The Finance Bill is one of the landmarks of the year for business and the economy, setting out how the Government plans to introduce the measures announced on Budget day and bringing forward new elements of tax legislation.
This year a large and complex Bill has as one of its main themes the closing off of tax loopholes and reliefs, some of which would have cost the Exchequer tens of millions of euro.
The Minister appears to be taking a determined approach this year and this is welcome. A recent study from the Revenue Commissioners showed that many of the highest earners in the State used mainly property-based reliefs to lower their income tax bills sharply. In many cases, incentives and reliefs were used in ways that were never foreseen and which served no wider economic purpose.
Many of the property-based tax schemes are being phased out by the end of next year. This is welcome, if overdue. In some cases these schemes did achieve economic goals. For example, the IFSC may never have developed without the tax breaks offered in its early years. However in many cases the schemes encouraged haphazard, tax-based development.
A more serious problem was the abuse of many of the reliefs through ingenious schemes devised by tax experts. Many of these schemes are now being closed off. There is no doubt that more remain, calling for vigilance from the tax authorities. The prevalence of such arrangements, meanwhile, argues strongly against the introduction of fresh tax reliefs in the years ahead. In any case, with income, capital and corporation tax rates now at low levels, the general case for special tax breaks is weakened.
Unfortunately, the Minister is unlikely to quickly raise substantial sums of money from closing tax loopholes. Doing so safeguards the tax base for the future, but such is the state of the Exchequer finances that average taxpayers will also pay more this year. Taxpayers will suffer from the non-indexation of most tax credits and the standard rate tax band, from higher excise duties and VAT, and from higher charges for a range of state services. If the state finances had been kept on a tighter rein in the good times - and particularly if spending had been better controlled - then the adjustment now would be less painful.
As things now stand, the move to widen the tax base is the correct way to boost tax revenue. Tax reliefs and allowances still cost billions of euro per annum and many are of questionable benefit. The Minister might have been better, for example, to abolish the stallion and greyhound reliefs, rather than seeking returns from these industries to judge the extent of revenue foregone. After all, few industries could object to a corporate tax charge of 12.5 per cent. A rigorous examination of the remaining allowances in the tax system is now called for in the year ahead, with a view to further cutting back the "special cases" which have bedevilled the system for years.