Richard O'Donoghue (Limerick County, Independent Ireland Party)
Link to this: Individually | In context | Oireachtas source

I ask everyone to turn off their mobile phones and other devices or put them in silent mode.

Before we begin, I will explain some limitations to parliamentary privilege and the practice of the Houses as regards references witnesses may make to other persons in their evidence. They are protected by absolute privilege in respect of the presentation they make to the committee. This means they have an absolute defence against any defamation action for anything they say at the meeting. However, they are expected not to abuse this privilege and it is my duty as Chair to ensure the privilege is not abused. Therefore, if their statements are potentially defamatory in relation to an identifiable person or entity, they will be directed to discontinue their remarks and it is imperative they comply with any such direction.

However, a number of today's witnesses are giving evidence remotely from a place outside the parliamentary precincts and as such may not benefit from the same level of immunity from legal proceedings as witnesses physically present.

Such witnesses have already been advised that it may be appropriate to take legal advice on this matter. Witnesses are reminded of the long-standing parliamentary practice to the effect 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. Witnesses participating at this committee session from a jurisdiction outside the State will already have been advised that they should also be mindful of their domestic law and how it may apply to the evidence they may give.

I advise members of the constitutional requirement that they must be physically present within the confines of the Leinster House complex in order to participate in public meetings. In this regard, I ask any member participating via MS Teams to confirm, prior to making a contribution to the meeting, that he or she is on the grounds of the Leinster House campus. Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, 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 identifiable persons or entities, I will direct them to discontinue their remarks. It is imperative that they comply with any such direction.

On the agenda this afternoon is engagement on tax expenditures, including international comparisons. From UCD, I welcome Dr. Micheál Collins, assistant professor, school of social policy, social work and social justice. From Trinity College Dublin, I welcome Dr. Barra Roantree, assistant professor, school of economics. I also welcome the witnesses from the Tax Expenditures Lab, who are attending remotely: Mr. Flurim Aliu, fellow with the Council on Economic Policies, and Dr. Christian von Haldenwang, senior researcher with the German Institute of Development and Sustainability. The committee welcomes the opportunity to engage with the witnesses. I thank them for being here today.

I invite Dr. Collins to make his opening statement.

Dr. Micheál Collins:

I thank the Cathaoirleach and the other members of the committee for the invitation to make a presentation to them on the topic. I am an economist and assistant professor of social policy and head of social policy at UCD. I was a member of the 2008–09 commission on taxation and, within that commission, chaired the subgroup that examined tax expenditure. As a researcher, I am part of an international research group focused on the links between taxation and social policy and within that I focus on the often hidden role of the State in using the taxation system to encourage and support certain activities among individuals and corporates via tax expenditure.

I welcome the decision of the committee to return once again to the topic of tax expenditure. The committee’s previous work in this area has been very effective and has played an important part in strengthening parliamentary oversight, and societal understanding, of this important area of budgetary policy. The focus of the committee on tax expenditure, combined with the focus of numerous witnesses and the work of the Parliamentary Budget Office, PBO, and the Commission on Taxation and Welfare, has driven significant improvements in recurring information from the Department of Finance and the Revenue Commissioners on this issue. While some gaps remain, a point I will return to, I believe the committee should consider how best to use this new and recurring information to further enhance the parliamentary oversight of tax expenditure.

It might be useful to put the scale of tax expenditure in some context. The tax expenditure report accompanying budget 2026 referred to 117 tax expenditure measures. Of these, 92 have available costings, and these totalled almost €8 billion in annual revenue forgone. This total is based on a list of tax expenditure measures agreed between the Department of Finance and the Revenue Commissioners, measures that they believe are not structural to the taxation system but, rather, have been put in place to incentivise certain behaviour or activities or as a means of pursuing certain policy objectives. Judged against 2024 voted expenditure commitments, that report notes that this annual cost of tax expenditure is greater than the expenditure by each of 13 Departments, much the same as the annual spending of the Department of Children, Disability and Equality, and that only the Departments of housing, education, Health, and Social Protection spend more each year. Judged against the 2024 tax take, and put simply, for every €10 collected in taxation, the State currently decides not to collect an additional €1, which is forgone through the provision of various tax breaks and reliefs.

Consequently, this is a large and recurring area of public policy and one deserving of the ongoing attention of this committee. However, rather than assuming that these measures are all well-targeted and worthwhile, as I believe many are, it is important that there be a robust and available basis for understanding their cost, effectiveness and continuation.

As a means of further enhancing parliamentary scrutiny of tax expenditure measures, I encourage the committee to continue to select a large tax expenditure, or area of tax expenditure, and explore the relevance, effectiveness, distributional implications and recurring costs of the relevant measures given the overall budgetary context. The committee has previously examined the research and development tax credit, although the cost of that measure has more than doubled since, and there is potential to have a similar examination of other measures. I encourage the committee to review the case made in the annual budget and finance Bill, and in associated documentation, for the introduction of each new tax expenditure. The Department of Finance has provided a useful set of ex ante evaluation criteria to assess the appropriateness of new measures. It would be worthwhile for a committee such as this to determine whether the measures as proposed and designed adhere to these criteria.

I also encourage the committee to review the published tax expenditure evaluations that appear each year as part of the tax strategy group papers and budget day documentation. There were 11 such reports published in 2025, for example, including four as part of budget 2026, but it is fair to say that these reports generally get lost in the context of all the measures considered and announced in the budget process. The Department of Finance also provides a useful set of ex post evaluation criteria to assess the performance of these measures. It would be worthwhile for a committee such as this to consider the evidence presented and the recommendations made in these reports. Nobody else seems to be looking at this.

I also suggest that the committee engage with the Department of Finance and the Revenue Commissioners to undertake some further improvements to the information available to the committee, and the Oireachtas in general, when considering tax expenditure measures. These include measures to address some of the data gaps in the annual tax expenditure report. For example, 25 of the 117 tax expenditure measures in the 2025 report have no available cost, or even an estimate of their cost. Some of these may be minor, and the report should be able to indicate this, but others seem large and important. It would be better if this information were available. Examples are the capital gains tax relief for entrepreneurs, the tax relief on pension lump sums and the mortgage interest tax relief.

I also suggest securing a commitment that all future new tax expenditure proposals, or decisions to extend the sunset clause on existing ones, be accompanied by a forecast of future costs, rather than a one-year cost estimate for a multi-year tax expenditure commitment, as provided under current practice. A report from the PBO in 2019 noted that in the UK and Austria, for example, five-year forecasts are standard.

I advocate agreeing to provide the committee with and publish the list of tax expenditure evaluations that the Department of Finance plans to complete each year and agreeing to undertake and publish a review of the measures the Department and the Revenue Commissioners have agreed as part of the baseline taxation system, that is, the tax reducing measures they have determined to be normal parts of the functioning of the taxation system rather than discretionary policy choices. It would be more transparent if the reasons for these classifications were set out and available to the committee and others.

Finally, in previous engagements with the committee, I have highlighted a number of individual tax expenditure measures that I believe deserve examination and reform as they could either enhance fairness or generate additional taxation income.

Rather than restating these suggestions here, I can direct the committee to these earlier suggestions which cover broadening the high income individual restriction, reducing income tax-credits for the highest earners, reforming the tax reliefs on pension savings, abolishing the special assignee relief programme, SARP, for high earning multinational executives, restricting the capital gains tax relief on principal private residences as a way to stabilise house prices and linking capital acquisitions tax thresholds to average earnings.

To conclude, I thank the committee for the opportunity to engage with it this afternoon. I strongly encourage the committee to continue to adopt a recurring and systematic approach to the oversight of these budgetary choices; its work has been most productive to date. Tax expenditures are a hidden but important part of the decisions we make on the allocation of the state’s resources.

Richard O'Donoghue (Limerick County, Independent Ireland Party)
Link to this: Individually | In context | Oireachtas source

I thank Dr. Collins. I now invite Dr. Roantree to make his opening statement.

Dr. Barra Roantree:

I thank the Cathaoirleach and members of the committee for the invitation to speak today. As Dr. Collins mentioned, the Department of Finance estimates that the aggregate cost of the 177 tax expenditures it identified in its report was €8 billion in 2024, and that is just those it has identified. This amounts to around 2% of national income, equivalent to more than half of the total voted capital expenditure in that year and more than the total voted expenditure of all but the Departments of Social Protection, Health, education and housing. We are talking about a substantial amount of money here.

Despite this, tax expenditures are not subject to the same degree of scrutiny typically applied to direct expenditure. We lack even basic information like the number of beneficiaries or the estimated cost of many tax expenditures such as, for example, the €200,000 tax-free pension lump sum which, has of course, an additional €300,000 that is charged at a reduced rate of 20%. We do not know how many people avail of that and we do not know the cost of it, but we do know it is substantial.

There is also a poor culture of evaluation of tax expenditures to assess whether they are meeting their stated objective. Many tax expenditures have never been subject to an evaluation since they were introduced such as, for example, the tax-free pension lump sum, while others have not been subject to any evaluation for at least a decade. The capital acquisitions tax, agricultural relief and business relief are examples in this regard. Moreover, most of the evaluations of tax expenditures that have been carried out are of exceptionally poor quality. Most effectively amount to asking beneficiaries if they would like to continue receiving tax relief or if they would like a little more.

For example, the most recent Department of Finance evaluation of SARP estimated the benefits from the scheme on the basis of the number of jobs employers of beneficiaries reported retaining or employing in response to the scheme. It asked employers of beneficiaries how many jobs were created. There were no checks on this, there was no proper methodology for it and what they did cannot be considered a credible means of establishing the economic benefits of a tax expenditure, many of which exist.

This lack of rigorous scrutiny and weak evaluation culture means we have little idea whether tax expenditures are achieving their stated aims or whether they represent value for money compared with alternative policy measures. This should be of particular concern to the committee given many tax expenditures are uncapped, with the cost highly concentrated among a small number of beneficiaries. For example, Revenue estimates the 782 claims for capital acquisitions tax business relief cost €430 million in 2024. This means the relief was worth around €550,000 on average per claim, and the average beneficiary was inheriting a business worth at least €1.6 million. That is 37 times the CSO’s estimate of the median value of self-employed business wealth. These figures show the relief mainly benefits those inheriting large rather than small or even medium-sized family businesses.

Tax expenditures also pose serious fiscal risks. The Department of Finance acknowledges tax expenditures can narrow the tax base alongside fuelling economically damaging distortions. A clear example of this is the role that property-related tax expenditures played in the 2000s by contributing to both the housing bubble and the subsequent financial crisis. This committee has done great work in previously considering the role of tax expenditures and made a number of sensible recommendations in its reports in 2021 and 2022. While some of these have been taken on board by the Department of Finance in their most recently updated 2024 guidelines for evaluating tax expenditures, others, including the consideration of pension-related tax expenditures as part of the wider reform of the pension system we have going on, for example, through auto-enrolment, have not been taken on board.

The committee might also want to consider the recommendations of the previous Government’s Commission on Taxation and Welfare – of which I was a member – that spent substantial time examining this area of tax expenditures. Among its recommendations which have yet to be implemented are the inclusion of sunset clauses for all new and existing tax expenditures to provide a statutory basis for regular review, rather than the kind of ad hoc basis which exists at the moment; expansion of dedicated economic evaluation capacity within the Department of Finance to work specifically on tax expenditures, and crucially, whose work should be peer-reviewed by an outside body; and third, the provision of forecasts for tax expenditures in annual tax expenditure reports that come out alongside the budget. As Dr. Collins said, there is a good case those expenditure reports should come out earlier in the year, perhaps alongside the tax strategy group papers, as that would be one ideal time for them to come out.

I look forward to assisting the committee in its work and I am very happy to answer any questions. I thank the committee again for organising the session on this important topic.

Richard O'Donoghue (Limerick County, Independent Ireland Party)
Link to this: Individually | In context | Oireachtas source

I thank Dr. Roantree. I invite the Tax Expenditures Lab to make its opening statement. Mr. Flurim Aliu will give the presentation.

Mr. Flurim Aliu:

I thank the Chairperson and Deputies for giving us an opportunity to share our experience with the committee. My name is Flurim Aliu and I am here today with my colleague, Christian von Haldenwang, representing the Tax Expenditures Lab, which is a joint initiative by the Council on Economic Policies, CEP, where I am based, and the German Institute of Development and Sustainability, IDOS, where my colleague is based. The lab provides global, comparable information on tax expenditures and supports evidence-based discussion on their transparency, design and use. In our remarks, we will first offer an international perspective on tax expenditures and then turn to some observations that are specific to Ireland.

Internationally, tax expenditures represent a major component of fiscal policy. The data we collect in the Global Tax Expenditures Database, or GTED, shows the global average of revenue forgone reported by governments is close to 4% of GDP, or almost a quarter of total tax revenue. In many countries, they rival or even exceed some of the largest direct spending programmes. Consequently, this is not a minor issue but all too often, tax expenditures are applied without robust evidence regarding their costs and even less so regarding their effectiveness.

Tax expenditures are introduced to promote investment and employment and they may have welfare policy objectives or environmental goals, among others. Yet, systematic evaluations remain rare and the available evidence suggests many measures are only moderately effective or not effective at all. In some cases, they may actually even harm the common good. Having looked at the evaluations of more than 660 different tax expenditure provisions across the world, we found that two thirds of them were either only moderately effective or totally ineffective at achieving their stated policy objectives. Only one third received a positive evaluation. This highlights the importance of systematic evaluation because tax expenditures, as we said before, involve significant fiscal costs and without evidence it is difficult to know whether they represent good value for money compared with other policy instruments.

A consistent international finding is that these costs are often highly concentrated. On average, the ten largest tax expenditures account for nearly three quarters of total revenue forgone in a country. This suggests that even with limited evaluation efforts, one can deliver meaningful results, if focused on the largest and most consequential measures. However, at the same time, most tax systems also contain a large number of small, highly targeted provisions. While their individual fiscal cost may be modest, together they add complexity, increase administrative burdens and make the overall system more difficult to monitor and reform.

Another consistent finding is that tax expenditures are sticky. Quite often, tax expenditures are difficult to remove, even if proven to be ineffective, because they benefit well organised groups of taxpayers with a high amount of lobbying power, while their costs are borne by the public. At the same time, the political gain that may be associated with granting tax expenditures is typically short-lived because taxpayers quickly grow used to the specific benefits they bring.

All of this would already warrant close scrutiny, yet in many parts of the world, even the basic transparency needed to assess tax expenditures is still lacking. While more countries now publish tax expenditure reports, close to half of all jurisdictions worldwide still provide no information at all. Among those that do report, coverage and quality vary widely and key information on policy objectives, targeted beneficiaries or legal bases is often missing.

This lack of transparency makes it difficult for parliaments and the public in general to understand the true size of government supports delivered through the tax system or to assess who benefits from these measures. In many cases, tax expenditures remain in the tax code for years, without systematic review, unlike direct spending programmes, which are subject to regular budget scrutiny.

Against this international background, it is important to acknowledge the work of the Irish Government, and the Department of Finance in particular, in this area. In many of our country engagements, we actually cite Ireland as an example of good practice, particularly with regard to its structured evaluation framework for tax expenditures. I will talk a bit more about this later.

On tax expenditure reporting, Ireland has made great progress in recent years. One of our projects at the lab is the Global Tax Expenditures Transparency Index, which ranks countries according to the quality of their reporting based on 25 different indicators. The latest version of our index, which was based on reports published until the end of 2024, ranks Ireland as 30th out of 116 countries that we assessed, which is a quite positive achievement. Since then, the Department of Finance has further improved its reporting by introducing the so-called "tax expenditure passports", which contain detailed information for each measure, including its fiscal cost for multiple years, its policy rationale and the number of targeted beneficiaries as well as actual claims. This implies that in the next edition of the transparency index, Ireland is likely to improve its ranking considerably.

On evaluation, Ireland is one of few countries worldwide that has established formal guidelines for evaluating tax expenditures, and one of an even smaller group that regularly carries out such evaluations in practice. The main area where further progress could be made is in strengthening the link between evaluations and tax expenditure reform. International experience shows that evaluations are most effective when their findings are systematically discussed in Parliament and used to inform reform decisions. In this sense, the reports published by the Department of Finance can be highly useful to determine whether there are avenues for the rationalisation of certain provisions.

Seen from the outside, two practical steps could perhaps help build on the strong foundations already in place. There might be room for greater parliamentary engagement with the evaluation reports produced by the Department of Finance. These are valuable analytical documents, which could be discussed in depth in parliamentary proceedings such as this and which could inform policy decisions. Consideration could also be given to wider use of sunset clauses. At present, the majority of tax expenditures, 93 of the 116 listed in the report, do not include an expiry or review date. Introducing such clauses more systematically could help to ensure that provisions are periodically reassessed and remain aligned with current policy priorities. I thank the committee again for the opportunity to address it.

Richard O'Donoghue (Limerick County, Independent Ireland Party)
Link to this: Individually | In context | Oireachtas source

I thank the witnesses and I will now open the meeting to the floor. I call Deputy Timmins.

Edward Timmins (Wicklow, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I thank our three contributors. I agree with many of their sentiments, especially on a more long-term estimation of costs and the idea of continuous scrutiny, which I hope the committee continues to do. I welcome the comments from Germany that Ireland is cited as an example of best practice. It is nice to hear this.

My overall reading of the report is that I feel it is somewhat exaggerated on one side, which I will go through. Pensions is one of the big tax expenditures but this does not take account of the fact that pensions build up and are then taxable when people exit, that is, when they take their pensions and get their pensions paid. There is income tax coming back on the other side as a result of this tax. It is not just a tax expenditure, it is also a tax income. No calculation has been done on this and it is probably impossible to do such a calculation. I want to give this one-sided example. Another example is that health expenses are tax deductible, some at 20% and nursing homes may be 40%. This is cited as another expensive tax expenditure but, on the other hand, we could ask what if all those health expenses were free and people did not have to pay for them in the first place. This would cost a multiple of five times for many medical expenses. I see a lot of these which suggest we are not getting the full picture. Perhaps the strict definition of tax expenditure does not allow the witnesses to go into this but it should be recognised or that we as a committee should take account of it. It is not just a loss of €8 billion as there is an income side to it as well.

I have other examples, such as the lack of indexation which is effectively a stealth tax and this is not included. There is no calculation of it and it is something, as I have mentioned at previous committee meetings, that should be brought in. Capital gains tax has not been indexed in 25 years or more and it is the same with CAT. There is often no indexation of and there is a complete mismatch between the CAT thresholds now and what they were 20 years ago.

These are all extra taxes we do not take account of. Speaking of Germany, a landlord can write off a depreciation of property against their income tax but in Ireland they cannot do so. There are tax reliefs we do not even have in this country that other countries do. This is another factor.

I was surprised to see a suggestion that eliminating CGT relief on principal private residence could be a possible way of reducing house prices. This would disincentivise people from selling their homes and discourage downsizing and labour mobility. Equally, the fact there is no indexation on principal private residences also discourages people from selling homes. I would be interested to hear the comments on the witnesses on what I have outlined.

Richard O'Donoghue (Limerick County, Independent Ireland Party)
Link to this: Individually | In context | Oireachtas source

Does Deputy Timmins wish to address those questions to a particular witness?

Edward Timmins (Wicklow, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Perhaps Dr. Collins.

Dr. Micheál Collins:

I will start but I know that each of us could pick up on various aspects. I thank Deputy Timmins for his engagement. I will start by agreeing with him that not all tax expenditure is bad by any manner of means. Many tax expenditures serve very important purposes and functions but they are expensive and we should know this, the committee should know it and the budgetary system should know it.

Edward Timmins (Wicklow, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I am saying that there is an income side to it as well.

Dr. Micheál Collins:

In the same way, we should understand more visible areas of expenditure where we want to see there is value for money.

Deputy Timmins mentioned pensions, which I pointed towards, and he is absolutely correct that the structure for pensions is that we give relief as people put money into their pensions and as the pension funds accumulate, and then, when the pension funds are drawn down, they are subject to income tax. However, there is a difference. I have always described the tax that is paid as tax with a small "t". This is because there is a whole series of tax reliefs that kick in. Dr. Roantree and I mentioned the tax-free lump sum of €200,000 for people who are lucky enough to have that size of funds available for them to draw down tax free, there is a further €300,000 which they can draw down at the standard rate of 20% and then they draw down the rest of the money at the marginal rate, whatever that happens to be. Generally these are people getting tax relief at 40% on the way into those pension savings, so the Deputy is correct there is a tax return, but if we put all of the bits of the jigsaw together there is still a very substantial cost to the State.

I would not be of the view that we should get rid of tax relief for pensions entirely but we do need to think about the scale of it. As Dr. Roantree mentioned also, as we begin to roll out the auto-enrolment process we are treating different pension savers quite differently. Those people who have pensions on existing terms and who get tax relief continue to get tax relief, the vast majority of them at 40%, whereas we now have people who are auto-enrolled who are getting a much smaller proportion of top-up from the State.

Edward Timmins (Wicklow, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I am conscious of time and I would like to ask the witnesses for their comments on the stealth taxes that I outlined. Perhaps Dr. Roantree would comment on this.

Dr. Barra Roantree:

The big issue the Deputy is picking up on is that it is very hard to know what the benchmark tax system is. We have to assume something about what it is in order to say what a tax relief is against it. This is not always clear. The Department of Finance and Revenue have their agreed list. We do not necessarily have to agree with this list and we can take issue with some of what is on it. Pensions are particularly tricky because, as Deputy Timmins has said, there is the flow in the future.

There is discussion needed on what should be counted as a tax relief. That is not something that comes down from the heavens.

Edward Timmins (Wicklow, Fine Gael)
Link to this: Individually | In context | Oireachtas source

It is not defined.

Dr. Barra Roantree:

It is not, but it requires us to have in mind - this is one of the key bits of specifying - what we think the benchmark tax system is and at least laying that down and saying what the deviations from that are and how much they cost.

On the indexation, the Deputy makes a very good point about capital gains tax and the lack of indexation there. It is effectively a stealth tax on the nominal increase in asset value. Of course, this all goes back to the former Minister, Charlie McCreevy's, reforms of capital gains tax in the late nineties and early 2000s, when he completely changed the scheme and, in my view, made it much worse. He got rid of the indexation that effectively existed and cut the rates massively. That is a particular where we would improve the tax system fundamentally by reintroducing indexation and also aligning the rates with rates on income tax because ultimately what we do not treat gains and all income the same. That is one area where the reduced rates of capital gains tax we apply are not a very sensible tax relief and the non-indexation we apply is not a very sensible stealth tax.

There are lots of issues here and this is further evidence of why it is so important that we have information on how many people are availing of these and the cost of these so that they can be scrutinised and we can ask whether it is the best way of spending.

Edward Timmins (Wicklow, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Or the benefits, if there are benefits. It is very difficult to measure, but we can make an attempt to measure.

Richard O'Donoghue (Limerick County, Independent Ireland Party)
Link to this: Individually | In context | Oireachtas source

Dr. von Haldenwang wants to make a comment now as well.

Dr. Christian von Haldenwang:

I thank the committee for the invitation to participate in this important meeting. I just wanted to refer to the point raised by the gentleman about the issue of how revenue forgone is calculated. When he referred to the example of pensions that generate future tax income, a key issue here is that almost all over the world governments calculate revenue forgone from tax expenditures by using a static approach to estimation and this does not take into account behavioural changes that may come with the tax expenditure or with the removal of the tax expenditures. The key issue here is not only that evaluations could be approached much more systematically - I am referring here not to Ireland but to governments all over the world - but rather how the information arrives at the parliament. My question to the committee, since it knows that pensions generate future tax income, is whether this has been subjected to evaluation. Does the committee have the numbers? Does it have forecasts about future revenue that may come so that it can have a decent and solid cost-benefit analysis of the measure? We hear references to future revenue coming through tax expenditures quite frequently when we engage with governments worldwide and quite often this reference per se is taken as a justification for the measure. Our standpoint is always that it would be very useful for any policy decision on the maintenance, reform or removal of tax expenditures if we can quantify, or at least have a range with regard to, the cost and benefit of specific measures.

Richard O'Donoghue (Limerick County, Independent Ireland Party)
Link to this: Individually | In context | Oireachtas source

Apologies, but I meant to lay out the way the meeting works here. There will be plenty of time for engagement. Each member gets seven minutes to ask questions and within that seven minutes, we try to comply. That is to accommodate other members because they have to go to other committee meetings. We will try to keep contributions to seven or eight minutes to allow other members to come in and we can come back and answer the other questions later in the format of the meeting. To allow other members to come in, we have to adhere to the seven-minute rule, so I ask everyone to try to adhere to it. We can address any questions afterwards, if that is okay.

Dr. Christian von Haldenwang:

I apologise.

Richard O'Donoghue (Limerick County, Independent Ireland Party)
Link to this: Individually | In context | Oireachtas source

Not at all. I thank Dr. von Haldenwang for his co-operation.

Johnny Guirke (Meath West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

I thank the witnesses for coming in. My first couple of questions are for Dr. Collins. He stated that "for every €10 collected in taxation, the State currently decides not to collect an additional €1, which is forgone through the provision of various tax breaks and reliefs." We would need to know where that €1 goes to see what savings we could make on it. For instance, is it going to the people who need it most? Is it going to vulnerable people? Who is it going to and how much are we talking about in total? To make savings, the long and the short of it is that we would need to know where that €1 goes.

Dr. Collins stated that he would encourage the committee "to continue to select a large tax expenditure, or area of tax expenditure, and explore the relevance, effectiveness, distributional implications and recurring costs of these measures given the overall budgetary context." Does he have any ideas about where those savings could be made?

Dr. Collins suggested the committee undertake "measures to address some of the data gaps in the annual tax expenditure report." He stated:

For example, 25 of the 117 tax expenditure measures in the 2025 report have no available cost, or even an estimate of their cost. Some of these may be minor, and the report should be able to indicate this, but others seem large and important. It would be better if this information were available.

Does he have any further information on a breakdown of those 25 measures?

Dr. Micheál Collins:

I thank the Deputy for those points. Briefly, we collect €10 and then we decide not to collect €1. That is how we can summarise the tax expenditure system, at least based on the numbers we have available to us. That gives us a feel for the scale of the topic that the committee is looking at. It is a very large part of what we do as a society through the taxation system. To answer the Deputy's question, it is about having reviews of all of those measures. As my colleagues have pointed out, the system has started to undertake those reviews. There is a lot of merit in this committee beginning to invite in the Department of Finance, in particular, which is undertaking a lot of those reviews, and in the committee being able to engage with the Department to see whether we as a society are getting value for money for some of these tax breaks. Clearly, some of them work very well and we should keep them - in other words, the benefits override the costs - but we have to ask some questions about others. It is important that that evaluation opportunity arise for this committee in the way that it does for so many other areas of spending.

The Deputy asked about areas. The committee previously, as I mentioned, looked at some of the enterprise supports. I believe it is going to look further at climate change issues. There is a series of tax breaks there and there are very interesting questions to ask. We are putting a lot of money into that area. Is it being used well? Are we achieving what we can achieve? Maybe we need to think about that in the context of some of the other supports that are going to people who perhaps do not have tax income to write off against the supports being provided so that we can maybe get a full distributional picture of high- and low-income individuals and the benefits that are there as well.

The pensions area, which we spend a lot of money on, has been mentioned here already. There is an entire chapter in the Commission on Taxation and Welfare report looking at pensions. Dr. Roantree was a member of that and he can speak to it. I assume the commission decided to write a whole chapter because it is such a big area and we spend so much money on it. Indeed, we are spending even more money now in the context of auto-enrolment. Important questions arise there. Deputies will be familiar with the fact that we could use money in other ways if there were savings to be made.

On the data gaps, I would encourage the Deputy and his fellow committee members to nudge the Department of Finance and the Revenue Commissioners to fill those gaps. Even if they cannot estimate some of the measures, they should be able to tell the committee whether they are big or small, for a start. That is not a big stretch. Beyond that, there are some measures that clearly they should be able to provide measures for. Both Dr. Roantree and I talked about the tax-free lump sum as an example. That data will be there. It will move through the system. It will be claimed. There seems to be no reason they could not add it up, and that is the case for a number of other measures as well. I would encourage a nudge from the committee in that direction towards Revenue and the Department of Finance. They have made great progress and the committee could nudge them to make further progress.

Johnny Guirke (Meath West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

The following question is for Dr. Roantree. On the €200,000 pension lump sums, if somebody has a €500,000 pension lump sum, it will cost him or her 12%. Is it not hard to judge when we do not even know how many people are getting that or are fit to draw down those kinds of pensions?

Dr. Barra Roantree:

The main beneficiaries of that tax-free lump sum, particularly into the future, will be very highly paid public servants, such as university professors and senior civil servants. Those types of individuals will be some of the few people still in receipt of a defined benefit pension. The lump sump they will get if they have a full record of service will be 1.5 times their pensionable salary. The people in those senior positions are ones whose salaries will be approaching the high six figures. We do not actually know how many people avail of that each year at the moment. We do not know the average cost of it. This is true across the board in respect of what the Deputy said about whom the money goes to, which groups and whether it is the people who need it most.

Even for tax expenditures where we do have data and information on the average cost and the number of beneficiaries, we rarely have information about the distribution of that. We rarely know whether a small number of people are getting most of the relief or whether everyone is getting a little bit. That might be much more the case with, say, the health expenditures than with some of the capital acquisitions tax reliefs that exist or the tax-free lump sum. These are exactly the types of questions to ask. As Dr. Collins said, if the committee could nudge, push or instruct the Department of Finance and Revenue to provide more of this information, and particularly information that does not currently exist and has not existed for many years, the committee would do a great service and improve the public debate and scrutiny of these measures.

Johnny Guirke (Meath West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

It is crazy that we do not even know how many people avail of it or see what it is costing. I thank Dr. Roantree.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
Link to this: Individually | In context | Oireachtas source

I will have to leave in a moment but this is an area I have a lot of interest in. On previous budget scrutiny committees, I have strongly urged the committee to look at these issues. It is very important because it is, in effect, a shadow budget. That is what it is. The ESRI estimates that tax expenditures ar about €8 billion. Is that right?

Dr. Barra Roantree:

The Department of Finance makes that estimate.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
Link to this: Individually | In context | Oireachtas source

Does the ESRI agree with that? In our budget submissions, we always itemise some of the big corporate tax expenditures. Even just on some of those, we can add them up to being a hell of a lot more than €8 billion from some of the items when you include capital allowances. I will list some of them. In our last budget submission, we added them up to €22 billion. They include capital allowances, intergroup transactions, the reconstruction and amalgamation of certain companies, losses including capital allowances brought forward, the research and development tax credit, group relief and the knowledge development box. Just those alone totalled €22 billion in tax give-backs to corporations, and that is not exhaustive. Another one relating to employers' contributions to benefits-in-kind is up at €700 million. That is a lot of money. Who is looking at this stuff and properly scrutinising it?

Does the ESRI think the Government's estimate of €8 billion is good enough? There is actually a hell of a lot more than that. The Government obviously says some of them are part of the base. That is the argument; it is part of the base so we do not really need to look at them. Does the ESRI accept where the Government draws the line as to what is part of the base and what is not and as to what needs to be scrutinised? Is the ESRI concerned that some of the big tax expenditures are not properly scrutinised? I hear the point made about estimating not just what they might cost in year one but what they will cost in years two, three and four when they are often even less examined than in year one. They then begin to balloon. Will the ESRI talk about some of the ones that have ballooned?

I agree with the ESRI's recommendations. We need to scrutinise these things and our committee should be looking at them. Personally, I pushed hard, and I am glad our committee did too, on the examination of the film tax credit. Something good came out of that, namely, the stakeholders' forum for the film industry, because of the report we produced. That forum happened in one year, however, and there was no follow-on from it. Nothing has happened since. It was as though the Government was put on the back foot to look at the film tax credit and what actual contribution it was making to quality employment and training. There was then a stakeholder forum, which was great but there has been no follow-on from that stakeholder forum. We do not quite know what happened subsequently.

We need a lot more examination of these things. We have made a good start and I accept that. We started to do it because this committee, in particular, has pushed for it and organisations like the ESRI have been campaigning for it. Could I get a response to a few of those?

Dr. Barra Roantree:

In terms of agreeing with the costing the Department of Finance provides, it is hard to say because only the Department of Finance has a lot of the information that underlies it. As was said earlier, fundamentally, these are costings of tax forgone relative to a benchmark system. People can legitimately have different views on what the benchmark system is. Dr. Collins and I might have different views on, say, the pensions tax system and what the benchmark might be, although we both agree on the tax-free lump sum not being part of that and very much being a tax relief. People can have different views on these things.

In terms of what the Department of Finance calculates, that is the Department's calculations. It probably understates some and maybe overstates others, but the key bit to pick up on is that there are some the Department considers a part of tax relief and it does not have any information on them. They would be the ones I would focus on first. We could then ask questions about whether this is right, but actually estimating the amount of tax forgone is a really difficult question a lot of the time and requires a lot of resources to be devoted to it. For those costings to be credible, it requires proper, careful consideration of it. The capacity is not there at the moment in the Department of Finance. Again, we could have a discussion about whether the capacity should be within Government in the Department of Finance or whether it should be in the PBO. There are different views on that.

We really need that because being able to say something about whether we have a credible costing and whether it accounts for behavioural responses is really important. For example, if we said there was a particular relief that was not delivering benefits and we wanted to withdraw it, we would want to be sure we had good evidence around how people would respond to that because that is fundamentally linked to how much it costs. I am not trying to understate the difficulty of these questions but, at the moment, there are not the resources-----

Richard O'Donoghue (Limerick County, Independent Ireland Party)
Link to this: Individually | In context | Oireachtas source

I might just let other witnesses in.

Dr. Micheál Collins:

I thank the Deputy for those comments. It has been a huge step forward to get a baseline list. We never had one before so that is at least an improvement. Of course, that implies we should have a look at it. I would encourage the committee to invite in the Department of Finance and the Revenue Commissioners to discuss that. They have made a decision that this a discretionary tax relief and, therefore, it is on the list. The other ones are structural reliefs, which are parts of the functioning of the system. It would be worth getting them to justify that and part of the process should be to continue to review that. I would encourage the committee to do that.

The Deputy asked an interesting question, who is looking at this stuff. Honestly, the answer is the committee. It really falls to this committee, which is really the only area where this huge shadow budget, as the Deputy called it, gets the focus. It is important that the work of this committee continue to look at those issues. It is a huge area and, therefore, systematic engagement with it over time has already worked, and the committee's work to date has been excellent, but it should continue to improve the scrutiny of this, which is in overall society's interest.

Mr. Flurim Aliu:

I have a very quick point on the structural reliefs. Reflecting best practice, some countries provide costs for those structural reliefs when possible. This could further improve transparency. Besides improving the definition of the benchmark and making it clear what goes in which side and why, some costs could also be provided for at least the larger structural reliefs.

Richard O'Donoghue (Limerick County, Independent Ireland Party)
Link to this: Individually | In context | Oireachtas source

I thank the witnesses. From my own perspective, looking at international business, we understand how important large international businesses are to employment in this country and why they get certain tax breaks to allow them to come into this country and provide employment. The SME sector, however, is playing on the same field as the large international companies.

In some ways, the companies are in competition with each other, even though they are small SMEs.

My biggest concern at the moment is the trajectory of inflation in this country. We have seen the minimum wage rise. Along with the minimum wage rising, the USC charge came down but the tax base did not go up, which actually meant more tax. My concern is with taxation in this country. We have the second largest taxation in Europe. My concern is, down the line, whether international businesses will look at us and say they cannot afford to do business here because of inflationary costs, which come down to our lack of housing and infrastructure, the cost of transport in this country and our basic electricity. I welcome all businesses into this country, but if we keep going on the trajectory we are on and with the taxation system we have at the moment, two people who are working in a household will not be able to afford to buy a house, with the inflationary costs. A house that cost €120 a square foot four to five years ago is now costing €200 a square foot. The tax intake on that, for labour and the whole contract, is 13.5%. A house today that costs €500,000 has 13.5% tax on it. There is 23% VAT on the fit-out charges. The people who have to work to afford such a house are averaging income tax at the 40% mark. There are then council charges, ESB costs and everything to set up. Looking at the mortgage of any householder and the tax base they are coming to, about 36% or 37% of their mortgage is tax. We have inflatable costs, over five years, 80% of which have moved into housing.

My concern, looking at the tax implications and inflatable costs, is that we could be doing ourselves out of business and putting ourselves in a downward trajectory because this cannot continue. People hear about tax, but people who got the minimum wage, and it went up to €14.25, are not getting anything extra. They actually get taxed more but they get nothing extra because everything they are buying is at an inflatable cost. How can we control inflation to make sure people can live and to encourage investment into the country?

Dr. Micheál Collins:

I will start very briefly. The Chair is right to say it is not just all about taxes. Certain issues around the cost of living, and we could broaden it to the cost of business, are very significant. There is some very good work from the National Competitiveness and Productivity Council, which has looked at the cost of business. It is one those stark things that it costs a lot to run a business and borrow money and so on in this country, over and above what it does in other countries, which undermines our competitiveness. The Chair is right that this is a long-term risk to the State as we do that.

Some of the property tax reliefs we brought in rather rapidly over the last few years were mentioned. These tend to appear without much of a huge case for them, with fingers crossed on the basis of "Let us hope they work". That is an expensive way to spend money. All of us will tell you the economics literature is pretty clear that if you do things like that, it just pushes the price of housing up further rather than making it more accessible. We should begin to think of better ways to use some of those funds too. That points towards the need for committees like this to engage with the officials who are making those decisions to spend money in those ways to try to get them to think about better use of the funds. That would ultimately achieve a view we share, which is achieving more housing rather than higher house prices for those examples. I suggest bringing the Department of Finance, which has proposed those measures, in to talk about those, its plans and the performance of those measures because, and the Chair is right on this, they ultimately impact on the living standards of individuals the length and breadth of the country.

Dr. Barra Roantree:

I will add to that. The Chair highlighted some important issues. Fundamentally, one of the big challenges in addressing the cost of doing business and the cost of living is catching up with infrastructure we have not provided. That is something that will, sadly, take a number of years, but it is one of the important things in relation to that.

The Chair's comments relate to the wider issue of the concentration of the tax base. We are very reliant on a small number of multinationals paying large amounts of tax. This is something that the committee has dealt with on a number of occasions and that everyone appears to acknowledge, but we do not seem to be doing anything about it at the moment. Rather, as the Irish Fiscal Advisory Council pointed out to the committee in its recent evidence in relation to this, we are spending an increasing share of what the Department of Finance itself states are windfall tax receipts. It is not the case that we are setting aside more and more of these over time; we are actually spending more and more over time. As the Chair said, that puts us in a position where if something happens there that is out of control, we will end up in a position where there are lots of these areas that are perhaps overtaxed, or taxed in ways that do not necessarily align with the objectives we want.

On construction, in particular, there is a lot in what the Chair said. Rather than levying lots of development charges, connection charges and high rates of tax on the construction of new property, a strong case could be made for instead taxing existing property and having a higher local property tax. There are also questions about the level of taxation and how we raise the taxes we do. Those will come particularly to the fore if it were the case that we see a sudden evaporation in those corporation tax receipts. That is something that will again bring the issue of tax reliefs to the fore because if that does happen, there will be a need to raise revenues or cut spending elsewhere - some combination of those is more likely - and to look extensively at tax expenditures. Looking at the way we design those will be really important.

Richard O'Donoghue (Limerick County, Independent Ireland Party)
Link to this: Individually | In context | Oireachtas source

I have a concern about companies in this country. Recently, we lost 140 jobs in Abbeyfeale. Those jobs have been repurposed through the same company but they have gone to China. That is why my question was around this. If we keep going like this, as has been was pointed out, and there is a pull-out of international companies, which are the major employers in this country, it is having all our eggs in one basket. That is what my concern comes back to. For them to be viable here, they need the basic essentials, which are sewerage, water, infrastructure, housing, electricity and the Internet. They need that to work here and they need to have the employees to do what they need to do. This is across the base of all the different companies. Infrastructure is the key to this. It is one of my concerns.

Edward Timmins (Wicklow, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I have two points. Dr. von Haldenwang asked a very reasonable question and made the point that governments always reply by stating there will be benefits down the road from these tax expenditure measures. The answer is, as far as I am aware, that the benefits are not measured. I am at one with him in saying we absolutely need to do work on getting the cost-benefit analysis of what the benefits that accrue down the road are. Is any work being done to measure those benefits, for example? Some of them are very hard to measure, such as the R and D tax credit. The pension income coming down the tracks could certainly be estimated. Is any work being done on that? I will then make a second point.

Dr. Barra Roantree:

The R and D tax credit is probably one of the few tax expenditures that has been subject to a degree of scrutiny in trying to estimate the benefits. Officials from the Revenue Commissioners and the Department of Finance have carried out work and published, essentially, estimates trying to work out how much additional R and D there was in response to the credit, which, as the Deputy said, is a very challenging thing to do. It is one of the few tax expenditures where particular attention has been devoted to trying to get a credible answer to that. There are many others where in effect what is done is the people who benefit from it are surveyed and asked whether they think it is a good tax relief and how many extra jobs they have created. That is how far it goes.

Edward Timmins (Wicklow, Fine Gael)
Link to this: Individually | In context | Oireachtas source

What about the pension? Has that been measured? I would have thought it was measurable.

Dr. Barra Roantree:

No. Very little work has been done on the pension reliefs.

Edward Timmins (Wicklow, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Who should do that work? Should it be the Department of Finance?

Dr. Barra Roantree:

The Department of Finance should be doing it. It should be scaling up capacity. The Commission on Taxation and Welfare recommended that it would have additional capacity built up to look at these issues explicitly. One could also make the case that the Parliamentary Budget Office is well placed to do work there and could do stuff. The committee could put suggestions to it more easily than it could to the Department of Finance to carry out particular work.

Edward Timmins (Wicklow, Fine Gael)
Link to this: Individually | In context | Oireachtas source

We have good interaction and engagement with it.

The second question is for the guys in the German Institute of Development and Sustainability. Could they point us to any research or information from a benchmarking exercise of EU countries to show what tax expenditure levels they have? Is there a breakdown of that information that we could study? When you benchmark, you can learn from other countries.

Richard O'Donoghue (Limerick County, Independent Ireland Party)
Link to this: Individually | In context | Oireachtas source

Would Dr. von Haldenwang like to take that question?

Dr. Christian von Haldenwang:

Perhaps I can start and then Mr. Aliu can come in. I suggest that we can learn not only from good examples internationally but also from not-so-good examples. Unfortunately, my country is an example where we see that the definition of the benchmark is not very consistent. This is something that the Federal Court of Auditors continuously remarks on. It points out that, for instance, grandfathering of old clauses is a major subject here. We have some reduced value added tax rates for some goods or services and very similar goods and services are taxed at a different rate. This is something that is very difficult to understand.

In general terms - perhaps Mr. Aliu can give some examples of countries where we see a consistent benchmark definition – this is not only a technical issue; it is a political issue. The definition of the benchmark is something where the values and principles of a society come into play. In Germany, for instance, the reduced value added tax rate for foodstuff is considered part of the benchmark because we think that our tax system should reflect the capacity to buy or consume of our taxpayers or citizens in general. In many other countries this is considered tax expenditure and is reported as such. We will always recommend having a narrow definition of the benchmark and a broad definition of tax expenditures because this adds transparency. That is because you report on tax expenditures – you estimate the revenue forgone, whereas with the benchmark system typically the measures there are not estimated and are not reported regularly. They are part of the benchmark.

Edward Timmins (Wicklow, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Have the benchmarks been adjusted to show the differences between the different countries? Has a standard benchmark been applied? Has such work been done?

Dr. Christian von Haldenwang:

There is only one region where we see a regional effort. That is in west Africa. The West African Economic and Monetary Union has started a project, supported by the European Union, which started with the VAT systems. It is now going to incorporate income tax or direct taxes in general. They try to harmonise understandings of benchmark and tax expenditures between those countries that form part of that bloc. Beyond that, I am not aware of any international approach to establish a universal benchmark system.

Edward Timmins (Wicklow, Fine Gael)
Link to this: Individually | In context | Oireachtas source

If we set the standardisation of benchmarking to one side and forget about it, could the witnesses point us to reports that show the tax expenditure in the different EU countries?

Dr. Christian von Haldenwang:

Mr. Aliu might take this question because it is what we do.

Mr. Flurim Aliu:

Yes, definitely. We have reports from every EU country or most of them, besides Malta. We can gladly send the link to our website where the Deputy can also see the visualisation of the cost and the different provisions that are available in each country. We can provide the link to the Chairman to distribute.

Edward Timmins (Wicklow, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I would welcome that. I thank the witnesses.

Dr. Micheál Collins:

I will add to that. The work of the Tax Expenditures Lab has been excellent to bring that kind of international perspective to this. The Deputy is right that it is interesting to see how we perform versus other countries. It is very difficult to make a precise comparison because the Germans do things a little bit differently from the way the Irish or the Greeks do, and so on.

What has been interesting is the work on transparency, which the Tax Expenditures Lab has been doing as well. Mr. Aliu has referenced that. It has compared the level of information that is available on tax expenditure in committees like this and to the general public across different countries. Ireland has been improving relative to other countries and going up the index in terms of its performance. That is very good. Mr. Aliu may be able to talk about it. It is intriguing to see some countries that are right at the very top of that index, which we would not think would be some of the great performers in international transparency terms but actually are when it comes to tax expenditure. We have some lessons to learn there. What is really key is that the information is there and available to members so that they are able to pull in the officials from the Department of Finance, Revenue and elsewhere, or indeed some of the beneficiaries to see if the benefits are arrived at.

Edward Timmins (Wicklow, Fine Gael)
Link to this: Individually | In context | Oireachtas source

We could see where our stand-out items are.

Richard O'Donoghue (Limerick County, Independent Ireland Party)
Link to this: Individually | In context | Oireachtas source

I will let Mr. Aliu in to comment on that, as I have another speaker afterwards.

Mr. Flurim Aliu:

I will make just a very quick point on what the Deputy mentioned about who should do it. To give another example of international practice, in South Korea they have two competing institutes, which are both leading think-tanks. They compete to do tax expenditure evaluations. Depending on who presents the best proposal on how to go about it, they win the contract from the Government. It does not necessarily need to be done in-house by the Department of Finance; it can also be outsourced to other institutions.

Richard O'Donoghue (Limerick County, Independent Ireland Party)
Link to this: Individually | In context | Oireachtas source

I call Deputy O'Callaghan.

Cian O'Callaghan (Dublin Bay North, Social Democrats)
Link to this: Individually | In context | Oireachtas source

I want to follow up on those points. First, cuirim fáilte roimh na finnéithe chuig an gcoiste. Is mian liom roinnt ceisteanna a chur orthu. I have a quick question for the Tax Expenditures Lab on tax expenditure evaluations. It was said that Ireland is one of the few countries worldwide that has established formal guidelines for evaluating tax expenditure and there is an even smaller group that regularly carries out such evaluations in practice. Have the witnesses looked at the quality of the evaluations that are carried out in Ireland?

Dr. Christian von Haldenwang:

The quality is very diverse to say the least. A key issue is addressing the causality part and addressing the attribution gap between a measure and the outcome. We find that many evaluations fall short of being based on solid counterfactual and basic scientific principles. We do not have a systematic review although Mr. Aliu can say something about the SDG-related review we have done for the UNDP. We do not have that and we do not have a criterion to measure the scientific quality of evaluations. We see that they can be very basic and very narrated or they can be methodologically more robust and with more robust results.

Cian O'Callaghan (Dublin Bay North, Social Democrats)
Link to this: Individually | In context | Oireachtas source

Are those comments about evaluations everywhere and not just in Ireland?

Dr. Christian von Haldenwang:

Yes, that is the case internationally.

Cian O'Callaghan (Dublin Bay North, Social Democrats)
Link to this: Individually | In context | Oireachtas source

Does Dr. von Haldenwang have any perspective or insight on the quality of the Irish evaluations?

Dr. Micheál Collins:

I am happy to come in briefly on that. It is similar but they are quite diverse. There are some very strong ones and some considerably weaker ones. One of the challenges for the evaluations that have been produced to date – as I mentioned earlier, they tend to be rolled out as part of some of the tax strategy papers or more frequently as part of the mass of documentation that the Deputies and their colleagues receive on budget day when the Minister for Finance sits down after presenting the budget - is that they tend to get lost in that system.

There is merit in a committee such as this, and, very honestly, it falls to a committee such as this, because it is the only place to which it will go, beginning to pull out some of those evaluations and asking questions, such as why we have decided to make something bigger or smaller - I do not think anything has been made smaller so far, so it is probably always bigger - or keep something going. The committee allows for interrogation of that, which would help to improve the quality of those evaluations, which is needed.

Cian O'Callaghan (Dublin Bay North, Social Democrats)
Link to this: Individually | In context | Oireachtas source

I am asking because there appeared to be a contradiction between what the Tax Expenditures Lab was saying and what Dr. Roantree was saying. I do not think there is such a contradiction. International experts say that the overall process here looks good compared with other countries. Dr. Roantree is saying that when you look at the evaluations, most of the evaluations of tax expenditure that have been carried out are of exceptionally poor quality. I am not trying to create a wedge between our two guests, but Dr. Collins is saying there is a lot of diversity in the quality and Dr. Roantree is saying that most are of exceptionally poor quality. Perhaps he could expand on that. If Dr. Collins is strongly of the view that some are of good quality, he might expand on why he thinks that is the case.

Dr. Barra Roantree:

You can find examples of good-quality ones and the research and development, R and D, tax credit work that was done in 2018 or 2019 can be seen as an example where there was effort dedicated to trying to assess it credibly and consider the additionality created by the R and D tax credit. They tried to answer that question. While the guidelines have been improved and say nice and good things, they have not necessarily been implemented in what is there. You still see that when these tax expenditure evaluations are published they seem still to be at the stage where they are asking beneficiaries, "Do you like this?" That is how I see many of them going on. There is no real attempt in any of the valuations I have seen recently to try to credibly get at and quantify the benefits and assess how many more people did something we wanted them to do than would have done otherwise. That type of analysis is almost non-existent. A lot of the stuff that was said by my colleagues in the Tax Expenditure Lab was about transparency. We put out lots of documentation and have guidelines, but I do not think they are implemented and I do not think there is the quality work that should be there, given the capacity that the Department of Finance has within it at the moment.

Cian O'Callaghan (Dublin Bay North, Social Democrats)
Link to this: Individually | In context | Oireachtas source

It sounds from what Dr. Roantree is saying that many of these are done as box-ticking exercises. They need to be done, so are done in the easiest possible way. On occasion, one is taken seriously and done rigorously. That seems to be a huge flaw in the process if we are getting a number of low-quality analyses. Simply surveying the people who are the beneficiaries of tax expenditure and asking if it is working is not credible.

Dr. Roantree said earlier there are areas that we should be looking at. Pensions was mentioned as one. Is there anywhere else that either Dr. Roantree or Dr. Collins feel we should be looking at particularly?

Dr. Barra Roantree:

I think the capital acquisitions tax reliefs are one area where the cost is increasing quite substantially. We can have different views on inheritance tax, capital acquisitions tax, and the level it should be at. Some people think it should be at 100%. Some others think it should be at 0%. Regardless of your views on that, we differentiate strongly between different types of assets. One person might inherit a particular type of asset worth a couple of million euro in the form of a family business while another might inherit the proceeds of the sale of such a business in cash or shares. Those people are treated entirely differently. That is one area. What we can see from the little that has been published shows that the benefits are accruing to a very small number of people who are inheriting large amounts. I do not think that aligns with the stated purpose of what those reliefs are meant to encourage, which is small and medium-sized family businesses that are farms. They are not the main beneficiaries. That is an area where there is scope because it is substantial, in terms of the amount of revenue, and is weak in terms of the arguments put forward for it. I highlight that.

Cian O'Callaghan (Dublin Bay North, Social Democrats)
Link to this: Individually | In context | Oireachtas source

Would Dr. Collins like to mention any areas?

Dr. Micheál Collins:

Two come to mind. First, we have begun to introduce a number of new reliefs that are announced and come in. They generally come with some documentation, but sometimes not a lot of it. It would be useful for a committee such as this one to have a look at the new ones as they come in and as the list gets bigger and interrogate them. Ideally, we would know about new ones way in advance of budget day, but that is not the process to which we work. Nonetheless, there is a possibility soon after the budget of having a look at those.

The other ones that strike me are related. We have begun to bring in again some of the property reliefs. In effect, this country wrote the book for how not to do tax relief for property and how badly it can go wrong in the late 1990s and early 2000s. When the Commission on Taxation that I sat on reviewed tax expenditure, we did not review any of the property reliefs because they had all been abolished. We concluded that it was a good idea to abolish them and it is a worry that some of them are starting to come back. The evidence is that, in general, they drive up prices, rather than solving issues around the shortage of property. It would be useful to look at those.

I return to the points I made earlier to the Chair. There may be better ways of using those funds if we wish to try to address shortages in housing.

I will add one other thing to the Deputy's earlier points. It is worth noting when you look at other parts of the public system that a very good process tends to be followed when, for example, the Department of enterprise is thinking about making investments or providing supports for the expansion of enterprise facilities across the country and looking at how many jobs or how much additional activity they are going to create and generate before supports are delivered. It is about taking that methodology and mentality and moving them across into this big area of tax expenditure. Ultimately, it needs an audience, and the audience is a committee such as this, to begin to look at those reports. Doing that will help to strengthen further those reports and the use of public funds.

Richard O'Donoghue (Limerick County, Independent Ireland Party)
Link to this: Individually | In context | Oireachtas source

We have experience in the room today. Mr. Aliu is experienced in economic policy. Dr. von Haldenwang is experienced in development and sustainability. Dr. Collins is experienced in social work and social policy. Dr. Roantree is experienced in economics. We are talking about taxes, public finances and all the rest of it. Is there any way of monitoring delivery of public projects, as part of the euro, for the amounts that are being delivered? The children's hospital, for example, went €1.2 billion over budget. Can we compare spending on projects for infrastructure for Ireland versus other countries? We need value for money for our taxes. I suggested that a public-private partnership for the delivery of infrastructure could be overseen by the Department and the infrastructure would be done to the building regulations that are here today. Private companies can give infrastructure and make profit from doing what they are doing. Our own Government Departments when they are looking at projects like this go over budget all the time. How do we get value for money for our taxes on projects that are being done by Government and Departments? They are constantly going over budget. That means we have to raise more taxes. There is no accountability. We have all the experience of our witnesses. Could we not have set up a benchmark to show the costs in some other European countries that can deliver projects of equal sizes and have a benchmark of where costs need to get to? That would allow for accountability for a Department. If we cannot deliver a project on-budget and on-time, we need to look at another way of delivering. That might help us to reduce the taxes we need to raise, which might benefit the people who are working in this country.

Dr. Barra Roantree:

I have two things to say in response. The Cathaoirleach hints that our capacity to evaluate and get value for money has declined over time. A point I have often heard made is that perhaps we are better at doing this when lots of the money we were getting to fund these big transport projects came from Europe. That is, in part, because many of those projects had very rigorous evaluation criteria attached. The fact that less of our infrastructure is funded through European funding is one thing that has meant we now have less oversight built in.

The Cathaoirleach's point relates closely to work that this committee has done in relation to performance budgeting.

There is a lot more information that could be provided alongside and in advance of Estimates - not just how much was spent but what was achieved for that spend. I know the committee has done very good work on trying to improve this process, as has the Parliamentary Budget Office. That is one thing we could-----

Richard O'Donoghue (Limerick County, Independent Ireland Party)
Link to this: Individually | In context | Oireachtas source

The reason I asked the question is that I have been self employed and working in construction for all of my life. What I see throughout the country, whether it is local authority delivery or Government delivery from different Departments, is that the projects that are being delivered are not being delivered on budget. They are going over budget. I look at that from a business perspective. I have been in business for all of my life. If my business was run the way their businesses are being run, I would not be in business. How can we set up a model that will give accountability and delivery and more bang for our buck? We are looking at European money. There are different projects across Europe where they get delivery for less money than we can deliver for. If that trajectory keeps going we will have to raise taxes again to cover something we are not delivering on time. Along with all of our counterparts here, I am looking for a model that is accessible for delivery and for oversight. I appreciate what the Committee on Budgetary Oversight is doing but we need to have something that can actually give us that.

Dr. Micheál Collins:

Very briefly on that and maybe linked to it, in the context of what we are talking about, that is very relevant for the need for the Department of Finance in particular to provide a committee like this and generally the budgetary process with not just the cost of a tax expenditure for the year it is introducing it, but forecasting the cost for the next five or ten years it expects it to run. In a sense, currently all the Department of Finance is doing is saying that it will cost X amount this year and there is no idea of what it will cost next year or the year after as the scheme gets bigger or smaller or whatever the case may be. Therefore, the cost increases and that uses up more tax resources that could otherwise be coming in to pay for public projects, investment and whatever else the case is. In that context, it would be useful for the Chair and the committee to begin to nudge the Department of Finance to provide forecasts of these costs out into the future rather than the one-year cost. That would mean that a committee such as this one could sit down year on year and see how things are going relative to what was expected.

Richard O'Donoghue (Limerick County, Independent Ireland Party)
Link to this: Individually | In context | Oireachtas source

We could audit things and ask why certain projects did not progress. In other words we could actually help them. The forecasting has to be done. Any business model will tell you forecasting is necessary. For the project to come in so it can be audited, that is what would need to happen.

Dr. Micheál Collins:

If forecasting for tax expenditures were available to the committee, it would be able to sit down and judge the performance and ask the questions as to whether the expenditure is higher or lower and why that is the case. That is missing and it would be useful and a good use of the resources of the committee and the State overall.

Aindrias Moynihan (Cork North-West, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

I have a question on pensions. In light of auto-enrolment, are there additional costs? Has that been measured and is there any indication of what that cost would be?

Dr. Barra Roantree:

There is none that I have seen. I do not think there have been very detailed costings done in relation to auto-enrolment. On the issue of auto-enrolment and the tax treatment, this changed quite dramatically from the current system, as I am sure the Deputy knows. We have gone from a system whereby people get relief at the marginal rate to one whereby, in effect, people are getting blended relief for the contributions being made to automatic enrolment. One thing that is important in relation to the scheme is that this was not essential to having an automatic enrolment scheme. There could have been an automatic enrolment pension scheme that preserved the existing tax relief structure. The decision was made not to do that. There were strong views inside the Department of Social Protection that it wanted to change this for the group it was dealing with. I do not think much information has been given about what that means for the impact of future tax flows. We are spending more money for this group now and it is getting more relief but there will be knock-on consequences. I do not think that has been well considered but in a way it is also separate from the issue of automatic enrolment. Automatic enrolment could have been done without changing the tax system. I think the Deputy might have been part of the committee that discussed these issues during the previous Oireachtas. Automatic enrolment works because it nudges people into changing the default and makes them save by default. That could have been done without the existing tax relief system needing to change. It is something that was changed but I am not sure we know what the consequences of that will be.

Dr. Micheál Collins:

There is a big change for auto-enrolment. What we have done up to now is to use the tax system to incentivise people to save. The real truth is that it has not worked particularly well. It has worked well for higher income earners but not for all of the people who are now being enrolled. The figures are approximately 750,000 employees, which is a huge number who were missed out before and are now being auto-enrolled. What is intriguing though is if one makes the comparison, and I do not have the figures in front of me, of the difference between most workers who are getting tax relief at 40% by putting money into their pensions and the individuals who are being auto-enrolled who, proportionally, are getting a smaller top-up from the State. I do not have the figures in front of me to give them to the Deputy but the top-up is smaller. It is an interesting question as to why we are giving less help to one group versus the other. Should it not be the same across all groups? Those are interesting questions. As that system beds down, the cost of auto-enrolment will increase because as more money goes in and the proportion of employee and employer contributions increase over time the cost to the State increases. The interesting questions in the budgetary oversight process overall will be about how good this is to be used. I suggest rolling that in with the pension tax reliefs as well. We are trying to do the same thing which is to make people save for their retirement, some of it though direct expenditure on auto-enrolment and some of it through tax relief on contributions. It would be worth pulling all of that together to examine the effectiveness and fairness of it overall.

Richard O'Donoghue (Limerick County, Independent Ireland Party)
Link to this: Individually | In context | Oireachtas source

To follow up on that, the auto-enrolment is 1.5% and covers up to 800,000 people. That auto-enrolment has an opt-out clause for people aged over 60 and for people aged under 20, and up to a turnover of €20,000. There is an opt-out clause after six months, whereby people can opt out of auto-enrolment, if that is what it means. The auto-enrolment of people who will stay in the scheme will rise next year and by 2035, I think, will be at 6%, and there is also inflation. At the moment, and this is where I am on auto-enrolment, and I welcome anything to do with pensions, but at a time of increasing costs and a lack of labour in certain sectors people are saying they will not pay it and if the employers want to keep them the employer will have to pay so it has gone back to the employer to cover the 1.5% cost on both sides. When that goes to 6% there will be a knock-on effect. Anything that is happening at the moment in the construction or other sectors, even down to the coffee shops, is reflected in the price of goods, from a cup of coffee up to the pricing of houses. On the housing inflation costs, in a house that costs €500,000 it makes a €7,000 difference, from an auto-enrolment point of view. It is driving the trajectory of inflation further whereas it could have been introduced without the tax base being changed. There should have been an incentive for it. That is my concern from an inflation point of view. I welcome auto-enrolment but am concerned at how it was delivered and what we will get back from it.

Aindrias Moynihan (Cork North-West, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

I am not sure if it was raised earlier but I would be interested to hear the witnesses' views on inheritance tax from two different aspects. First, there is the indexing of the bands, which have remained fairly static over a number of years. Second, class A is aimed at immediate family but the shape of the family has changed over the years and there are people who do not have children of their own and who may wish to pass on the family home to a niece or nephew, for example. This is a separate issue from the one of the favourite niece who would be taking over the farm or the pub in the village.

I would be interested to hear Dr. Roantree's take on how that could be treated or on whether a different approach that would be more suitable to recognising the different shape of the relationships that exist could be taken.

Dr. Barra Roantree:

The point about the non-indication of thresholds is a fair one, but that applies more generally across the tax system and, indeed, the welfare system. It is not something that we do by default in this country. It is the case in many other countries that tax thresholds, bands and welfare rates automatically rise in line with inflation, but that is not something that happens here. It is a systematic issue across all those areas, and it is an issue here just as much as elsewhere.

With regard to the changing nature of the family, we already have a tax-free threshold for parents to kids and kids to parents of €400,000. One issue is that if we were to substantially increase the class B or the class C thresholds, which are deemed in addition to the class A threshold, we could end up in a position where it would quickly become very expensive to increase those thresholds while keeping the class A threshold fixed. One could make a case, if one wanted to, on the very important issue about the treatment of different types of relationship and just have a unified threshold and one lifetime capital acquisitions tax threshold that apply whether the gift is from parents, an uncle or a friend. A case could be made for that. If we wanted to do that in a way that is not massively expensive, however, we are going to need to increase taxes on bequests from parents to kids. Otherwise, we are talking about expenses of several hundred million euro to change the system in any meaningful way. That would be my perspective. The issue often relates to relationships that are not parent-child relationships. I can see where people are coming from. Fundamentally, however, given the existing structure of the tax system, it would either be very expensive or would involved a huge change, with many losers in terms of the tax that would have to be paid if it was from parents to kids.

The other point-----

Aindrias Moynihan (Cork North-West, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

Dr. Roantree is saying that adjusting the A, B and C bands is one option, which would be a huge change. What would that change look like?

Dr. Barra Roantree:

I am not advocating this, but one could-----

Aindrias Moynihan (Cork North-West, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

Is it something like the UK system where-----

Dr. Barra Roantree:

No. I would absolutely avoid the UK system. The UK system is based, fundamentally, not on the people receiving the gift but on the estate. It is riddled with loopholes. If a person gives anything more than seven years before he or she dies, there is no tax. This is very much exploited by those who are "healthy, wealthy and well advised", as Mervyn King, the former Governor of the Bank of England, once described it. A key principle in inheritance tax is that gifts and bequests are treated the same whatever their source. Again, I am not advocating that, but it is a view of some people. Then, fundamentally, we are into a view of having a unified threshold of say €100,000. This means there would be a lot more parents-to-children bequests and gifts subject to tax, which I can imagine might not be popular amongst them. Realistically, if we wanted to go down that route we would have to raise revenue elsewhere within that system. That is what we would need to do.

A point was made earlier on capital acquisitions tax. People have very different views on capital acquisitions tax. Some people think it should be a 100% rate and some think it should be 0% rate. For me, the major inequality with the existing system is the way that different assets are treated. If a person has shares and wants to pass them on to a kid, that is subject to the standard class A threshold. If it is a business or a farm, the value is reduced by 90%. The stated rationale for that is to encourage the transfer of small and medium-sized family farms and businesses, but the relief is not capped. As a result, the major beneficiaries of the existing system are those inheriting extremely large family farms and businesses. I gave an example earlier. In 2024, there were 782 claims for business relief that cost €430 million. That relief is worth, on average, over €500,000 per claim. If we back that out, it means that the businesses people are inheriting are worth at least €1.6 million if not substantially more.

Aindrias Moynihan (Cork North-West, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

Were those agricultural businesses?

Dr. Barra Roantree:

No. That is the non-agricultural. That is just the business relief. The figures are slightly smaller on the agricultural side, but it is still many multiples of the average family farm. The major beneficiaries of this are not the small or medium farmers. It is very major, and people inheriting large amounts. We have seen this in a similar context in the UK with James Dyson, who is one of the largest landowners there. A question was asked as to whether this was in response to a 100% write-down for agricultural land in the UK.

Edward Timmins (Wicklow, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Consider the inheritance situation where someone inherits development land and it is valued as being worth a large amount by an auctioneer and the person involved pays inheritance tax on that. Subsequently, the land is never developed or it becomes rezoned five, ten or 20 years later. Obviously, there is no clawback of that tax. What does Dr. Roantree think of that?

Dr. Barra Roantree:

It is part of the nature of a system that taxes gifts or bequests as they happen. Ultimately, it has to be valued at some point.

Edward Timmins (Wicklow, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Does Dr. Roantree think there should there be a clawback? The person is paying tax on something that he or she never actually sold or realised.

Dr. Barra Roantree:

The flip side is that is land or farmland is passed on and is then subsequently zoned in the other direction for development-----

Edward Timmins (Wicklow, Fine Gael)
Link to this: Individually | In context | Oireachtas source

If that is sold, capital gains tax is paid.

Dr. Barra Roantree:

Yes it can be, but I suppose-----

Edward Timmins (Wicklow, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Is it not the case then that someone is paying tax for something they will never realise and which they will have no opportunity to realise?

Dr. Barra Roantree:

Situations can arise that are quite difficult, but I find it very difficult to see how we could have a clawback that did not give rise to lots of other issues. I can see the point the Deputy is making. At the same time, however, it gets very difficult if we were to start putting in a kind of relief down the road for that. In addition, I am not sure what the point of the relief would be. I do not see how that relief would encourage the development of land, which might be a particularly important objective during a housing crisis, if the land is zoned as in the example given. It would be very hard to know how expensive that relief might be. One of the issues we are bringing here today is the importance of having a sense of the revenue or the cost of these reliefs in the future when they are introduced.

Richard O'Donoghue (Limerick County, Independent Ireland Party)
Link to this: Individually | In context | Oireachtas source

I have a question following on from Deputy Timmins' point. I agree 100%. It would make it very complicated if there was a clawback from the point of view of somebody inheriting land that was zoned. However, policy around land that is zoned does not always reflect the infrastructure that is on the ground to enable it to be developed. Consider the policies. There is land zoned in certain areas in my county of Limerick that will never be developed because people are saying that it will be 30 years before the infrastructure is put in place in order that it can be developed. Why would a person have to pay tax on something that can never be developed? If somebody had this land and if the land was farmed or whatever until it was developed, would it not be better to have a clawback then because it would be development land and the tax could happen then?

Why are local authorities or the Department zoning land that can never be developed and then asking people to pay a tax in they same way as if they had actually inherited it? That does not make sense. Many land holdings around County Limerick are zoned but will never be developed in light of the lack of infrastructure. In Askeaton, for example, they have been waiting 44 years to have the sewerage system upgraded. That will only happen in June this year or sometime next year. Anyone within that area who has zoned land that they inherited, will have had to pay the taxes that we are talking about, even though the land may never be developed. Could we not bring in a system that looks at where infrastructure is provided and where there is no infrastructure provided in an area where land is zoned?

Dr. Barra Roantree:

There are two things there. It would be a fundamental change to the current nature of capital acquisitions tax in that one would be putting in a kind of contingent evaluation and clawback. That would create lots of complexities. It may be something the committee would want to explore with the Revenue Commissioners down the line. I would also make the point that in these situations, members are talking about where land is zoned but is not serviced and where there is no prospect of it being developed. That should be reflected in the price it is being acquired at.

Richard O'Donoghue (Limerick County, Independent Ireland Party)
Link to this: Individually | In context | Oireachtas source

It should be.

Dr. Barra Roantree:

It should be, and anyone with a decent accountant should be able to argue that to the Revenue Commissioners as well. Land being zoned does not immediately bestow upon it a massive premium.

Richard O'Donoghue (Limerick County, Independent Ireland Party)
Link to this: Individually | In context | Oireachtas source

It is all down to the interpretation of who is dealing with the case.

Dr. Barra Roantree:

It can be, but this is an issue that can arise in many different circumstances. If someone is in that situation, I suggest that they get a good accountant. I am sure the accountant would be able to argue their case very strongly.

Richard O'Donoghue (Limerick County, Independent Ireland Party)
Link to this: Individually | In context | Oireachtas source

Or else get the land dezoned. In the context of future-proofing, land is being zoned in the hope that there will be development on it. Under the system that has emerged, however, a certain amount of zoned land has to be within the curtilage of towns and villages, even if development is not achievable in the following couple of decades. Does anybody want to make any further comments?

Dr. Christian von Haldenwang:

Regarding the problems that have been discussed, Ireland is not alone. Many of these problems are shared by countries with ageing populations or more wealthy societies. The issue of how to treat pensions in the context of taxation is key. The issue with regard to how to treat inheritance is also a major topic of discussion in other countries. In Germany, for instance, expenditure on inheritance tax is among the biggest tax expenditures the Government grants. It is in the range of €8.8 billion every year. That is something which has to be taken into account.

Another issue that has not been raised relates to the sustainability of tax policy and the tax expenditure that is behind it. I would like to go back to what Mr. Aliu mentioned and what we really find to be very important progress in reporting with the development of tax expenditure passports. We have these passports with specific information for each tax expenditure. In other countries, taking Germany as a positive example, these passports contain an assessment of the sustainability of the measure, not only in terms of environmental sustainability but also economic and social sustainability. When we think about developing further or improving these passports as an important source of information for parliament, something that could be added to them is the date of the introduction of the measure. This important information is missing.

Richard O'Donoghue (Limerick County, Independent Ireland Party)
Link to this: Individually | In context | Oireachtas source

I thank Dr. Collins, Dr. Roantree, Mr. Aliu, and Dr. von Haldenwang for attending.