The Irish Fiscal Advisory Council has said the state could raise an additional €15bn in tax, or 5.3% of gross national income, if all the recommendations of the Commission on Taxation and Welfare are implemented.
The council highlighted the proposed property tax reforms as being central to increasing tax revenue, but higher capital taxes, VAT, environmental taxes and taxes on income could all contribute.
It also said that the reforms would go some way to helping the state address long-term challenges such as an ageing population, climate change, and over-reliance on "unpredictable" corporation tax receipts.
The Commission set out 116 recommendations in its report, submitted to the government in September, with proposals to broaden the tax base across most areas, increase PRSI receipts, and shift the balance of taxation from labour towards capital, wealth, and consumer spending.
The proposals also aim to make the welfare system more effective through reforms to eradicate cliff edges created by badly designed thresholds and to implement regular benchmarking of working-age payments.
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Increases in taxation on the scale suggested by Commission would see Ireland move from being a relatively low-tax country in line with the UK and close to EU norms between Spain and Germany, and in line with Portugal and Slovenia.
Of the 5.3.% increase in GNI forecast by the council, 1.8% or a third of the increase would come from property and land taxes, specifically proposed increases in Local Property Tax (1.1%) and a new site value tax (0.7%).
Capital and wealth taxes would make up around 15% of the expected increase, mainly from restricting CGT Principal Private Residence Relief and treating asset transfers upon death as CGT disposals.
VAT increases, higher environmental taxes, higher income taxes, and other proposals such as phasing out tax relief on private health insurance and meaningful reductions in overall tax-free lump sum levels would contribute 0.9%, 0.8%, 0.7% and 0.2% to GNI, respectively.
The council conceded, however, that the estimates were likely to be optimistic as the assessment does not allow for behavioural responses. Some of proposals in the report were criticised by Tánaiste Leo Varadkar upon publication.
"Ireland faces major choices about the size of the state. The Commission’s work is an important contribution," said Eddie Casey, chief economist at the Irish Fiscal Advisory Council.
"It is not the council’s role to say what the balance of taxes and spending should ultimately look like, but a broader debate needs to take place.
"Whatever choices are made, large pressures are coming. We need to ensure that the public finances are managed soundly to preserve Ireland’s economic stability.”
(Pic: Getty Images)
