Taxation:The Government's taxation policies were the subject of controversy during the year both at home and abroad.

At home critics argued that low-tax Ireland was not as low as the Government was claiming, while critics abroad continued to complain that Ireland's policies on attracting foreign direct investment facilitated multinationals in avoiding taxes due in both the US and elsewhere in the EU.

Fine Gael's finance spokesman Richard Bruton argued that the tax burden on households had increased by seven percentage points since the Government was re-elected in 2002.

Increases not just in the amount of income being subjected to income tax, social insurance and the health levy, but also being absorbed by VAT, customs and excise, motor tax and capital taxes, had led to 39 per cent of personal income going on taxes in 2006, he said, up from 31.6 per cent in 2002.

Key issues feeding into this, he added, were the increases in the VAT rate introduced in 2002 and 2003, and the slow erosion of the exemption limits and starting points for PRSI, which had not kept pace with inflation.

He argued that the tax take as a percentage of GNP has been increasing under the current Government, in contrast to the trend that existed in the period 1994 to 2002.

Furthermore, he argued that the Government was raising increasing amounts of revenue from sources such as commercial rates, development levies, and fees for Government services, an argument echoed by the business community.

Bruton's post-Budget estimate was that 31 per cent of taxpayers were now paying tax at the top rate, up from 27 per cent in 2002, and a far distance from the 20 per cent promised in the Programme for Government. He said more people were paying at the higher tax rate than at the lower because the increase in the tax bands had not kept pace with income growth.

The Minister for Finance, Brian Cowen, argued that the tax under headings such as corporation tax, which has been soaring, should not be included in calculations on the trend in the tax take from households. He has agreed that of the 2.16 million income earners on the tax record, just under 32 per cent are liable to pay at the 42 per cent rate.

However Cowen went on to argue that for 11 per cent of the 31.7 per cent with a liability at the top rate, their "actual effective tax rate is below 20 per cent. This is because that portion of their tax liability which is payable at 42 per cent, is offset, or more than offset, by the application of tax credits."

Bruton was not the only one arguing that the Government's tax take has been on an upward slope. A pre-Budget paper from Dermot O'Leary, economist with Goodbody Stockbrokers, also found the trend in total tax take was upwards each year since 2002.

The Irish tax take, including social security contributions, as a percentage of GNP, was estimated by the European Commission to be 39.9 per cent in 2005, slightly below the European average of 42.3 per cent, and comparable with the UK, O'Leary pointed out.

O'Leary, like Bruton, noted that VAT had in recent years switched places with income tax as the largest revenue gatherer for the State. VAT, of course, is a non-progressive tax in that it taxes every purchase similarly, irrespective of the income level of the purchaser. The regression is increased by the fact that rich people tend to spend a smaller percentage of their total income than do the less well off.

O'Leary estimated that a third of the increase in the total tax take over the past two years was accounted for by property-related taxes, due of course to the property boom.

In the Budget the Minister increased tax bands, as promised, but also reduced the top income tax rate by one percentage point, to 41 per cent. He said the Government would reduce the rate by another percentage point if returned to power. The announcements were in contrast to the Taoiseach, Bertie Ahern's earlier comments that the tax-cutting days were over.

Figures released during 2006 continued to show that high-net-worth individuals were significantly reducing their income tax bills through the use of property-based and other tax relief schemes.

The Minister has announced the ending of some tax reliefs and capped relief on pension fund contributions, but has also announced an increase in the reliefs available under the Business Expansion Scheme.

Business reports during the year included a steady stream of stories showing that very high pension contribution payments had been made in the period prior to Cowen's expected announcement of a cap on qualifying funds.

While critics at home said the Government's tax policies were increasing the total tax take, and shifting the emphasis towards middle and lower income groups, critics abroad complained about how the Irish Government was taking increased amounts of tax from some of the richest and most successful companies in the world - the multinationals.

The phenomenon of US multinationals transferring the management of their intellectual property, and brands, to Ireland continued through 2006. By charging from Ireland for the use of this property by group operations in other countries around Europe and further beyond, multinationals can shift the jurisdictions in which their books show the profits arising to Ireland.

Ireland's comparatively low, 12.5 per cent, corporation tax rate can then be applied to the profits from business spread across Europe and beyond. A low rate such as Ireland's, in a developed economy such as Ireland's, is more likely to wash with foreign Revenue organisations, than say a zero rate imposed by a small island in the Caribbean. That said, the taxation of income in Ireland can be reduced below the 12.5 per cent rate if a multinational organises its global structures so royalty payments are paid on by the Irish operation to yet another group holding company located in a zero tax jurisdiction.

By such methods, a number of multinationals have been reducing their global "effective tax rate" by a number of percentage points, saving themselves many millions of euro in tax by paying a larger proportion of their global tax bill in Ireland rather than in other locations.This has hugely benefited the Irish exchequer but has caused concern elsewhere.

After the elections in the US, there was speculation that the resurgence of the Democrats could see increased pressure to stop US multinationals reducing their tax bills in this way.

There were also pressures in the EU. In December the president of the European Commission, Jose Manuel Barroso, said the commission would press ahead with harmonisation of the corporation tax base across the union. Ireland is among those states that have indicated they will strongly resist a move that they see as a first step in introducing the harmonisation of corporation tax rates across the EU, a development that would badly hit Ireland's attractiveness for such foreign direct investment and the resultant corporation tax receipts.