Jackie Cahill
Question:99. Deputy Jackie Cahill asked the Minister for Finance how he proposes to maintain a secure, sustainable and progressive tax base; and if he will make a statement on the matter. [30041/23]
View answerThursday, 22 June 2023
Questions (99)
Written answers
The primary purpose of taxation is to finance public expenditure. The size and composition of aggregate tax receipts have undergone significant change over the last two decades. Prior to the financial crisis, tax receipts were increasingly skewed towards transitory taxes, with a significant narrowing of the remaining tax base. On foot of the need for fiscal consolidation, a range of structural tax changes were implemented between 2009 and 2014 to raise revenue, and to specifically address the structural weakness, within the Irish taxation system that had contributed to the financial crisis. Some of the important structural reforms included the introduction of the Universal Social Charge in 2011 and the Local Property Tax in 2013. Additionally, a carbon tax was introduced and significant progress was made in phasing out and curtailing many tax expenditures. As a result, the tax base was widened considerably and re-oriented towards more stable revenue streams.
As the largest annual source of revenue for the Exchequer, personal income taxes make a significant contribution to our public finances. It is desirable that the personal tax system should maintain the characteristics of stability and resilience in terms of its contribution to the total taxes collected by the State. Ireland has one of the most progressive personal income tax systems in the world, which plays a crucial role in the process of income redistribution. Our redistributive tax system has been acknowledged by the IMF, the OECD and the ESRI.
In 2022, corporation tax receipts are the second largest source of revenue to the Exchequer. Corporation tax is a volatile and potentially unreliable revenue stream given the highly concentrated nature of corporation tax receipts, which has the potential of leaving the public finances vulnerable to external factors. Analysis by my Department indicates that some €12 billion, half the projected corporation tax yield this year, is ‘windfall’ or ‘excess’ in nature.
As you will be aware, this Government is working to mitigate this risk. As such, €6 billion in windfall corporation tax receipts have been transferred to the National Reserve Fund to rebuild our fiscal buffers and ensure that these receipts are not used to fund permanent expenditure commitments. My Department has also published a scoping paper which sets out a number of proposals for a longer-term investment vehicle. This will enable Government to use some of this windfall to prepare for the structural fiscal challenges on the horizon, including the costs associated with an ageing population. Discussions on the design of such a fund are well underway and I intend to bring a proposal to Cabinet in the coming weeks.
While I have specifically mentioned the two largest tax streams, I would note that all taxheads have a role to play in ensuring the stability of the tax base. Excessive changes that adversely impact on the tax base would risk repeating the mistakes of the past by narrowing the overall tax base and leaving our public finances vulnerable to external shocks.
The best way to ensure the sustainability of our tax base is by continuing to pursue a budgetary policy that balances continued investment in our public services and infrastructure with the long-term sustainability of our public finances.
Government will set out its fiscal strategy for Budget 2024 as part of the Summer Economic Statement, which will be published in the coming weeks.