Eamon Gilmore (Dún Laoghaire, Labour)
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Question 136: To ask the Tánaiste and Minister for Finance his views on the report of the Revenue Commissioners on the effective rate of tax of the top 400 earners during 2003; the steps he is taking to ensure that all high earners pay their full share of tax; and if he will make a statement on the matter. [23673/07]

Brian Cowen (Laois-Offaly, Fianna Fail)
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The Revenue Commissioners' study, Effective tax rate of top 400 earners: Report for the tax year 2003, indicates that in 2003 the percentage of high earners on low rates of tax remained relatively static in comparison with 2002.

There are a number of factors to bear in mind when reading the results of that report:

Reliefs that reduced the effective tax rates include loss relief and standard wear and tear allowances, reflecting real trading losses and depreciation of business assets.

Reliefs reducing effective rates would also, for example, have included relief for interest paid on borrowings for business investments in partnerships and companies and relief for charitable donations.

The effective rates shown are effective rates for Irish tax on income and, in some cases, the rates would increase significantly if adjusted to reflect tax payments in respect of that income in other jurisdictions.

Historically, there have been some individuals with high incomes who have paid a very low level of tax. While their use of legitimate reliefs was entirely legal, it did give rise to questions of equity, which further justifies and reinforces the valid reasons for my decision in Budget 2006 to restrict income tax relief for high earners.

The measures introduced in Budget 2006, which took effect from 1 January 2007, will both greatly restrict the availability of special tax incentives — especially in the property sector — and reduce the ability of high earners to offset these reliefs against annual income. This means that from this year onwards the tax take from the better off will rise and the tax system will be more equitable as a result. This action complemented the series of measures taken by the Government since 1997 to curb abuses, curtail reliefs, reinforce equity and restore confidence in the fairness of the tax system.

Notwithstanding the above, it should be noted that the vast majority of those with high incomes pay tax at or close to the top rate (42% in 2003) and the top 1.5% of income earners pay more than a quarter of all income tax in the State, while after Budget 2007 nearly 40% of income earners at the lower end of the income scale pay no income tax.

As the Deputy will be aware, the Programme for Government includes a commitment to establish a Commission on Taxation which will further examine tax reliefs and incentives in Ireland. While tax incentives are a valid and useful policy instrument, which can be very effective in influencing economic behaviour, they must be used judiciously and with their cost effectiveness and impact on the overall fairness of our tax system kept in mind.