Joan Burton (Dublin West, Labour)
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Question 162: To ask the Minister for Finance if he will provide the full estimate of the annual cost of each tax expenditure on the statute books; if he will itemise each of those that are to be withdrawn over the course of the national recovery plan; to set out the saving to the Exchequer in each of the next four years of these measures; and if he will make a statement on the matter. [48033/10]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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In relation to the first part of the Deputy's question the reply is provided at Annex 1 and sets out the most recent information available as advised by the Revenue Commissioners. The second part of the question relating to tax expenditures that are to be withdrawn over the course of the National Recovery Plan are as set out in Annex 2. The National Recovery Plan provided for a series of restrictions to and curtailments of entitlement to a wide range of reliefs. I am pleased to say that all the general tax expenditure measures highlighted in the Plan have either been abolished or otherwise restricted in Budget 2011. Indeed the Budget took measures beyond those in the Plan. A total of 14 reliefs are being abolished (5 on a phased basis), 10 are restricted with a further 6 measures taken to reduce costs in the pensions area. The yield from these combined measures will be of the order of €300 million in 2011 and will increase to around €1,500 million by 2014 (inclusive of additional planned measures).

Revenue is generated by economic activity, not by increased tax rates. High tax rates and a narrow base of economic activity may raise far less revenue than lower rates on a much wider base. Accordingly, the National Recovery Plan is concerned not just with the "quantity" of revenue to be raised but also with the "quality " of the measures adopted and their ability to deliver sustainable structural reforms. At the end of this process we must have confidence that we have a revenue system that is fit-for-purpose.

For these reasons, there must be an emphasis on base broadening across the tax system.

§ We are increasing the numbers paying tax. An income tax system where more than 45% of tax units paid no income tax was not sustainable.

§ Tax expenditures and reliefs are being abolished or restricted: higher earners cannot shelter themselves from paying their fair share of tax.

By broadening the base at both ends of the income spectrum, the nominal rates of tax can be kept lower while the effective rate can be raised in a way that is fairer to all. This is an unprecedented broadening of the tax base to distribute the burden and ensure that those who can pay most will pay most.

ANNEX 1

I am advised by the Revenue Commissioners that the total identifiable costs to the Exchequer of all income tax and corporation tax allowances, reliefs, exemptions and tax credits available are set out in the following tables for 2006, the most recent year for which the necessary detailed historical information is available. Relevant notes relating to items in the tables are also included.

Estimates of the prospective yield to the Exchequer in 2011 from the abolition or standard rating of each deduction and relief from incomes over the specified ranges are not available. These estimates could not be provided without undertaking an extensive and costly development of the Revenue tax model nor would they capture any behavioural change on the part of taxpayers as a consequence of such change or their economic effects. Estimates of the costs of tax deductions and reliefs for 2007 are currently being compiled.

Cost of Tax Credits, Allowances and Reliefs 2006 and 2005

The following table IT 6 shows the estimated cost in terms of revenue forgone of the personal tax credits and the main reliefs and deductions allowable under the income tax system. A number of reliefs which apply both to individuals and companies is also included and the cost shown in relation to these reliefs covers income tax and corporation tax.

An adjustment is included in the cost figures applying to income tax to compensate for incomplete numbers of tax returns on record at the time of compiling the estimates.

The tax credits and reliefs listed in the table serve varying purposes. Many are essentially structural reliefs through which individual tax liabilities are adjusted to reflect relative taxable capacity. The main personal tax credits are a good example of this since they may be regarded as part of the progressive income tax structure representing a band of income chargeable at a zero rate. Others, such as relief for interest paid in full or investment in corporate trades, are tax-based incentives in favour of specific groups or activities which are designed to promote certain aspects of public policy.

In computing taxable profits, account needs to be taken in some way of the depreciation of capital assets incurred in earning those profits. To this extent, the figures in the table of the "costs" of capital allowances should not be regarded as measuring a "loss of tax revenue" on profits. To compute such "loss", regard would have to be had to the excess of the amount of the capital allowances at current rates over the amount of the normal allowances.

The figures shown for the basic personal tax credits (married, single and widowed) are the costs of these tax credits as if all other tax credits and the exemption limits did not apply. They do not include individuals who are not on Revenue records because their incomes are below the income tax thresholds. The cost figures for the exemption limits are based on the excess of the exemption limits over the basic personal tax credits.

The figures of cost are for 2006 and 2005 and all figures are based on tax due in respect of assessments for each year and not on tax receipts within that year. The figure against each credit or allowance represents the additional tax which would become payable if the tax credit or allowance were withdrawn assuming no consequent change in the behaviour of taxpayers (for example, in relation to the reliefs for savings), or the amounts of payments (for example, interest payable on certain savings schemes might need adjustment to take account of the new tax liability). The numbers of claimants of each credit or relief are shown for both years to the extent that they are available. The numbers included are the taxpayers who would be adversely affected by the withdrawal of the respective credit or relief.

In the calculations, each tax credit or allowance has been dealt with separately and on the assumption that the rest of the tax system remained unchanged. It would be therefore inaccurate to calculate the effect of withdrawing all the credits, reliefs and allowances by simply totalling the figures. For example, the costs shown for capital allowances and stock relief are also calculated on the basis of separate withdrawal of these reliefs. Their combined cost would be greater than the sum of the separate costs because allowances are not always fully set off against available profits. For instance, a person with €1,000 gross trading profits, €1,000 capital allowances and €1,000 stock relief would pay no tax if either of the reliefs were withdrawn but would pay tax on €1,000 profits if both reliefs were withdrawn. In this case, the cost of each relief separately is nil but the combined cost is tax on €1,000. Basic data is not available to enable an estimate of the combined cost of these reliefs to be made. The figures for estimates based on tax returns have been grossed up to an overall expected level to adjust for incompleteness in the numbers of returns on record at the time the data was extracted for analytical purposes.

Finally, the estimates shown in many cases are tentative and are subject to revision in the light of later information. Some of the cost figures included in the table for 2005 reflect revisions to figures previously published in the 2007 Report.

INCOME TAX AND CORPORATION TAX