mechanism for house prices. For example, if there is an additional fiscal cost for owning a higher priced property, that will ensure that the purchaser of that property has to be able to afford that component. Therefore, it can act as a kind of stabilising mechanism in terms of prices, so that is an important component.
The second thing that is mentioned in the commission’s report and is particularly important here is that the movement towards having generalised broad-base taxation on immovable property helps to take some of the procyclicality out of the property and the receipts from the property and housing market. One of the features of the Irish housing market over many years has been that revenues are collected procyclically because they happen on property transfers, and particularly the huge number of receipts from the property market that came in during the housing boom. If one moves that taxation burden from the transfer of property towards the immovable property, that can then help to remove the procyclicality of the fiscal receipts and that. It is an important point when think about these policies.
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Some 54%. I was not far off.
Ms Colette Bennett:
No, the Deputy was not far off. As others said, regarding the concentration or changes in relation to wealth, particularly for those lower-income households in the bottom 50%, any increase in wealth accruing to them is mainly attributed to paying down debts and mortgages. Their situation in terms of their actual income has not really changed. In his opening statement, Dr. Collins referred to deferral mechanisms, particularly in relation to CAT and local property tax. We would very much be in favour of that so that people who are perhaps asset rich but cash poor can defer the payment of these taxes perhaps to the estate or such a time where it would be more appropriate in terms of their income.
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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A comment on nationalisation of-----
Dr. Miche?l Collins:
I will let him think of an answer. I want to come back to a point, which is not unrelated to the Deputy’s point around the rezoning issues. The first recommendations introduced from the report of the last commission was a windfall gain tax of 80% on the rezoning of property. If I remember correctly, the Green Party required it to come in as part of agreeing to the National Asset Management Agency, NAMA, at the time.
Neasa Hourigan (Dublin Central, Green Party)
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Yes, we did.
Neasa Hourigan (Dublin Central, Green Party)
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If I remember correctly, it was just when it was about to start paying off - in 2014.
Dr. Miche?l Collins:
The reason it was removed was because it was a tax that did not generate any revenue. That was at least the political argument for it. I think that was an enormous mistake. Obviously, I was in favour of it and was somebody who pushed for its introduction in the first place. In fact, I thought it should be at 90%, but I was willing to live with 80%. The logic was that, in a sense, it is society and local authorities rezoning this land for the use and benefit of society and that the gains should fall to the State. Rather than nationalising it, the taxation system could be used to capture it.
Unfortunately, we went there and we have come back from it. It is a space we should go to again. Clearly, there was a small group of people who did not like it and would prefer to keep the 80% of the gains for themselves. However, there is a very strong case for saying that those benefits should flow to society and be available for society to use. It is a regret that it came in and went out. I sincerely hope it will come back in again.
Neasa Hourigan (Dublin Central, Green Party)
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It is worth saying that the legislation is sitting there, already written.
Dr. Se?n Healy:
Just to take that particular point one step further because I would support the windfall tax idea, the political reason given in 2014 for taking it off the books had no political merit whatsoever, for the simple reason that it was quite obvious that in the years immediately after the crash, there was going to be no great windfall anywhere in Ireland for God’s sake. There was nothing. The first year that there was likely to be an income of any substance from it was the year it was pulled. The political justification for it was zero; it did not stand up at all.
To address the Deputy’s question on nationalisation, this comes from being around perhaps longer than himself. The Oireachtas had a committee or a commission – I cannot remember which – at one point on the Constitution. It was co-chaired by the late Deputy Brian Lenihan and former Deputy Jim O’Keeffe. In a submission and in a presentation to that commission, we made a proposal that no land could be rezoned unless it was owned by the State or the local authority. In other words, they had to buy the land first before it was rezoned and we would use the kinds of things that were recommended previously in a report, I cannot remember-----
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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The Kenny report.
Dr. Se?n Healy:
The Kenny report, precisely. Something along those kinds of lines. We suggested an additional percentage on top of the actual basic agricultural value of the land.
In that case then it would control the whole issue. At the time it was a different way of controlling the windfall gain, and it would have been quite effective in that context. The proposal was contained in the final report of the commission or the committee, whichever it was at the time - it was a long time ago. That bird has flown in the sense that all of that land, which we are talking about now, has been bought up and it has to be dealt with in a different way. The windfall tax issue or the approach to it, is a very effective way of doing it.
Neasa Hourigan (Dublin Central, Green Party)
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I am cognisant that a vote has been called so our members will have to leave. I have a few questions to continue with and will allow the members to leave. If they are not back in time we might adjourn for a few minutes.
Mairead Farrell (Galway West, Sinn Fein)
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It is the Water Services (Amendment) (No. 2) Bill.
Bernard Durkan (Kildare North, Fine Gael)
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What does the Chair regard as being "back in time"? What time will that be?
Neasa Hourigan (Dublin Central, Green Party)
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I expect members to return by 7.45 p.m.
Bernard Durkan (Kildare North, Fine Gael)
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We have the voting block tonight as well.
Neasa Hourigan (Dublin Central, Green Party)
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Fair enough.
Bernard Durkan (Kildare North, Fine Gael)
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I am anxious to engage in the debate because there are issues there I have discussed several times over the years, but I will go and vote, otherwise I might not be here at all.
Neasa Hourigan (Dublin Central, Green Party)
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Yes, go and vote, Deputy.
Bernard Durkan (Kildare North, Fine Gael)
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Thank you very much.
Neasa Hourigan (Dublin Central, Green Party)
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I might just continue with a few questions of my own. I am excused at the moment.
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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The Chair is not going over.
Neasa Hourigan (Dublin Central, Green Party)
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Let us not say that in the public forum. I want to pick up on a few issues and will go back to the site value tax. As Dr. Healy will be aware, a site value tax is a long-held interest of the Green Party. I worked on the policy. While not being an expert on such a tax at all I was interested to see in the recommendations the continuance of local property tax and the adoption of the site value tax, as opposed to a full acceptance of a site value tax for everything. I am interested in people's view on that. In some European countries they do a hybrid model but it is not the hybrid as described here, which is houses are one thing and everything else is the site value tax. Social Justice Ireland will know about it better than myself, but the hybrid version in the Netherlands or Denmark seems to be more a percentage basis on one site or one piece of land, with part of the payment around the quality of the house and part on the valuation of the land. It is a hybrid model but it is not a polarised system. It is not a dichotomy. Do people have views on the methodology or the thinking behind keeping LPT and adding in the site value tax, or should there be a more root-and-branch review of site value tax and what it can offer? There are always significant concerns and opinions about the site value tax.
Dr. Martina Lawless:
Keeping the two systems as separate and distinct taxes is partially to do with the motivation behind them. The local property tax is to get a stable basis of funding for local councils, coming from people who live in the areas and who are invested in the provision of amenities and so on. That is focused very much on households and on keeping a steady, stable stream of income. I believe that the site value tax has a somewhat different motivation, which is to incentivise more productive use of land. In that case, although the commission's report does not make any particular recommendations about levels or rates, one is probably looking at a tax that is designed in a way that affects behaviour about how the land is used, which is not one of the motivations behind the local property tax at all. It is to allow that differential pricing and differential liability and the motivation behind getting the land developed and used. Having the two different systems would allow those different objectives to be pursued more efficiently.
Dr. Se?n Healy:
We are much more positive about a site value tax. I believe it would be a fairer system across the board and would have the potential of ensuring that all land got used and that its value was measured in a fair way so that the tax would be tied to the value of the ground on which it is based. For us it was not about making a more productive use of the land; it was more about how do we get to a point where we do not have people in all sorts of different situations having to be charged a particular price for being there. As against that, the report is basically saying, as was pointed out, to retain the local property tax and then use the site value tax to cover various other pieces and so on. I am not privy to the discussions that went on in the commission but there is the an issue whereby we must not let the best be the enemy of the good.
Neasa Hourigan (Dublin Central, Green Party)
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I hate that phrase. Go ahead.
Neasa Hourigan (Dublin Central, Green Party)
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We have just seen a reform of LPT that has not actually resulted in an increased yield, which is extraordinary.
Dr. Se?n Healy:
It is pretty obvious why that did not happen, in the sense that over a long period the thing has been totally stuck. Once it started it is stuck. Then there is a whole lot of people who are not in it at all. Okay, they eventually will pay it but it could be years later. The values of the properties or houses are problematic, which may be a simple way of saying it, without being too pejorative about it.
Neasa Hourigan (Dublin Central, Green Party)
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I have a follow-up question on that, unless anyone else wants to come in.
Dr. Miche?l Collins:
It is an interesting issue to raise. I think that a site value tax is the way to go if one could do it. There are, however, significant challenges for doing that for residential property. The previous commission did look at that aspect and ruled it out for that reason. My read of the commission's work is that it was a pragmatic response to say that the LPT is there and we should keep it. In fairness to the commission, and it is something I have also said, it is important that the tax is frequently rebased and that the yield increases over time. Otherwise, it is not sustainable and it will wither away. There are good examples. We came very close to that and maybe we are still quite close to that with the local property tax: in relative terms, it brings in a small amount of resources. It would be easy in a budget to abolish it, to be very honest, given how small the resources are. Were that to happen it would be detrimental to local government. I emphasise the need for that to increase over time.
We also should not miss the point that the commercial rates system in this country is broken. It does not work and is not sustainable. In fact, that has withered on the vine for decades. We can see all sorts of problems and inequities as we move around the country from local area to local area in the structure of that. It is not really feasible for this to continue into the future. The commission's pointing towards the site value tax is sensible in that regard, in that it would then be one system that operated across the country. There may be some local authority deviation, and there is some merit in that, but it would bring much greater stability to that important area of funding as well. It is a move in the right direction. I would hate to see the LPT go now that we have it there, because I am very concerned that if it went it may never come back at all, or any version of it.
Neasa Hourigan (Dublin Central, Green Party)
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I put it to Dr. Collins with regard to our adherence to or recognition of that issue, which is true, that the link or motivation around LPT is a function of a weak local government system.
Local authorities do not have an ability to raise revenue in any other way. In other countries, measures such as tourist taxes and congestion charges are all available. The ability to raise revenue in many other ways is vested in local authorities abroad. Here the local authorities really only have the local property tax, which is why we sometimes see ill-advised variations. The tax represents the only power, other than the disposal of land, that councillors now have.
Dr. Miche?l Collins:
I have monitored that over time and observed it in various ways. It has been very interesting to see that the initial knee-jerk reaction of local authorities has been to cut the rate. The opportunity to reduce or increase the rate by 15% almost always resulted in a reduction by 15% but local governments and councillors then realised they would not have many resources with which to do something useful in their areas. This realisation brought rates back up towards the baseline, and in many places 15% was added to that.
Neasa Hourigan (Dublin Central, Green Party)
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The biggest council is still cutting it to the bone.
Dr. Miche?l Collins:
Correct. It is still the case that there is a kind of populism but if the tax grows over time, decisions in this regard will become increasingly important. There is probably an accountability issue for local governments because, as local government strengthens, people will be able to engage with councils to ask whether a little more could not be collected from every household to provide better local resources, such as libraries.
Neasa Hourigan (Dublin Central, Green Party)
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Dr. Collins is more hopeful than I am.
Dr. Miche?l Collins:
That sort of citizen-led debate has not really happened enough so far. It will and should happen. I am concerned that if we removed the deviation powers from local authorities, we would be back to debates driven by commercial property payers and nobody else. That is not in our interest.
Dr. Tom McDonnell:
Let me refer to the debate on the local property tax versus the site value tax. Let us be honest that we are talking about a land tax. It is essentially the optimal form of taxation; there is no dispute about that. However, it is also true that is has very rarely been applied around the world. There are administrative-complexity and data-gathering issues. It was really seen as a kind of medium- to long-term measure. There was recognition that the local property tax is a very successful and well-designed tax. It already deals with many of the issues that people talk about in the media, including that of low-income and high wealth. Looking at the distribution of wealth, even if household main residences comprise only a minority of assets of the top 10%, the assets of the latter are so enormous compared to those of everyone else, certainly beyond a certain point, that they would still be paying the local property tax disproportionately. Even though it is not progressive in the sense of income, it is, in a perfect sense, very highly correlated with income. Our feeling on the local property tax was that there were only two flaws. One was that populism and a lack of strength at local authority level were leading it to being undermined and debased. This was leading to the second problem, which was that it was way too low. Of course, the issue is the political economy. The property tax is so politically toxic at elections, even though it is so modest by comparison with income tax or VAT. Given what a renter is paying every year by comparison with the local property tax, it is a joke that-----
Neasa Hourigan (Dublin Central, Green Party)
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It is often the renters who would benefit from the services that would be cut because of the cutting of the local property tax.
Neasa Hourigan (Dublin Central, Green Party)
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However, in fairness to councillors, when so many powers are removed from them, those powers that are left bear more weight than they otherwise would.
Dr. Tom McDonnell:
So the answer is to give them more powers and perhaps retain the ability to effect an increase. There was a practicality issue. The local property tax is also fair from a vertical-equity point of view because a land tax can lead to circumstances in which a six-storey high-rise on a plot right beside a little cottage would be paying the same as the latter. Therefore, there can be issues. Issues also arise over affected shops being pushed out of gentrified areas, for example. These concerns arise. There are issues with a site value tax. It is not perfect in the sense I have described although it may be perfect from an economic-efficiency point of view. We felt the local property tax and site value tax were both extremely good concepts – from both equity and efficiency perspectives – and that they could stand together.
To answer the question of Deputy Boyd Barrett, a vacant site surcharge could absolutely live beside a site value tax. Indeed, that is pointed to in the commission's report. To go further in responding to the question, if a land tax and property tax were set significantly high enough, the issue of nationalisation and so on would not matter in that one would effectively be soaking them as much as possible, allowing for expenditure on universal basic services, nationalised education and health or income transfers, or reducing taxes in other areas. Therefore, we felt it was important that both taxes should come into being over the medium to long term and that both should be a very significant part of the overall tax arrangement.
Neasa Hourigan (Dublin Central, Green Party)
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Dr. McDonnell has somewhat answered my next question in commenting that commercial rates are broken. Would any of the delegates like to elaborate on that in the context of what we can do to expand the tax base?
Dr. Tom McDonnell:
Yes. Essentially, commercial rates are a residual at the moment. They are basically used to fill the gap because we are not willing to increase the local property tax. To provide services, we increase commercial rates. Often, businesses do not find out what their rates are until quite late in the day. It is an extremely non-transparent system.
While moving to taxing the land itself might seem to be taxing the landlord, the tax would in many cases fall on the business owner anyway. Therefore, I would not want people to perceive business owners as getting away with it; they would be still paying, but just not directly. The tax has not been effective and is not transparent. The rationale for a land tax is superior to that for commercial rates because the latter does not dissuade people from generating productive assets on sites, for example, but does dissuade people from engaging in non-productive use of assets.
Neasa Hourigan (Dublin Central, Green Party)
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Issues that have come across our desk at the Committee of Public Accounts quite a bit are valuation and the questions of who should be doing valuations, when valuations should be done, who should be giving guidance, what the oversight should be and who should be responsible and follow-up if it goes wrong. I believe the Committee of Public Accounts cannot be responsible because it would require full-time members to engage in oversight at the level required. From discussions with representatives of the Department of Public Expenditure and Reform and the Department of Finance when they are before us, it seems that what is expected of groups across several sectors under the public spending code is less than clear.
We have just had a conversation about revenue. Regarding valuation, be it related to a site value tax or local property tax, or something more general if we are nationalising huge swaths of the country, is governance a major concern for those present, many of who are economists?
Dr. Miche?l Collins:
I am a member of the advisory group for the Parliamentary Budget Office. The issue has been discussed by that office because of a request by parliamentarians to have more information that they could use and the costs of various policies and policy reforms. Two, or maybe three, points arise in this regard. One concerns the provision of data. Where there are logjams, which clearly feature in the case of tax expenditure and so on, the matter needs to be sorted. There is probably an issue over transparency of costings when we get them. Inevitably, assumptions are made as to how high or low something is or what it is going to cost, so maybe we are talking about bands of costs rather than an actual number. The third issue is probably personnel. It is time-consuming to do these things. If we are going to weave them into our policy discussion, which we should and which I can see this committee wants to do when it is engaging on particular issues, we will need to provide more resources to the Parliamentary Budget Office or relevant individuals in the Department of Finance, the Department of Public Expenditure and Reform or elsewhere so as to be able to produce the outputs. Some of the time, we are not.
Neasa Hourigan (Dublin Central, Green Party)
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This seems to be a similar conversation to the cost-benefit analysis we do on particular projects. I refer to whether the time horizons are correct or the people undertaking them have the right sense of what is being asked of them. It seems that valuation sits into this area. It is hard to make decisions about anything if it is not felt there are enough data or that the correct data are available.
Dr. Miche?l Collins:
Yes. My experience with the parliamentary budget office, PBO, is that it has been making great strides in this regard. If anything, it is probably being held back by the need for more staff. There is enthusiasm to begin to figure out how to do these things better and more comprehensively. When we look at similar organisations across the world operating in these parliamentary spaces, it is interesting that the norm in more and more parliaments is for better figures to be available to parliamentarians for their decision-making. We must simply invest more in this area.
Neasa Hourigan (Dublin Central, Green Party)
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At the beginning of this Dáil, we did a session on talking to representatives of other PBO-style organisations and budgetary oversight groups. We certainly got the impression that there is much more information available to some groups than we have here. Regarding the capital acquisitions tax, and perhaps inheritance tax, considering that I just outlined we have done some work on looking at international precedents, are there other EU countries we could look to in this regard that are doing a better and more equitable job? I refer to inheritance tax in particular.
Neasa Hourigan (Dublin Central, Green Party)
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Or on inheritance tax?
Neasa Hourigan (Dublin Central, Green Party)
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I presume it is a politically difficult conversation to have in every country.
Dr. Martina Lawless:
Yes. There are differences in the tax base. One thing I do know is that the UK has a system where the entire estate is taxed before it is divided among the beneficiaries. We have a system whereby the estate is divided up first and the tax-free element is then allocated per beneficiary. In that regard, there can be differences in how-----
Neasa Hourigan (Dublin Central, Green Party)
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It is not done by lump sum, but by-----
Neasa Hourigan (Dublin Central, Green Party)
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Okay.
Neasa Hourigan (Dublin Central, Green Party)
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Regarding the commission itself, and I notice our members are starting to return, should we have a commission on taxation operating more often? For example, should it be at intervals such as 2008 and then 2022, or should it be a standing commission?
Dr. Miche?l Collins:
I am happy to come in there. The 2008 commission happened only because a particular political party wanted it to happen and made it happen in a programme for Government. There was, in fairness, more agreement across political parties regarding this instance. I think we should have a rolling commission or body looking at this subject. To some degree, this committee is plugging a hole-----
Neasa Hourigan (Dublin Central, Green Party)
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God help us all.
Neasa Hourigan (Dublin Central, Green Party)
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It was 1985-1986, then 2008-----
Neasa Hourigan (Dublin Central, Green Party)
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Okay.
Dr. Miche?l Collins:
This is not to say that welfare was not looked at in between. There were various other endeavours, and I was involved in some along the way. Every commission is different because it is sent off to hide away and work by itself, and given the resources to come up independently with a set of views. Given the scale of what we do as a society and the structure of our governance, welfare and taxation are huge matters. When they fall apart, as we saw for the taxation system when it fell apart as the economy crashed a decade-and-a-bit ago, we end up with significant problems.
It is not quite as bad now, but we are in a shaky position where an unexpectedly large amount of taxation revenue is flowing from one area, which everybody accepts is not sustainable. We perhaps have not had the required discussions regarding what would happen if this source of revenue were to fall away suddenly and how we would replace it. There is real merit in doing this and in giving the time to this endeavour. If a commission is not established on a rolling basis, then perhaps it could be stipulated that one would sit every three or four years. This would differ from being dependent on the temperament of political parties in respect of making it happen.
Neasa Hourigan (Dublin Central, Green Party)
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I thank Dr. Collins. I call Dr. Healy.
Dr. Se?n Healy:
We have made submissions to and dealt with all the commissions, starting with the first taxation commission in the early 1980s. In this sense, it is interesting to reflect on this context. These commissions have operated in extraordinarily different ways and access to them has varied dramatically. For example, our experience of the previous tax commission was that access to it was much easier and its work seemed to us to be much more open as it proceeded compared with the more recent one which was quite difficult to access and that had what I would consider as a screen of civil servants between it and us. When we asked to engage with this commission, it was the secretariat - civil servants - who talked to us. These were civil servants from the Departments of Finance and-or Public Expenditure and Reform, or wherever the people who talked to us came from. We never got to meet with or speak to the members of the commission itself. I am referring to the most recent commission, whereas we did get to meet with and speak to the members of the previous commission.
Neasa Hourigan (Dublin Central, Green Party)
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The inference here is that if such commissions were held at a five-year intervals, it would be possible to set out terms of reference and a mode of operating that would take some of this-----
Dr. Se?n Healy:
The important thing here is how we can keep these commissions free of political control or regulation. I am referring to "political" with a small P in this context. I am not talking about party political manipulation. I am talking about other kinds of political manipulation. I think there is great value in thinking through the possibility of putting something in a prominent position in this regard. We could then certainly have a situation where it had to be rejuvenated or reconstituted every five years, or something of that nature, to ensure it did not end up getting parked and become another such parked operation that we end up hearing about once every few decades or something like that. We must certainly get away from that approach.
The other aspect I thought was very good this time, in theory, though how good it will prove to be in practice we will see, was the issue of integrating the tax and welfare systems. These are two critical issues. I echo the point made by Dr. Collins that these are two major elements. They are also two extremely interconnected issues. Issues are also now emerging that were not there before. While there was talk about and initiatives concerning benchmarking welfare payments, it now seems to be on the agenda more. There is also, however, fundamental disagreement about what this means and what these payments would be benchmarked against. Would they be benchmarked against something like wages or against the cost of the goods and services that people need to live with some dignity? There are, therefore, these kinds of issues, and this is not just confined to the issue of welfare. It goes for taxes as well.
Neasa Hourigan (Dublin Central, Green Party)
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When we did the report on indexation here, one of the clearest lessons learned was the link between tax and welfare.
Neasa Hourigan (Dublin Central, Green Party)
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I thank Dr. Healy. That is interesting. I call Dr. Collins.
Dr. Miche?l Collins:
The National Economic and Social Council, NESC, gives us a good model for how to undertake the remit referred to. I refer to an organisation similarly structured where, as the various commissions have done, different groups of people would be brought around a table. If I am correct in my understanding, the membership of the NESC changes over time. It is not static-----
Neasa Hourigan (Dublin Central, Green Party)
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Okay. That is very interesting. I call Deputy Durkan.
Bernard Durkan (Kildare North, Fine Gael)
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I thank the Chair. I had to deal with a vote in her absence. We are paired for the next one.
I have listened carefully. The more I listened, the more alarmed I became. One thing that I have learned about politics and taxation over the years is that when politicians get together to decide where taxation should be applied at great levels, they invariably select the area that does not affect their own constituency or electorate. Nothing has changed and things continue as before. I was listening with some interest to the recommendation on land zoning. There were three reports, the Wright report, the Kenny report and the McKinsey report, which dealt with the issue. One was about shifting huge populations, such as when building Tallaght, and so on. They varied. The theory behind the Kenny report was to make land available for as close as possible to cost in order to build houses. Many houses were built in the meantime which that did not apply to. There were many houses where the zoned land was available at an affordable price, but it escalated. When the purchaser went to buy, the scarcity of the product dictated what the price was going to be.
I am fond of Deputy Boyd Barrett. If were to apply some of the principles that he is talking about to my constituency and other constituencies throughout the country, however, there would be devastation. When a property tax was applied to the wealthier areas of Dublin some years ago, it had to be removed. I remind the committee that this is not what it might seem. There are some who are looking for options to apply more taxation to certain people, but hopefully not to themselves. I spoke previously about a wealth tax and its benefits.
I will deal with the concept of a wealth tax. There seems to be some intention to drive people with wealth out of the country. That is an agenda that people are entitled to have, but they know what the consequences of it will be. They cannot force people to remain in the country if they intend to apply a taxation regime. Such a regime is only palatable in somewhere like North Korea, for example. I heard a politician, who is still in the House, mention, at a committee meeting a couple of years ago, North Korea as being the only place that had a regime that was to his liking. The person in question knows who I am speaking about. I would not have mentioned him otherwise. I worry about committees deciding, from the committees' vantage point, what will apply to the greater community outside. They will invariably select the areas that are most beneficial to their own electorate and that will have the least negative impact on themselves.
At the beginning, we were having an adult conversation about property taxation. I have been in this House for a long time. I know that there are consequences when people deviate from their course and involve themselves in a small committee that makes recommendations which cannot be challenged in the House proper. My reason for mentioning this is that I remember, a few years ago, when something happened in the Joint Committee on European Union Affairs that was not to our liking. We discovered that the matter had not come before the committee. Under questioning, the culprit said that something occasionally gets through. Of course things occasionally get through, but they are supposed to. We discussed whether democracy was supposed to apply and so on.
The final point I want to make goes back to the 90% rate. The Chair mentioned that too. It could be ideal for the Chair's constituency and would solve the nation's problems. In my constituency, it could cause havoc. While I have no intention of causing havoc in anybody else's constituency, I would like to feel that whatever I do would be done in a fair-minded manner so that we could get the best we can from it. I am not just saying that because I live in a constituency that has Intel and other large corporations. The fact is that we need these people here. If we run them out of the country or frighten them, as happened in the past in the context of some taxation elements, and if we want that devastation, then so be it. My advice is to be careful. We are going down a tricky road. I know that people on the committee will throw their eyes to heaven and say, "There he goes again." I do not mind. I have no problem with that.
When I was a member of a local authority, I saw individuals who happened to leave near a town be penalised by virtue of the fact that they lived in such a location because they had to give their property up to charity or the community. That would not happen in another area. If that was in the centre of the city, the owner would have been paid. In these cases, however, a certain amount of moral pressure was applied in a way that I would not agree with. My attitude is that if there is some little old guy or lady who has a cottage with a few acres, at the end of the day, it will come down to them. I have always said that they are entitled to their day in the sun, whenever that may be. That is their own property. It is only small. We need to think carefully about how we might lambaste such people in the future, which I have seen happen.
Neasa Hourigan (Dublin Central, Green Party)
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I will ask the witnesses if they would like to comment.
Bernard Durkan (Kildare North, Fine Gael)
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I am anxiously awaiting their response.
Neasa Hourigan (Dublin Central, Green Party)
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The Deputy threw in a lot there, including the possible exodus of high earners from the country.
Dr. Miche?l Collins:
I will pick up where Deputy Durkan began. I agree that one of the challenges is that we tend not to discuss these issues. They are uncomfortable to discuss. The opening recommendation of the Commission on Taxation and Welfare is particularly telling. It is that the road we are on, to use the Deputy's phrase, is one where we will simply have to raise additional taxes in the decades to come. Therefore, it is a question of how we do it rather than if we will do it. There is one "if", which is that we could significantly cut public services and welfare, which would be an option, but-----
Bernard Durkan (Kildare North, Fine Gael)
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I strongly object to that kite-flying nonsense. Dr. Collins knows full well that that is rubbish. He should not be coming before the committee and addressing it in that fashion in the context of policy.
Neasa Hourigan (Dublin Central, Green Party)
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Deputy Durkan-----
Bernard Durkan (Kildare North, Fine Gael)
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I strongly object to that kind of speech.
Neasa Hourigan (Dublin Central, Green Party)
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Deputy Durkan might try to moderate his language.
Bernard Durkan (Kildare North, Fine Gael)
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I am not going to deny speaking time. I am just saying that I object.
Dr. Miche?l Collins:
I agree with the Deputy's critique. I do not think we will have that issue. That is clearly not the pathway that anybody in this society wants to take. The pathway we are on is one of raising more taxation revenue somewhere. That is where we have to begin to consider things. If we do not, we will simply end up collecting more income and consumption taxes. Maybe that is the route to take but that has significant negative consequences for living standards, through consumption taxes, and for work incentives and participation, through income taxes. To avoid the default, we need to think about the options. There is a welcome set of options. I agree with the Deputy that these are difficult choices.
Bernard Durkan (Kildare North, Fine Gael)
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I will carefully monitor the choices that the witnesses come up with.
Dr. Tom McDonnell:
One of the considerations was to see what was possible to shake from the tree given that first recommendation and our understanding of the demographics. Just transition has to be paid for. There will be other calls over the next ten or 20 years. We need a significant increase in revenue yield.
The question is how to do that while minimising damage to the economy and doing so in a way that is fair and equitable. We did not emphasise increasing labour taxes on higher earners. We instead looked at capital stocks.
With regard to Intel, none of the suggestions we talked about today would necessarily affect Intel's business to any greater extent. A land tax on Intel's land would not be particularly valuable. Given the type of model we would use, that is, some sort of hedonic regression model, it would not affect Intel particularly greatly at all.
Bernard Durkan (Kildare North, Fine Gael)
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That is not true. It is already a heavy taxpayer in the sense that it pays rates to the local authority, one of the highest rates in the county. That has been the position for many years. Would that company have come to this country if it thought we were going to get it in this way? In the first instance-----
Neasa Hourigan (Dublin Central, Green Party)
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I might let the witness come back in. I remind everybody not to name particular businesses.
Bernard Durkan (Kildare North, Fine Gael)
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I was not naming it in any derogatory fashion.
Bernard Durkan (Kildare North, Fine Gael)
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I was praising the business.
Dr. Tom McDonnell:
The point I was making is that it would probably end up paying a lot less in a land tax than it would in commercial rates. If anything, it might have the opposite effect. I do not believe that the types of policies being discussed here today around capital acquisitions tax, capital gains tax, local property tax and site value tax would have any meaningful impact on the FDI sector at all. We dealt with that in a different chapter. None of the topics we have talked about today would have a negative impact on Ireland's capacity to-----
Bernard Durkan (Kildare North, Fine Gael)
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Why was the wealth tax we had some years ago abolished?
Bernard Durkan (Kildare North, Fine Gael)
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There was a tax that also applied to people's wealth, hence the name. It was about wealth. If we want to target people who have wealth, we should put out the word and say that. Let us see what happens then. It is a dangerous route to go.
Neasa Hourigan (Dublin Central, Green Party)
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We are going to move on to Deputy Healy-Rae.
Michael Healy-Rae (Kerry, Independent)
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I thank our guests very much for being here today. I promise I will try to be as brief as possible. People of a differing opinion when it comes to issues like taxation know that when I speak against their viewpoint, it is the same as it is in life in general. If we were all the same it would be very boring. Everybody knows my feelings on Deputy Durkan. I hold him in nothing but the highest of esteem and 99% of the time I think he is actually right. It is frightening sometimes how right he is. He is right about frightening off people with wealth and people who want to create wealth. I hate naming people so I am not going to say who but I often hear other Members say it is no harm to tax people with multiple properties, as if they are doing something wrong. There is a very important place for people who are at that type of business. I will give an example. I am going to tell a true story about this morning. In telling this story the committee will realise the type of people they are. Before 6 o'clock this morning I had a very lengthy conversation with a person who creates a lot of employment. He is in County Kerry. Directly and indirectly, 500 or 600 people get paid from his office every week. He is a serious player in County Kerry in the provision of housing, in the provision of product and in doing work on the ground. He is a young enough person. He was talking to me about housing and he said that even the voluntary housing agencies will tell us that right now is not really the big worry. The big worry is next year because there are no plans being put in place at present for developments for next year. I am talking about public housing. I am talking about the provision of public housing through either local authorities or voluntary housing agencies. On Monday I met with our local authority. I have a briefing here for Oireachtas Members and there is a housing section in it. I have studied very carefully what our local authorities are doing. To be honest, we are doing our best. Our housing authority in Kerry, as far as I am concerned, is better than anywhere else but it will not be anywhere near being able to make inroads into the housing needs we have in County Kerry.
Then we have to look at the private side of it. Is anybody seriously trying to tell me that any developer is going to come along now and buy a field, get planning permission, build houses on it with the cost of the material, and then rely on people being able to get access to the money to buy them? In the meantime those developers will be paying a land tax and will be crippled with tax on what they do. Every type of thing in the world will be thrown at them. There will be people up in the Dáil talking about the developers making money as if they are doing something wrong. They will say nothing about the work they will create or the housing they will create. The funny thing about it is that it is not going to be a problem. People in the Dáil will not have to be jumping up and down about the developers because the developers will not exist. They will not exist because they will have been hunted out of it. There is this perception that if a person is doing something like that, they are a criminal. We hear nothing about the fact that they may be paying tax at 56%, nothing about the fact that they are creating employment and places for people to live.
All of those people are giving us politicians an answer now because they are leaving what they were doing. People who were in the private rental sector are giving it up. They are walking away from it and they are not going to have anything to do with it. Can anyone actually envisage anyone in Ireland today buying a new apartment or a new house and deciding to rent it out? Not in a million years. Why is that? It is because the Government has hunted them out of it. These people have had people jumping up and down inside in the Dáil ridiculing them and talking as though there is something wrong with them. The people in the Dáil might have good intentions buy, my goodness, it is having the exact opposite effect. I know some of the people who spoke here this evening and some of the people in other parties in the Dáil. They are nothing but genuine and well-intentioned but I ask them to please look at what they are doing. It is turning people off. There are people who own property who are saying the sooner they can get out and sell their place, the better because they do not want to be stuck in this racket any more. What good is that going to do? The State is not going to be able to provide the housing.
I am sorry - is the Chair going to stall the meeting now because of the vote in Dáil?
Neasa Hourigan (Dublin Central, Green Party)
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I might ask the witnesses to make any comments they wish to on the Deputy's contribution and then we will adjourn.
Michael Healy-Rae (Kerry, Independent)
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I am in Agriculture House so I have to take off running now. I am fast but not that fast.
Neasa Hourigan (Dublin Central, Green Party)
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I am sure the Deputy is like a greyhound.
Michael Healy-Rae (Kerry, Independent)
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I am not Sebastian Coe.
Neasa Hourigan (Dublin Central, Green Party)
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Is it okay if I allow the witnesses to respond?
Michael Healy-Rae (Kerry, Independent)
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You can but I will miss the vote. I am going to have to go. Can we come back to this again?
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I can come back but I feel sorry for the witnesses. It is up to them really.
Neasa Hourigan (Dublin Central, Green Party)
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We will suspend briefly.
Neasa Hourigan (Dublin Central, Green Party)
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I will return to Deputy Boyd Barrett, who left for a previous vote with a question hanging. Would the Deputy like to reiterate the question or merely go to the witnesses?
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Dr. McDonnell wanted to respond to the questions about nationalisation rather than dealing with all of the complexities. I put it to him that it was a better way to go about it to try to get that land back and to try to prevent speculation, hoarding and people making money off land from doing nothing. I would be curious to hear his answer.
While I have the microphone, I think it was Dr. Collins who was talking about the property tax and essentially defending it, albeit he was saying we could maybe tweak the existing property tax in some way. The way I look at it, we replaced what was a progressive income-related form of taxation with a potentially regressive type of taxation in many cases. When it was centrally funded, it was coming from income taxation, whereas when local authority funding then became based on people's homes, it did not take into account their income. To me, that is the replacement of a progressive form of taxation with a regressive form of taxation. The amount of income that local authorities receive has not changed at all because they removed, euro for euro, all of the block grant funding that local authorities had and replaced it with the local property tax.
Nothing has changed. I would contest the idea that it has brought people closer to the local authorities and made the local authorities more relevant. I do not think that is how people feel on the ground about the local property tax. I put that to Dr. Collins.
Neasa Hourigan (Dublin Central, Green Party)
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We will go to the witnesses. When we finish with that part, we will go back to Deputy Healy-Rae's contribution. I call Dr. McDonnell.
Dr. Tom McDonnell:
Rather than nationalising land, areas to look at would be universal basic services, and I am on the record as referring to things like education, health and so forth. I see a much stronger rationale there. In terms of land tax specifically, that would be my preferred way to go. Of course, the recommendation here is very broad. There is no recommendation here about how modest it would be, how extensive it would be or what the yield would be. The only recommendation is that it should yield more than commercial rates, which is €1.43 billion. Overall, the sense here is to tax the property, tax the land, tax the wealth, particularly when it is in those stock forms, which are the forms that cannot escape over the border.
In terms of the local property tax, I agree that it is not purely progressive in the sense of income tax but it is highly correlated with income.
There is no doubt but that because the top 10% have 54% of all wealth, their stock of property assets is much higher than it is for the other nine deciles, and then down the line. It is, therefore, broadly progressive from that perspective in wealth terms. In its impact on local democracy, I agree that that has not happened and that we need much stronger local government in Ireland. Currently, the band within which councillors can decide a particular rate is very narrow but if the ceiling was taken away, then one could potentially have very different outcomes from council to council. It might then perhaps become a much more meaningful choice. That is how I would approach that perspective of it and I believe the Deputy had other questions for Dr. Collins. I would answer that question, therefore, by saying that we need more taxes on wealth. This is a very important way of going about it; between the inheritance and capital gains tax reforms, and local property tax being very significantly increased, as well as the introduction of a land tax. Those in combination - together with a capital charge, which is the modest charge on all inheritance and gifts being transferred - cumulatively would move the composition of the tax base away from other sources, including consumption, towards capital stocks. That would achieve much of what we would be trying to achieve. It would be good for the economy overall in terms of the compositional shift and would be more equitable and sustainable. I agree there are issues around valuation that would be a problem for a land tax at the beginning. This is one of the reasons why this would be more of a medium-term to long-term proposition.
I am unsure if that answers the question but that is how I would come at it in the first instance.
Neasa Hourigan (Dublin Central, Green Party)
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Okay, does anyone else want to come in here?
Dr. Miche?l Collins:
I will come in on the property tax issue, for the Deputy. First, when money comes from the Central Fund, it does not just come from income tax. It comes from income tax, which is progressive but it will also be coming from the other big area of taxation, namely, consumption taxes, which are regressive. There are also other tax sources. We should also remember that income tax should not pay for everything. One of the best comments I have heard around that was by economist, Colm McCarthy, I believe, who made it when speaking on this topic some years ago at a seminar where he said, rather succinctly, that the idea of a local property tax was that it was not a tax on income but was one on houses. We were taxing something different, which is the logic of it, which is that it should be falling on houses and not necessarily on income.
It is not intended to be completely progressive. It does a reasonably good job at progressivity although I accept that there are some deviations, in particular, between people who are income-poor and asset-rich. One critique I have of the system is that we do not use enough deferral options and they are not made available enough to people who may need them and who cannot pay. The State should be able to absorb those and for the liability to arise either from estates or from transfers, when they arise.
This could become more progressive and there is potential for reform to enhance the progressivity of it. We should not stop trying to look at that either. I hope, over time, that this is the direction in which we will go. One of the discussions which we also had in the Deputy’s absence was on how I would have hoped that over time, as the local property tax revenue would increase, that this would bring further strength to local democracy, as well as further debate at local level on how we are using these resources, why we are collecting them and what the best way is to spend them in our local area to benefit that area. Currently, that debate tends to be much more dominated by commercial property interests rather than by household interests.
Neasa Hourigan (Dublin Central, Green Party)
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Okay. I call Deputy Healy-Rae to speak as he was interrupted.
Michael Healy-Rae (Kerry, Independent)
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I just have to say something about this when one hears people talking about imagining new ways of taxing and further taxing. Does anybody believe that people will say that they are being taxed out of existence? I will give an example of the residential zoned land tax, how wrong it is and how it will completely backfire and will blow up in the faces of the people who thought it was going to be a good idea to bring it in. Again, it was not thought through.
I will give the committee examples. There are farmers who own land on the edge of a towns or villages. They are now being told that they must pay 3% of the value of that land if they will not develop it. These are people who are farming, are milking cows and who will not sell to developers or to anybody. As I told the committee before, the developers will not be there to buy in any event and will not do it because the politicians have ensured that that business is completely gone, kaput and finished.
I never got to finish the point as to what happened this morning. It was highlighted to me in the strongest possible terms that next year is going to be the real crunch. While I have nothing but respect for the Minister for Housing, Local Government and Heritage and for people who work in the Department, does anybody see what is happening next year? The plans are not proceeding now to ensure that the projects will be shovel-ready, that the planning will be granted and that everything will be put in place. Next year, as far as I am concerned, we will fall off the edge of the cliff altogether when it comes to providing roofs and homes over people’s heads, whether they are privately-owned, owned by the voluntary housing associations or are any other type of local authority housing. We will very much fall short.
This will result in the situation where politicians like me and others will be meeting people who will be in a desperate situation, as they are already. I have seen this whole business of dealing with people looking for accommodation change greatly even in the past two years. It has changed in a frightening way. The number of people who do not have a home or what I would call an affordable accommodation in any shape or form, is frightening and beyond belief. Politicians who are doing clinics must all be getting the same message. I would love to be able to say that we have a solution but then I listen to people talking about a new or another way of taxing. One can only tax people to a certain degree and they will then stay at home, will keep their brains dormant and will not put their hands to work in the creative way they could because they will ask why would they want to bother. That is what is happening now. We have shot ourselves completely in the foot.
There are then people who are jumping up and down. Inside in the Dáil, for example, there are certain people who create a great deal of employment but the only time their names are ever mentioned there is in a derogatory way, where people say that so-and-so creates employment and might have money. There is absolutely nothing wrong with that. There has to be a place in society for everybody. We need people who will come into Ireland, we need foreign investment here and we do not want to frighten people away from here. Some people, from the time they get up in the morning, seem hell-bent on turning these types of people off. I will say no more about it as I believe that the committee knows my views at this stage.
Neasa Hourigan (Dublin Central, Green Party)
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Okay, I thank Deputy Healy-Rae. I will give the witnesses an opportunity to comment, particularly on the question of over-taxation, if there is such a term?
Ms Colette Bennett:
I thank the Chair very much. I could not agree more with the Deputy on the escalating numbers of people who are in need of accommodation, whether that is a home at all, in respect of the numbers of people accessing emergency homeless accommodation or whether that is people who are in unaffordable or overcrowded accommodation. That is an issue which needs to be addressed.
There is this overarching objective which we need to bear in mind when we talk about this report and that is what we need to deal with. The Deputy refers to over-taxation but that tax goes into the Central Fund, which is then paying for services and infrastructure, as well as things like the emergency accommodation the 10,500 people are accessing and the social housing that needs to be built, maintained and retrofitted. There is an important connection which we need to bear in mind at all times between taxation and the public services which we get.
On the disincentive to buy land, we again need to have some clarity around the fact that there is no new land and that this land exists. For example, we have over 40,000 planning permissions which are ready to go but are not being activated.
Measures such as a site value tax or the recommendations in chapter 14 on land and property act as an incentive to use the planning permissions that are in place and to create the homes that are desperately needed.
The Deputy spoke about zoned land. Again, it is the tie-in between the public and the private. The majority of the infrastructure around the zoned land and its uplift in value is paid for by the public purse. There needs to be a benefit in kind in terms of a reciprocity so that you use it or you pay for it. That makes a more equitable system overall between the taxation and the property sides.
Neasa Hourigan (Dublin Central, Green Party)
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We will go to Deputy Patricia Ryan now. Sorry for the wait.
Patricia Ryan (Kildare South, Sinn Fein)
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That is no problem. I was in and out so apologies to our guests and to the Chair. It has been one of those evenings so if I am being repetitive, I apologise in advance.
Keeping with housing, recommendation 14.7 states, "The Commission recommends that tax incentives should not be used in order to stimulate the supply of housing". What are our guests' views on this? If not tax incentives, what would they recommend to stimulate housing supply?
Neasa Hourigan (Dublin Central, Green Party)
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I do not know who would like to take that.
Ms Colette Bennett:
I will start this but I think Dr. McDonnell may come in then. Yes, this recommendation really revolves around things like the help-to-buy scheme. The recommendation was for it to be terminated at the end of this year. That was the proposal. In fact, it should have been terminated a couple of years ago but it has been extended for another two years. That recommendation was on the basis of a lot of research that many organisations have been involved in, including the Parliamentary Budget Office around its impact. We see it creating a situation where it goes towards properties at the mid- to higher-end of the price scale so that it is artificially maintaining those prices. Because it is going to properties in that kind of bracket, it is being used by people in the higher earner brackets so it is highly regressive. It is the same kind of thing with the affordable home equity scheme. Because it is artificially increasing the amount that people can pay for properties and not the affordablity, it is over-stimulating the market. We have been here before and seen the impact. What it results in, when there is a crash or when there are income shocks, is negative equity and over-crowding. That is why we need to move away from that and into things that are more progressive and consistent, such as a site value tax.
Dr. Tom McDonnell:
I agree with everything Ms Bennett said about help to buy. It was close to the top of our minds that it is inequitable, it increases prices, represents a high level of dead weight and the cost. It is true for so many tax expenditures generally. It was informed by the view that tax expenditures should be used only in extremis where it is impossible to rectify a structural market failure through any other means. Research and development would be the classic example which is structurally under-produced by the market and another would be the cost of greening the economy and those types of tax expenditures where there might be an argument for temporary, timely expenditures and so on.
Classically the affects of using these tax incentives have been quite negative. They have distorted incentives in the economy which have diverted capital from more productive uses. Overall, short-term reactive tax measures should not be used to tackle cyclical housing challenges. Rather, we should recognise the housing crisis as something that requires a different set of solutions. To the extent that affordablity is an issue, we advocated that welfare measures were better than tax incentives because they are based on needs assessment, are better targeted and so on. Obviously that is a patch. The actual fix is about housing supply over the medium to longer term and structural reforms in the state provision of housing, development of cost-rental models and cost of land which a site value tax would help with, as would a vacant site tax if done properly. It could also be dealt with by other means such as reforms in planning and regulation, access to credit and helping the private sector. Using tax expenditure, in our view, was a mistake and remains a mistake.
Patricia Ryan (Kildare South, Sinn Fein)
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I am aware it is late so I will just ask one more quick question. Can I ask for some views of the recommendations regarding taxes on retirement savings in chapter 8?
Neasa Hourigan (Dublin Central, Green Party)
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I might ask Dr. Collins to come in first on the question before the last one and then move on to the last question.
Dr. Miche?l Collins:
If one could go anywhere in the world and write a book on using property tax incentives to see what happens, this is the country to come to. We have tried loads of them over the years and the moral of the story is that they do not work. In fact, the other moral of the story is that they tend to cause other problems that have to be sorted out and cleaned up. That probably explains what the commission said in its report. Going back to the report of the previous commission which was written following the collapse of the property market after all the other tax incentives that had fuelled much of the ill-judged behaviour in the property market, again it gave a very strong warning: do not do this again. It is a very populist thing to do. It is a very easy thing to get one's head around. It seems to keep coming back but some of us have to keep saying again and again that they do not work. We really do need to come up with more sophisticated ways of addressing those issues.
I will comment briefly on the other question on retirement savings. What strikes me is the sheer volume of cost the State is incurring in supporting these measures. As this goes on, we do need to begin to ask ourselves whether this is the best thing for us to do or are there alternatives that would either decrease the cost if we want to continue the current private pension provision system in parallel with the state pension or do we go the route of somewhere like New Zealand which abolished its tax breaks entirely, gave a universal pension and enhanced it for everybody? There are very significant resources here. It is significant that the commission's report gave an entire chapter to just one area of tax expenditure. It is telling because of how large it is and how badly it works given the policy objectives we, as a society, currently have.
Neasa Hourigan (Dublin Central, Green Party)
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Does Deputy Boyd Barrett have any thing else?
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I think we have had enough.
Neasa Hourigan (Dublin Central, Green Party)
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The Deputy will take pity on our guests. That is the best way to end. I thank everyone. It was an interrupted session and we have been here for quite a while now. I always appreciate witnesses attending in the evening because I know it can make for a late night.