Mod­est ex­penses were treated as an easy mark

Irish Independent - Business Week - - APPOINTMENTS -

TAOISEACH Leo Varad­kar has made a late but worth­while in­ter­ven­tion in how flat-rate PAYE ex­penses were be­ing changed. Dis­cus­sions about fair­ness in tax­a­tion are never straight­for­ward. We of­ten see the taxes we have to pay as un­fair and those paid by oth­ers as nec­es­sary.

Rows about tax­a­tion usu­ally split into two camps. The ‘haves’ say they are pay­ing too much and if they paid less there would be greater eco­nomic ac­tiv­ity from which every­body would ben­e­fit.

The ‘have nots’ will ar­gue that the rich al­ways get off too lightly. They will point to tax-avoid­ance schemes, low cor­po­ra­tion tax rates, re­liefs, off­sets, tax losses gen­er­at­ing tax cred­its etc.

Some­how, the Fi­nance Min­is­ter has to ad­ju­di­cate on all of these is­sues us­ing pol­icy tools, while Rev­enue has to im­ple­ment those poli­cies as fairly as pos­si­ble.

So was all the more sur­pris­ing to see how the Rev­enue Com­mis­sion­ers have gone about re­form­ing the rel­a­tively mod­est flat-rate ex­penses regime avail­able to around half a mil­lion work­ers, most of whom are rel­a­tively low paid.

These flat-rate ex­penses have evolved over many years in dif­fer­ent jobs and pro­vide a set flat-rate al­lowance for peo­ple who need to spend a cer­tain amount of money on le­git­i­mate ex­penses as­so­ci­ated with their job.

The Rev­enue Com­mis­sion­ers have con­ducted a re­view of some of these ex­penses and around 80,000 work­ers were set to be af­fected by the first wave in Jan­uary 2019. These in­clude 75,822 shop as­sis­tants who get €121 per year; 8,134 jour­nal­ists who get up to €381; and 881 car­diac tech­ni­cians who get up to €212.

Flat-rate ex­penses for PAYE work­ers cost €85m last year.

The Rev­enue Com­mis­sion­ers have pointed out that work­ers will still be able to make ex­penses claims in the fu­ture but it won’t op­er­ate on a pre-agreed flat rate. In the­ory, some could re­ceive more rather than less.

This does ap­pear to be a gen­uine re­form of what may well be an ar­chaic sys­tem of do­ing things. Given changes in work prac­tices and em­ploy­ment, the cur­rent sys­tem may not even be the best way of do­ing things.

But who made it a pri­or­ity?

And why have the Rev­enue moved to axe the flat-rate sys­tem for 80,000 be­fore the full re­view has been con­ducted of all flat-rate re­liefs across all jobs?

Per­haps this is why Taoiseach Leo Varad­kar in­ter­vened when he sug­gested in the Dáil on Tues­day that no­body would be af­fected un­til Jan­uary 2020 – if at all.

The amounts per worker are mod­est, but could be the dif­fer­ence be­tween af­ford­ing pri­vate health in­sur­ance or be­ing stuck on an over­crowded creak­ing pub­lic sys­tem.

The speed of move­ment here is worth com­par­ing to other forms of tax break or re­liefs that have formed gov­ern­ment pol­icy in the past.

All tax re­liefs and tax in­cen­tive schemes should be sub­ject to re­view be­fore im­ple­men­ta­tion and on­go­ing as­sess­ments of whether they are rel­e­vant and worth­while. Yet when it came to the prop­erty boom of the past, tax re­liefs worth hun­dreds of mil­lions of euro to just a bus­load of in­di­vid­u­als were ex­tended with­out re­view on many oc­ca­sions.

Tax loop­holes to avoid pay­ing cap­i­tal gains tax on com­mer­cial prop­erty gains were iden­ti­fied dur­ing the boom and not acted upon by gov­ern­ment. At one stage, for­mer Fi­nance Min­is­ter Brian Cowen just had to sign a statu­tory in­stru­ment to save the Ex­che­quer hun­dreds of mil­lions but he de­layed. For­mer Fi­nance Min­is­ter Michael Noo­nan de­cided to in­cen­tivise a re­cov­ery in the com­mer­cial prop­erty mar­ket. He slashed Stamp Duty on com­mer­cial prop­erty deals, and it worked. The mea­sure helped bring in lots of in­vest­ment from abroad back into the mar­ket.

How­ever, he let it run for longer than it was needed – a de­lay that cost the Ex­che­quer hun­dreds of mil­lions of euro. This was even­tu­ally re­versed by Paschal Dono­hoe.

How long did it take re­cent govern­ments to put up the bet­ting tax, from 1pc to 2pc? The an­swer is sev­eral years af­ter it was first rec­om­mended. The cost here was tens of mil­lions of euro in lost taxes.

Let’s take the spe­cial as­signee relief pro­gramme (Sarp). This is a scheme that al­lows for­eign busi­ness ex­ec­u­tives to come to Ire­land and if they earn more than €75,000 per year here, they pay just 30pc in in­come tax.

It is ac­tu­ally a good idea in the­ory, in so far as these ex­ec­u­tives can be hard to at­tract to a par­tic­u­lar coun­try.

Ire­land com­petes for these in­vest­ments. And they can bring jobs with them.

I heard lead­ing ac­coun­tants rec­om­mend for years that the Gov­ern­ment in­tro­duce a mea­sure like this. Even­tu­ally, in 2012 it was in­tro­duced. But the flood of highly-sought ex­ec­u­tives didn’t ar­rive and avail of it. In 2012 it cost the Ex­che­quer just €100,000. By 2015 that fig­ure had in­creased to €9.5m af­ter the scheme was made more at­trac­tive. By 2016, it had nearly dou­bled to €18.1m be­cause there was no up­per limit on the salary that could be earned.

So, 18 ben­e­fi­cia­ries were earn­ing more than €1m and four of them were earn­ing be­tween €3m and €10m.

What if those ex­ec­u­tives led a huge team of em­ploy­ees and helped bring hun­dreds of jobs to Ire­land with em­ploy­ees pay­ing mil­lions in in­come tax? OK. But what if they were head­ing up an in­vest­ment fund or a hold­ing com­pany that sim­ply held some in­tel­lec­tual prop­erty and didn’t re­ally em­ploy many peo­ple here at all?

A salary cap is now be­ing in­tro­duced on Sarp.

The com­par­isons are most strik­ing when it comes to the wealth­i­est few hun­dred and how they have been able to re­duce their tax bills dra­mat­i­cally.

A Comptroller and Au­di­tor Gen­eral (C&AG) re­port pub­lished in Septem­ber found that about 90 of the wealth­i­est peo­ple in the coun­try pay in­come tax at a lower rate than the av­er­age tax­payer.

And 83 of those high-net-worth in­di­vid­u­als de­clared tax­able in­come of less than the av­er­age in­dus­trial wage, which is just over €36,500 per year. Rev­enue de­fines

Tax row:


Leo Varad­kar in­ter­vened on flat-rate ex­penses and de­clared that no one would be af­fected by changes un­til 2020 – ‘if at all’ high-net-worth in­di­vid­u­als as hav­ing more than €50m in as­sets.

It is too sim­plis­tic to sug­gest that lower-paid em­ploy­ees au­to­mat­i­cally get a rough ride. Hun­dreds of thou­sands of them are out­side the in­come tax net al­to­gether and don’t pay any in­come tax on their earn­ings.

Equally, it is wrong to sug­gest that high earn­ers have it all their own way. The bulk of the in­come tax bill is paid by higher earn­ers who are not in the su­per rich cat­e­gory or earn­ing mul­ti­mil­lioneuro salaries.

This week Mr Varad­kar pledged to equalise the treat­ment of the self-em­ployed with PAYE work­ers when it comes to tax treat­ment. This has been an in­built un­fair­ness in the sys­tem whereby the self-em­ployed were re­garded some­what as sec­ond-class ci­ti­zens in the tax sys­tem.

Yes they can off­set their in­come against a range of busi­ness ex­penses. And yes they can put money into their own pen­sions and avail of very gen­er­ous tax re­liefs.

But these are the same pen­sion pots that Fine Gael raided dur­ing the tough times of the re­ces­sion to the tune of a cou­ple of bil­lion euro.

In­evitably, the tax sys­tem is about swings and round­abouts when it comes to striv­ing for fair­ness. How­ever, the swift­ness with which these flat-rate ex­penses were about to be chopped down was strik­ing. As var­i­ous pro­fes­sions are re­viewed, the flat-rate ex­penses were to be dropped.

Why not wait un­til the re­view of all pro­fes­sions was com­pleted and then de­cide? Per­haps this is what the Taoiseach has in mind when he said no­body would be af­fected un­til 2020 – a much fairer ap­proach. This was a chopas-you-go re­view. There was no gen­er­ous lead-in time, as we of­ten find with other tax breaks.

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