The future of the inheritance tax represents a prototypical pre-budget debate in Ireland, where one issue takes the limelight and becomes a hotbed of political lobbying and promises. However, the broader implications of such a debate are often pushed aside. Politicians tend to propel their advantage by advocating for relief prematurely. Usually, budget day brings about some shift.
In the initial stages of his tenure, Jack Chambers, the Finance Minister, has shown an apt judgement by striving to maintain a grip on public finances. Nevertheless, he is likely to face considerable strain on various fronts. Senior authorities, including the Taoiseach and Tánaiste, have already started hinting towards changes in the inheritance tax on budget day.
While a concession might not impose substantial costs, it doesn’t appear to be the right course of action in a system where wealth and assets don’t bear heavy taxation. This viewpoint resonates with the principles of fairness and preserving the long-term stability of public finance.
Ireland’s taxation system largely relies on income tax, and more recently, corporation tax. Such revenue sources are inherently unstable, being susceptible to economic downturns and, in the case of corporation tax, the prosperity and strategic decisions of a few large corporations. The tax burden must be distributed more extensively, not restricted. The Commission on Tax and Welfare’s highly regarded report suggests that more taxation should fall upon wealth and property, which currently face relatively light taxation as per international standards. This could be achieved partly through increased Capital Acquisitions Tax, which includes tax on capital gains, gifts, and inheritances.
The Commission also argues favourably for treating assets and inheritances with tax benefits. They also suggest that taxes on wealth and property, which are currently low, should increase to provide a more stable foundation for long-term tax revenue.
This does not imply the permanent upholding of the current inheritance tax system. If apparent inconsistencies or areas of inequity exist, action should be taken to rectify them. However, it does suggest that one-off reductions are not the appropriate pathway.
The broader scenario ought to be given due importance, though it isn’t frequently deliberated upon. Currently, a substantial annual surplus is noted in the budget where tax income surpasses revenue. However, this tendency might alter in the forthcoming years due to an increased financial burden associated with the growing elderly population and the escalating costs of climate transition, and a stark decrease in certain tax incomes such as those from motor fuels. As pointed out by the commission, our focus should turn towards devising ways to augment taxes in the future instead of reducing them.
It’s improbable that Irish politicians will contemplate this scenario prior to the imminent general election. Regardless, they will inevitably have to tackle it sooner or later. As expenditures rocket, a challenging recalibration is certain to be necessary.