Dr. Bert Brys:

In the current debate on windfall taxes, there is often the dimension that certain businesses are making windfall gains because of energy prices and so on. That is another topic. That is not part of the chapters we are discussing so let us move away from that. On the concept of windfall gains, that is a gain that someone gets as a windfall so there is a good argument to tax that. That is why countries have a capital gains tax, ideally with a broad base, and aligned with a lot of the recommendations in the report by broadening the capital income tax base. Perhaps that could be linked to the second question. If there are follow-up questions I would be happy to deepen the argument. It seems to us a good approach to broaden tax base. I want to put that in the broader context of Ireland's tax system. There are particular elements where the base can be broadened. Let me take a step back and look at the broader context. Looking at the design of many elements, personal income tax, supports, VAT and income support for low-income groups, Ireland has made an interesting choice of having on the one hand a very low tax burden on low incomes and a not-so-low tax burden on middle incomes, or even a bit before they might be considered middle incomes and then the higher incomes in particular non-labour incomes. The tax burden is for higher incomes, not particularly low but it is very low in international comparison for low incomes. That design in itself can result in reaching the equity objectives you want to achieve. However, it comes with the challenge that certain provisions targeted at low incomes are tapered out when income rises, which can possibly disincentivise people from working longer or more, entering the labour market or staying in the labour market. There are some disincentives there. That is a particular choice Ireland has made. Linked to that, there is not only that particular choice on the income tax side but a particularly narrow VAT base. We have a lot of reduced rates and a narrow base also there with a lot of equity objectives.

The report touches upon elements of this with suggestions. We have been discussing what we would recommend in support of what is included in the report. The report calls for more analysis and a distributional analysis of the impact of certain base-broadening measures that are suggested. More analysis using actual household budget survey data and calculating through what the distributional impact would be of certain base-broadening measures would be very welcome as part of any future reform on the indirect tax side to broaden the base.

The report focuses a lot on base-broadening on the capital income side. A key element that we wanted to flag, and we have already touched upon many issues, is to use the opportunities that the automatic exchange of information brings for tax administration. We know that in the past when a person who was tax resident in Ireland and who had income and wealth in an account offshore and did not report that, Ireland could not touch either because there was no information. That has changed with the automatic exchange of information. Many countries are now implementing this, which means that tax administrations automatically share that information with each other. This represents a great opportunity to broaden the base and strengthen the equity of the tax system.

The report contains many other elements that need to be evaluated. We have spoken a bit about housing, and there are reform opportunities in that space also. As the report refers to looking more at intermediaries and the possibilities there in terms of the differential tax treatment between direct savings and savings through intermediaries. That is an area where more analysis would be welcome. In particular, what we focus on is that there might be a lot of arbitrage opportunities still within the regime that allow people to play with the rules in order to minimise their tax liabilities. That space requires and deserves a lot of attention in order to level the playing field and make the tax system less distorted because, basically, if you induce people to change their behaviour towards a strategy in order to minimise liabilities , that creates distortions. At the same time, it allows strengthening the equity of the system.