Joe Carey (Clare, Fine Gael)
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92. To ask the Minister for Finance the amount of capital gains tax, CGT, collected in the year following the reduction in the CGT rate to 20%; and if this represented an overall increase in CGT collected. [29210/16]

Michael Noonan (Limerick City, Fine Gael)
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I am informed that in Budget 1997, the rate of capital gains tax was cut from 40 per cent to 20 per cent (except for disposals of development land which remained taxed at 40 per cent later changed in Budget 2000).

The rate change affected four months of the 1997-1998 tax year yield and the entire yield for 1998-1999. The CGT yield the figures for these years are as follows:

1996: £83 million (€105 million)

1997: £132 million (€167 million)

1998: £193 million (€245 million)

1999: £356 million (€452 million)

The point is often made that when the CGT rate was reduced from 40% to 20% in 1998, yield increased. In fact, the yield from CGT had been increasing significantly in relative terms for some years prior to the 1998 rate change, albeit from a low base.

Several other points should also be noted in this regard. The significant rate reduction happened at a time when asset values had been rising over a period and so large gains were available to be realised. The rate drop may also have been anticipated by owners of assets such that they held off on disposal until it came into effect. More generally, while a drop in CGT rates may stimulate activity in the short term, much of the effect will come from bringing forward disposals that would have occurred anyway but at a later date. To this extent, tax yield and economic activity are not increased overall but simply moved in time.