Thursday, 22 March 2012
Finance Bill 2012 (Certified Money Bill): Committee and Remaining Stages
Sean Barrett (Independent)
I welcome the Minister. I have two points to make on this section which will save time later. The first is on the general issue of these tax expenditures as a concept. I also have some thoughts on the particular one at which we are looking here which refers to research and development.
Some of the countries with which we will deal use tax expenditures much more sparingly than we do. There are 86 in Germany, Micheál Collins found 131 here and there are 100 in the Netherlands. They account for 20% of our tax revenue, 8.5% of tax revenue in Germany and 5.1% of tax revenue in the Netherlands. They were very heavily criticised in the Commission on Taxation's 2009 report. It referred to a lack of equity, a lack of transparency, the potential to facilitate tax avoidance, the inefficient allocation of scarce resources which may also involve a deadweight element, no time limits or time limits that are not adhered to, no cost constraints and neither regular nor rigorous reviews. In his response yesterday, the Minister expressed himself to be in favour of these reviews. The particular one to which he referred was the film industry. That is a generally accepted view.
If we put it another way, this is an area of our public finances where the reforms we saw in the comprehensive public expenditure review are needed because of the way these tax expenditures operate and not least the ill-effects on which the Commission on Taxation reported. The report further stated that it is difficult to see how accountability and control in the allocation of public resources can be adequately secured where basic information on the annual cost of so many tax expenditures remains unavailable or unreliable. There are many unattractive features.
When the Minister, Deputy Howlin, was in the House in the autumn, we suggested that the comprehensive public expenditure review should include these tax expenditures. Indeed, the commission recommended that we should have, as the Minister said in his reply yesterday, an ex-ante evaluation process in advance of decisions to implement or extend any tax expenditure, including an assessment of the cost and benefits of the proposals and consideration of a direct expenditure approach, better measurement and data collection of the costs and benefits associated with the introduction or extension of the tax expenditure and the review of its impact, the publication of an annual tax expenditures report by the Department of Finance which should be a part of the annual budget process and subject to Oireachtas scrutiny, for which I thank the Minister, and that spending through the tax system should be controlled by the imposition of thresholds, ceilings and reductions in the rate at which tax relief is given or in the quantum of a base figure to which tax relief might apply. There is a strong view in economics that there are many undesirable features in tax expenditures and I, like other Senators, look forward to seeing reforms in future years to deal with them.
Yesterday, I mentioned the unease people like Micheál Collins feel about the inequity effects of them. The 11th edition of O'Hagan, which is the standard economics text book, states that the more income a person has, the more tax they are liable for and, therefore, the more tax they have available to be written down against various tax breaks. Micheál Collins states in that book that in 2010, a minimum effective tax rate of 30% of income was set for earners with incomes of more than €250,000 in an attempt to minimise the use of tax breaks to reduce their tax bills and that a 30% rate is equivalent to the tax level faced by a PAYE worker earning €55,000. Concern was expressed in it and that is why I brought it to the attention of the House yesterday.
Those are my general points on tax expenditures. It is an area which is in need of reform and support for that reform comes from the Commission on Taxation, people like Micheál Collins and other economists. The specific one at which we are looking here is research and development. It has been a problem for quite some time. In the National Development Plan 2007-2013, the last Government warned: "The impact of the Strategic Innovation Fund will be critically reviewed in 2010 to inform the assessment of policy in this area thereafter and the €225 million funding for the years 2011-13 is therefore provisional and dependent on the satisfactory outcome of that review". The same problem is encountered in the strategic innovation report which recommends some evaluation of whether this research and development will lead to anything. It is an act of faith. An bord snip nua found the beneficiaries of the expenditure remarkably reluctant to show the benefits of what it actually does. Those involved obviously feel better and that is the problem with all these tax expenditures. The recipients think they are wonderful but the butcher, the baker and the candlestick maker must pay for them.
The reason I oppose this section is that it is about time the research and development industry, which between tax breaks and direct expenditure is costing us €0.5 billion per year, is able to tell the Minister what the results are. The Department of Finance has been fobbed off long enough by people engaged in this expenditure. We need to know what it is doing for the country because it is taking money from other sectors of the economy.
When will we get the return? We have asked about it since 2006 right up to an bord snip nua and strategic innovation report. A lot of money is being spent and it is kick and hope kind of stuff but is that good enough in the circumstances in which the Exchequer finds itself?
My two points were whether we want to carry on the tax expenditures in general and the failure of the research and development sector to provide convincing economic evidence that there is a return on this money. How many jobs have been created and from where have they come? What is the cost per job? We are entitled to know that rather than have people say one is against Ireland's future and unpatriotic if one questions the research and development budget. We were in this trap before with the construction sector. We shovelled bucket loads of cash and tax reliefs into it and it destroyed the economy. We must look out for the next bubble and, in that context, the research and development sector must produce for the Minister the results of this expenditure and remove the kick and hope kind of element from it.