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Finance legislation fails to make tax system equitable and progressive

8 February, 2006


Speaking during the debate on the Finance Bill 2006, Sinn Féin spokesperson on Trade and Enterprise, Arthur Morgan TD said the "legislation fails to fulfill what should be the primary objective of tax policy – that is to make the tax system equitable and progressive and to redistribute wealth in favour of the less well off."  "Under a progressive tax regime those who have more pay more while those who have less pay less.  The system is regressive where, as in this state, the opposite is the case," he said.

Deputy Morgan went on to say, "Sinn Féin has long been critical of the Government’s plethora of tax exemptions and relief’s, more accurately described as tax expenditures.  We have been particularly critical of property based tax relief’s.  We pointed out the extent to which these were being used by the wealthy to avoid paying their fair share of taxation.  We now have confirmation that €3 billion in tax revenue was lost to the state as a result of property based tax relief’s at a time when in excess of 43,000 households remain on social housing waiting lists and young couples across the state struggle and over borrow to secure over priced housing.

"Sinn Féin is also vociferously opposed to tax breaks for developers of private hospitals, sports clinics and now private mental health services.    The state should not be subsidizing private healthcare in this way.   The revenue which is lost to the state as a result of these tax breaks should be used to deliver public health care services. 

"Tax expenditures are generally regressive because they primarily benefit the better off. All tax exemptions should be ended EXCEPT where the economic and social value outweighs the cost to the exchequer of the exemption and in such cases the exemption should be at the minimal rate necessary to bring about the goal for which it was introduced. "

 

Full text of contribution by Arthur Morgan TD to Finance Bill debate follows -

This legislation fails to fulfill what should be the primary objective of tax policy – that is to make the tax system equitable and progressive and to redistribute wealth in favour of the less well off.

Under a progressive tax regime those who have more pay more while those who have less pay less.  The system is regressive where, as in this state, the opposite is the case 

The extent to which the system is regressive was demonstrated in the review of tax relief’s finally published in recent days.  This review clearly illustrated that the tax policies pursued by the government have enabled the wealthy to further enrich themselves at the expense of the ordinary tax complaint PAYE worker.  It is astounding to read from that review that certain individuals took  €25 million in tax free lump sums from their €100 million pension funds.

It is no wonder that the recently published NESC report on ‘Creating a More Inclusive Labour Market’  found that we  now have a wealthier but more unequal society and that the richest 20% of the population earn 12 times as much as the poorest 20%.    A regressive tax system is matched by an abject failure to tackle growing wage differentials. 

*  *  *

Sinn Fein has long been critical of the Government’s plethora of tax exemptions and relief’s, more accurately described as tax expenditures.  We have been particularly critical of property based tax relief’s.  We pointed out the extent to which these were being used by the wealthy to avoid paying their fair share of taxation.  We now have confirmation that €3 billion in tax revenue was lost to the state as a result of property based tax relief’s at a time when in excess of 43,000 households remain on social housing waiting lists and young couples across the state struggle and over borrow to secure over priced housing. We also pointed to adverse effect which these relief’s and exemptions were having on property prices.  The Indecon Review confirmed that these relief’s led to “an increase in site prices, financial returns to promoters and property prices”.  Yet under this legislation, and at a time when house prices continue to escalate unabated, the termination dates for many of these schemes have inexplicably been extended until 2008.  This is absurd.  

Sinn Féin is also vociferously opposed to tax breaks for developers of private hospitals, sports clinics and now private mental health services.    The state should not be subsidizing private healthcare in this way.   The revenue which is lost to the state as a result of these tax breaks should be used to deliver public health care services. 

Tax expenditures are generally regressive because they primarily benefit the better off – fact clearly demonstrated by the Indecon report - and therefore all tax exemptions should be ended EXCEPT where the economic and social value outweighs the cost to the exchequer of the exemption and in such cases the exemption should be at the minimal rate necessary to bring about the goal for which it was introduced.  As my colleague Deputy Ó Caoláin pointed out in his contribution this morning “the lack of social analysis across the range of relief’s is one of the major flaws in the report”.  

*  *  *

 I would also like to raise the issue of tax exiles and the Minister’s failure to introduce legislative change to end the ability of wealthy individuals to declare that they are non-resident for tax purposes.

Currently the Department of Finance does not even collate data regarding the number of persons who claim to be non-resident for tax purposes. 

Sinn Féin has previously questioned the Minister for Finance regarding the number of investigations which have been carried out by Revenue as to the veracity of declarations by those claiming to be non resident for tax purpose regarding the number of days spent in the state in a given tax year and the number of cases where it has been found that false declarations have been made.  This issue must now be tackled as a matter of priority.

*  *  *

Another issue which I am disappointed has not been dealt with in this legislation is the abolition of the Employee PRSI ceiling.    It abolition is necessary because it is regressive and inequitably benefits higher paid workers.   

This view is has been supported by the Department of Social and Family Affairs who stated in 2002  that “Abolition of the ceiling would make the employee PRSI system more progressive.  The current system is regressive in that those over the ceiling pay a smaller proportion of gross income in PRSI than those earning under the ceiling.   Both receive the same benefits.  Abolition of the ceiling would therefore strengthen the social solidarity element of the system in that a proportion of all income would be pooled for the benefit of all contributors.”

In a submission to the Tax Strategy Group of 28/9/2004 in respect of PRSI issues 2005 the Department of Social and Family Affairs states that abolition of the employee ceiling would “address the criticism that employee contribution system is regressive because those over the ceiling pay a smaller proportion of gross income in PRSI than those under the ceiling.” 

 

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