Brian Lenihan Jnr (Dublin West, Fianna Fail)

We have been successful in building and maintaining strong economic growth for more than a decade. While a range of factors have contributed to this success, the ability of the tax system to adapt and respond to the changing needs and pressures of a globalised economy has played a significant part.

As we go forward, our tax system will need to evolve and change to align with ever more changing political, economic, environmental and fiscal conditions. Globalisation and ageing are challenges that require us to think about the way we raise tax in the future. Aging increases pensions and health-related expenditures while globalisation means tax bases are more mobile — an unhealthy combination of increasing costs and revenue risk. The Commission on Taxation will inform our strategic thinking about the nature and burden of taxation for the next ten to 20 years.

We have a low tax burden by European standards. As a country, we have made a choice to reward work and enterprise. It has to be recognised that we demand ever more ambitious public services. We have an aging population and at the same time more modest rates of economic growth in the future are anticipated. This means that less money will be available to meet public expenditure demands. This has implications for our tax system in the long run. In the next year, close to €2 billion in tax revenue must be raised to keep within the fiscal targets set out earlier. If the current economic circumstances deteriorate, it may be necessary to make some equally difficult tax choices next year.

Principles of Taxation

€2 billion is a very substantial amount of money to seek in any one year, but circumstances are such that there is no option. In raising this sum, the Government has been guided by three essential principles. First, the imposition must be fair and equitable and at a higher rate for those on higher incomes; second, the levies involved must be straightforward and readily collectible and third, we must seek to protect sustainable production, employment and the economy to keep Ireland competitive in the global marketplace. The Government is concerned that some of the more expensive tax reliefs, especially for the better-off, should be scaled back and the resources used, as appropriate, to protect those taxpayers who are most vulnerable in these times. It is fair and reasonable that those who profited most from the recent good economic times should shoulder a commensurate burden as conditions worsen.

Main Tax Measures

Earlier I indicated the Government has decided to introduce an income levy at the rate of 1% on all incomes up to just over €100,000 per annum and at the rate of 2% on the balance of all income above that level. Apart from this the main tax measures are as follows.

VAT/Excise

I am increasing the standard rate of VAT by 0.5% to 21.5% from 1 December.

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