Finance minister Paschal Donohue says that he will give the Report of the Commission on Taxation and Welfare an initial response on budget day later this month.
“The report is a significant body of work running to more than 500 pages and containing 116 recommendations. This report poses serious questions that we as a society must carefully consider," the minister said.
"The recommendations will foster real debate around how we reform our taxation and welfare systems over the longer term in order to safeguard their sustainability and adapt to a rapidly changing environment.
“It is my intention to discuss the report with my government colleagues over the coming weeks, and outline an initial response as part of my Budget day statement.”
The Commission was asked to “review how best the taxation and welfare system can support economic activity and income redistribution, whilst promoting increased employment and prosperity in a resilient, inclusive and sustainable way and ensuring that there are sufficient resources available to meet the costs of public services and supports in the medium and longer term”.
In Association with
It was comprised of 13 members, chaired by London academic Niamh Moloney.
Moloney commented: "The Commission believe that it will be necessary to increase the contribution of taxation as a share of national income in the future, and accordingly we have adopted a net revenue-raising approach in framing our recommendations.
"In the area of taxation we have made proposals to broaden the base across most tax heads and to increase the yield from the least distortionary taxes, so that revenues can be increased at the least possible cost to society."
The report has a significant focus on broadening the tax base, but many of its suggestions won’t go down well with individual taxpayers.
For example, one recommendation is that deposit interest income should be taxed at an individual’s marginal rate of income tax and USC.
DOWNLOAD Report of the Commission on Taxation and Welfare
The Commission has also called for the 9% and 13.5% rates of VAT to be increased, with the 9% rate phased out and that the use of short-term reductions in VAT as a stimulus measure should be terminated.
It also envisages changes in wealth and capital taxes that would disadvantage home owners and inheritors, recommending that the transfer of assets on a death be treated as a disposal for CGT purposes and that the CGT relief on a principal private residence should be removed, though only 'over time'.
The Commission also wants a substantial reduction in the threshold for CGT Group A, which includes children or grandchildren of a person who has died, or is giving a gift, to bring it closer to the Group B and Group C thresholds.
In other words, your kids would get less of your estate and the government would take more.
The Commission report states: "The current level of the Group A threshold (€335,000) appears to be both inequitable and regressive. Accordingly, the Commission is recommending that the Group A threshold be substantially reduced, thereby bringing the value of the Group A threshold closer to the value of the Group B (€32,500) and Group C (€16,250) thresholds.
"When determining the appropriate level of reduction for the Group A threshold, consideration could be given to aligning the group thresholds, particularly the Group A threshold, with an appropriate benchmark; potentially relating to household wealth generally."
PRSI should be extended to all sources of employment income and those over state pension age should pay PRSI on all income other than social welfare payments, it also states.
The Commission also says it believes that just one rate of employer PRSI, equal to the higher rate of 11.05% should apply on all weekly incomes, and that the lower rate which currently applies on incomes up to €410 per week should be phased out.
It also wants the rate of PRSI on self-employment should be aligned over time with the employer's 11.05% rate.
On moving to a low carbon economy, the report supports a phased increase in the carbon tax to €100 per tonne of carbon dioxide emitted, by 2030, and recommends equalisation of the rate of excise duty on auto-diesel and petrol. Motor tax and Vehicle Registration Tax should be redesigned.
In the near future distance, road usage charges based on location and time should also be introduced, along with congestion charges for key urban areas.
The report says that over-dependence on corporation tax receipts should be avoided because of the significant sustainability risks.
Instead, it wants excess receipts in this area put into Rainy-Day Fund or used to reduce debt rather than fund tax reductions or permanent increases in expenditure.
It also recommends a review be undertaken of the Real Estate Investment Trust (REIT) framework, the Irish Real Estate Fund regime and the use of section 110 vehicles.
Pensions taxation
On pensions and retirement savings, the commission wants to see what it calls the ‘Exempt, Exempt, Taxed’ model of pension provision applied more comprehensively, the first step being to cut the present level of tax-free lump sum, at around four times average earnings, with a “meaningful reduction”.
It also wants Approved Retirement Funds assets to be treated like any other asset for inheritance tax purposes, except in respect of a spouse, and that age-related contribution rates be abolished in favour of a single annual rate.
The report also details a raft of proposals, many complex and technical, for enterprise and business. And, while it underlines the importance of share-based remuneration and the Key Employee Engagement Programme, it believes the latter needs reform as it is not achieving its stated objectives in its present form.
On welfare, the reports says that both tax policy and welfare policy must be designed together to increase equity in Irish society.
The report states: “Significant improvements to the welfare system should be made through the progressive introduction of reforms to support employment for people in all situations, address child poverty and remove disincentives to someone taking up work or increasing their earnings over time.”
The Commission does not recommend that welfare payments be index-linked to the cost of living for recipients, a view that seems one of a piece with its rejection of a universal basic income, which it knocks on the head.
"The Commission does not support the development of a Universal Basic Income in Ireland," the report says.
Photo: London School of Economics academic Prof. Niamh Moloney, who chaired the Commission
