In July of each year, the Tax Strategy Group (TSG) of the Department of Finance releases an enormous amount of information concerning the nation’s tax system. This includes both an evaluation of current tax measures and the potential financial impact of new ones, all of which is aimed at influencing future fiscal policy. Digesting all of the information can be challenging, so here are five crucial points to note.
Compulsory disclosure of all presents and legacies
There is talk that in the forthcoming budget, the Government may reduce the strain of inheritance tax, perceived by some as being overly burdensome for those in low to middle-income households. Recently, Taoiseach Simon Harris recognised the need for closer scrutiny of the system’s “unfairness” and “anomalies”. However, the department brought up a curveball suggestion that the Government might impose legislation requiring tax returns to be filed on all received gifts and inheritances, no matter the size.
Under the current system, beneficiaries are only required to submit a Capital Acquisitions Tax (CAT) return when they exceed 80% of the applicable lifetime tax threshold, which presently stands at €335,000 for inheritances and gifts received from parents. This stipulation, according to the TSG, puts a significant load on taxpayers, requiring them to maintain extensive records over a long period of time. However, the true aim is most likely to capture any undisclosed gifts that are slipping through the tax net.
The inappropriate fiscal policy of the ECB
As part of the TSG’s publication series, departmental economists usually present a report on the economic forecast for Ireland. This year’s report echoes previously featured contents from the Summer Economic Statement, but it highlights “unsuitable monetary policy” as a potential negative factor for the present forecast. This reference is made in light of the current housing price inflation rate exceeding 8% and hints that a cycle of interest rate cuts at the European Central Bank (ECB) level is likely to aggravate rather than alleviate the situation, potentially stoking even higher housing prices.
Who undertakes the most substantial contribution towards income tax?
The Tax Strategy Group’s (TSG) paper on the income tax system explores different financial implications of possible changes, such as a €1.2 billion expense for indexing brackets. The TSG found that the top 10 per cent earners in the nation now pay nearly two-thirds of all income tax and universal social charge (USC). Those earning €290,000 yearly or more, which accounts for the top 1 per cent of earners, pay nearly a quarter (24.4 per cent) of all receipts. The report questions the State’s tax system’s fairness, pondering if it’s overly progressive, potentially threatening work motivations, competitiveness, and the attraction of investment linked with highly-skilled labour force.
Concerning the conflict in curbing transport emissions and alleviating air pollution, Ireland is experiencing a severe car-dependency, especially in regions with deficient transport facilities. 2022 Census data revealed that 59 per cent of the commuting population relies on private vehicles. To address this issue, the TSG suggests non-tax measures such as low emissions zones, remote working policies, and congestion charges. These alternatives could be more “efficient” and “equitable” compared to a car parking levy.
Contrarily, demands to reinstate the 9% VAT for the hospitality industry seem to have hit a dead-end. Despite industry lobbying citing the rising costs due to new employment legislation and increasing energy prices, the potential cost of reintroduction – €764 million for a full year or €545 million for food services exclusively – has diminished hopes. According to the department, reinstating the reduced rate could mean an exorbitant and unjustifiable “fiscal transfer of taxpayer’s money to the sector.”
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