The Commission on Taxation and Welfare (CoTW) made a total of 116 recommendations in its report to the Minister for Finance in July 2022, Foundations for the Future: Report of the Commission on Taxation and Welfare (the Report). An outline of the structure of the Report and a summary of the recommendations included in the Report is set out below.
Part 1: Strategic Approach
Chapter’s 1 – 3 provide background to the establishment of the CoTW, the context for establishing the CoTW and its objective and principles.
Part 2: Fiscal Sustainability and Taxation
Chapter’s 4 – 8 set out in more detail the scale of the fiscal challenge, and the CoTW’s recommendations for how this should be approached:
Chapter 4: Fiscal Sustainability
- Recommendation 4.1: The CoTW recommends that the overall level of revenues raised from tax and Pay Related Social Insurance (PRSI) as a share of national income must increase materially to meet the medium to long-term threats to fiscal sustainability challenges.
Chapter 5: Balance of Taxation
- Recommendation 5.1: The CoTW recommends that Government continue to focus on broadening the base of taxation across all categories of taxation.
- Recommendation 5.2: Focus on maintaining the progressivity of the existing personal taxes system without further erosion of the Income Tax or Universal Social Charge (USC) base. Future base-broadening reforms should focus on PRSI and on addressing horizontal equity concerns.
- Recommendation 5.3: The CoTW supports proposals to target the use of excess Corporation Tax receipts towards the Rainy-Day Fund or to reduce debt rather than fund tax reductions or permanent increases in expenditure.
- Recommendation 5.4: Incrementally broaden the base of consumption taxes placing emphasis on limiting the use of zero and reduced rates of VAT. A number of environmental-related taxes and reforms to existing taxes should be introduced to replace revenue streams and support the transition to a low-carbon economy.
- Recommendation 5.5: That overall yield from wealth and capital taxes, including property, land, capital acquisitions and capital gains taxes should increase materially as a proportion of overall tax revenues.
Chapter 6: Tax Equity and Base Broadening
- Recommendation 6.1: Remove age as a factor for determining the charge to Income Tax and USC with necessary changes to each charge introduced over time to minimise negative impacts.
- Recommendation 6.2: The rates of USC should be determined by income level and not by reference to any other eligibility criteria.
- Recommendation 6.3: The remittance basis of taxation should be subject to a lifetime limit of three years.
- Recommendation 6.4: The High Income Earner Restriction should be retained. To ensure that its original policy objective is not eroded, tax reliefs should only be excluded from its remit in exceptional cases.
- Recommendation 6.5: Deposit interest income should be taxed at an individual’s marginal rate of Income Tax and USC.
- Recommendation 6.6: Establish a working group to review and propose changes to the taxation of funds, life assurance policies and other investment products with the goals of simplification and harmonisation where possible.
- Recommendation 6.7: The CoTW recommends that Government undertake a review of the Real Estate Investment Trust framework, the Irish Real Estate Fund regime and the use of section 110 vehicles in the Irish property market. Consideration should also be given to a wider review of the section 110 regime generally. This review should be supported by the Department of Finance, the Revenue Commissioners and the Central Bank of Ireland.
- Recommendation 6.8: Widening the VAT base and limiting the use of zero and reduced rates of VAT and reviewing the VAT treatment of goods and services to which those rates currently apply.
- Recommendation 6.9: The rate of VAT on those goods and services currently attracting a second reduced rate (currently 9%) should be increased over time to the reduced rate (currently 13.5%).
- Recommendation 6.10: The reduced rate of 13.5% should be increased progressively over time due to the relatively large share of goods and services attracting zero and reduced rates of VAT.
- Recommendation 6.11: The CoTW does not support the use of temporary VAT reductions as a short-term stimulus measure.
- Recommendation 6.12: Introduction of an accommodation tax.
Chapter 7: Taxes on Capital and Wealth
- Recommendation 7.1: The transfer of assets on a death is treated as a disposal for Capital Gains Tax (CGT) purposes. The CGT treatment of assets transferred during a lifetime in terms of tax payable, exemptions and reliefs available should also apply to assets transferred on a death.
- Recommendation 7.2: The CGT Principal Private Residence Relief should be restricted over time.
- Recommendation 7.3: Introduction of a lifetime limit on all disposals of businesses and farms to children that qualify for Retirement Relief.
- Recommendation 7.4: The CoTW recommends substantially reducing the Capital Acquisitions Tax (CAT) Group A threshold, bringing the Group A threshold closer to the Group B and Group C thresholds and strengthening the reporting requirements relating to the utilisation of group thresholds.
- Recommendation 7.5: The CoTW recommends that the Group B relationship thresholds for CAT should apply to a foster child in the same manner that would have been applicable if the child in question was, in law, a child of his or her foster parents.
- Recommendation 7.6: That the level of Agricultural and Business Relief available for CAT be reduced and that the qualifying conditions for both reliefs be amended to incentivise and ensure active participation in the farm or business by the recipient.
- Recommendation 7.7: A modest charge should be applied to gifts and inheritances generally.
Chapter 8: Taxes on Retirement Savings
- Recommendation 8.1: More comprehensive implementation of the ‘Exempt, Exempt, Taxed’ model of pension provision including recommending a meaningful reduction in the overall level of tax-free lump sum available from its current level (worth over four times average earnings). Marginal tax rates should apply on all lump sums over the tax-free threshold.
- Recommendation 8.2: A single tax-free lump sum lifetime limit to include both pension lump sums and any ex-gratia termination payments received.
- Recommendation 8.3: Approved Retirement Fund (ARF) assets should be treated for inheritance tax purposes in the same way as other assets where inherited by anyone other than the individual’s spouse. Both Income Tax and CAT should apply.
- Recommendation 8.4: The removal of age-related contribution rates to be replaced with a single annual contribution rate. The CoTW also recommends the removal of the annual earnings cap on contributions subject to appropriate lifetime limits remaining in place.
- Recommendation 8.5: Periodic benchmarking of the Standard Fund Threshold to an appropriate and fair level of estimated retirement income.
- Recommendation 8.6: The CoTW recommends an urgent review of the availability of appropriate and adequate data on the cost and distribution of pension tax expenditures.
- Recommendation 8.7: That anomalies in the tax treatment of different retirement arrangements should be eliminated, as far as possible.
Part 3: Policy Goals
Chapter’s 9 – 15 address a number of particular policy issues which were included in the CoTW’s terms of reference:
Chapter 9: Promoting Enterprise
- Recommendation 9.1: The CoTW endorses Ireland’s current corporate tax strategy, including Ireland’s ongoing participation in international efforts to tackle aggressive and/or harmful corporate tax practices. The CoTW also endorses the adoption of the Two-Pillar Solution to Address the Tax Challenges arising from the Digitalisation of the Economy, as well as the development of multilateral solutions to combat base erosion and profit shifting.
- Recommendation 9.2: The CoTW recommends the continued use of feedback statements and roadmaps which should be better applied to indigenous entities and Small and Medium Enterprises (SMEs).
- Recommendation 9.3: Consolidation of the Taxes Consolidation Act 1997 (TCA) should be carried out periodically as a matter of principle. Consideration should be given to how greater simplification of existing tax codes can be achieved as part of this exercise.
- Recommendation 9.4: The CoTW endorses the use of appropriately targeted taxation measures to support SMEs in raising equity investment, and thereby supporting such firms to establish, grow and sustain employment. The CoTW supports the continued use and development of investment-based schemes, such as the Employment Investment Incentive (EII) and recommends that EII should be extended and enhanced to support early-stage, high-risk and research and development-intensive businesses in attracting stable financial investment.
- Recommendation 9.5: Entrepreneur Relief be extended to angel investors, subject to appropriate limits and conditionality.
- Recommendation 9.6: In respect of the Research and Development (R&D) tax credit the CoTW recommends that enhanced relief measures be introduced which are targeted at small and micro-sized enterprises with more guidance and supports introduced to facilitate greater uptake by SMEs more generally. Consideration be given to a limited acceleration of the refundable element of the R&D tax credit from three years to one in order to support early-stage and research and development-intensive businesses.
- Recommendation 9.7: Specialist resources and capabilities should be allocated to the Revenue Commissioners, and the Department of Enterprise, Trade and Employment and its agencies to develop an advance assurance mechanism in order to enable wider access to tax incentives such as the R&D tax credit and EII.
- Recommendation 9.8: The CoTW does not believe that the Key Employee Engagement Programme (KEEP) is achieving its objectives in its current form and recommends that KEEP should be reformed to broaden its use.
- Recommendation 9.9: The CoTW recommends that the exemption from employer PRSI on share-based remuneration should be limited through the introduction of an appropriate annual cap or, alternatively, by restricting the exemption to micro, small and medium-sized enterprises.
- Recommendation 9.10: The taxation of employee share options should be moved from self-assessment to the Pay As You Earn (PAYE) system.
- Recommendation 9.11: The Special Assignee Relief Programme (SARP) should be subject to further restriction and that its continuation should be subject to regular review as part of the tax expenditure review process.
- Recommendation 9.12: The qualifying criteria of the Foreign Earnings Deduction (FED) be reviewed to ensure the measure is utilised by claimants in a manner consistent with its original policy objective.
- Recommendation 9.13: The taxation of internationally mobile employees who receive share remuneration (including Restricted Stock Units) should be aligned with the general treatment applicable to unapproved share options.
- Recommendation 9.14: Qualifying conditions of trans-border relief be reviewed in the context of modern work practices.
Chapter 10: Labour Markets and Social Protection Systems
- Recommendation 10.1: The CoTW recommends maintaining a low entry threshold for access to social insurance.
- Recommendation 10.2: A lower nominal rate of employee PRSI should apply to earnings below the employee PRSI contribution threshold, currently €352 per week.
- Recommendation 10.3: With a view to broadening the PRSI base, PRSI should be extended to all sources of employment income including, as a general rule, share-based remuneration.
- Recommendation 10.4: Those over State pension age should pay PRSI on all income other than social welfare payments.
- Recommendation 10.5: Removing the PRSI exemption on supplementary pension income (occupational and personal pensions, and public sector pensions).
- Recommendation 10.6: The rate of charge for PRSI on unearned income should remain aligned to the higher rate of PRSI applicable to employees on their income from employment generally.
- Recommendation 10.7: Cliff-edges in the taxation and welfare systems should be removed.
- Recommendation 10.8: The CoTW does not support the development of a Universal Basic Income in Ireland.
Chapter 11: Promoting Employment
- Recommendation 11.1: The CoTW recommends that secondary benefits for people of working age should be designed on a cross-departmental basis to ensure coherence, with negative work incentives minimised and benefits targeted appropriately and effectively.
- Recommendation 11.2: The CoTW recommends the establishment of appropriate coordination mechanisms to monitor the cumulative effect of policy-related labour cost changes on enterprise and the self-employed, for example, changes in respect of statutory sick pay, auto-enrolment, etc.
- Recommendation 11.3: The CoTW believes that only one rate of employer PRSI equal to the higher rate (currently 11.05%) should apply on all weekly incomes, and that the lower rate of employer PRSI, which currently applies on incomes up to €410 per week, should be gradually phased out.
- Recommendation 11.4: The CoTW endorses the principle that the rate of PRSI on self-employment (Class S) should be aligned over time with the employer’s rate of Class A PRSI attaching to employment (currently 11.05%).
- Recommendation 11.5: The USC surcharge on non-PAYE income above €100,000 does not comply with the principle of horizontal equity and the CoTW recommends that the tax treatment for all income earners should be aligned.
- Recommendation 11.6: A phased move towards individualisation of the Standard Rate Cut off Point as a step towards addressing disparities in the Income Tax system, facilitating increased employment, and decreasing the gap in the employment rate between men and women.
- Recommendation 11.7: The Public Employment Service (PES) should provide advice based on the employment trajectories of people with similar characteristics, with analysis of the outcomes of PES programmes informing the particular programmes at specific points in the economic cycle.
- Recommendation 11.8: The range of Active Labour Market Programme offerings should be led by rigorous evidence and evaluation of their net impact on the jobseeker’s long-term employment prospects.
- Recommendation 11.9: Expanding employment services to recipients of other income support payments. The PES must be adequately resourced to deliver these services.
- Recommendation 11.10: The CoTW recommends that a model of employment services, similar to that currently in place for lone parents, be extended to qualified adults.
Chapter 12: Inclusive and Integrated Social Protection
- Recommendation 12.1: That Government undertakes a regular benchmarking exercise in respect of all working-age income supports, following which multi-annual targets should be set for social welfare rates which provide for regular incremental progress. Annual increases in social welfare rates should be based on a transparent and evidence-led process.
- Recommendation 12.2: Working-age payments should be reformed to move towards an income related working-age assistance payment available to all households. The payment should be designed so as to avoid subsidising low-paid employment.
- Recommendation 12.3: The design of pay-related benefits within the Social Insurance system should take account of incentives to work and the sustainability of the Social Insurance Fund. If introduced, any such benefit should be short in duration, subject to a cap, and progressively extended to include maternity, paternity, parents’ and illness benefit.
- Recommendation 12.4: The CoTW does not recommend that Child Benefit should be subject to tax.
- Recommendation 12.5: The existing system of child income supports should be reformed to facilitate the introduction of an income related second tier of child income support in addition to Child Benefit that combines existing supports and that would be provided to all low-income households, whether in receipt of a social welfare payment or not.
- Recommendation 12.6: The CoTW recommends that the individualisation of payments made to qualified adults be progressed. This should be guided by the set of principles outlined by the CoTW.
Chapter 13: Moving to a Low-carbon Economy
- Recommendation 13.1: The CoTW recommends that the phased increase in the Carbon Tax to €100 per tonne of carbon dioxide emitted by 2030, as set out in the Schedule 2 to Finance Act 1999 (Mineral Oil Tax) as amended, is implemented. Increases in Carbon Tax after this date should be clearly signalled and linked to the societal cost of carbon.
- Recommendation 13.2: Equalisation of the rate of Excise Duty on auto-diesel and petrol in the short to medium term.
- Recommendation 13.3: The CoTW supports the principle that embedded tax fossil fuel subsidies should be reduced on a phased basis over time, with the aim of ensuring that the taxation of fuel reflects the amount of carbon emitted. Government should publish a roadmap by 2023 setting out ambitious targets for the elimination of environmentally harmful tax fossil fuel subsidies by 2030.
- Recommendation 13.4: The CoTW notes the changes at EU level in respect of the future taxation of electricity, including the anticipated mandatory application of a minimum rate of Excise Duty to electricity for household use. The CoTW also recognises the need for the Exchequer to generate additional revenue from tax on electricity in the medium to long term (post-2030) to replace revenues from fossil fuels. Any such increases should be carefully timed, clearly signalled in advance and should not act as a disincentive to the use of renewable electricity sources in carbon-intensive activities.
- Recommendation 13.5: Motor Tax and Vehicle Registration Tax on commercial and non-commercial motor vehicles should be redesigned in the medium to long term, in a manner that is consistent with environmental objectives and ensures that tax revenues from motor vehicles are maintained.
- Recommendation 13.6: The CoTW recommends the introduction, in the medium term, of distance, location and time-based road usage charges.
- Recommendation 13.7: The CoTW recommends the introduction of congestion charges in key urban areas, based on a number of key metrics linked to environmental and individual impact. These charges should be reviewed following the introduction of road usage charges.
- Recommendation 13.8: The introduction of an additional duty on non-residential car parking, both public and private, and not limited to employer-provided car parking, in the same key urban areas identified as suitable for congestion charges.
- Recommendation 13.9: Targeted taxation expenditures to support the achievement of Government policy goals with respect to decarbonisation should have a clearly identified policy objective, be targeted in nature, and be in place for a limited period to help influence the behavioural change required.
Chapter 14: Land and Property
- Recommendation 14.1: The introduction of a Site Value Tax (SVT) on all land currently not subject to Local Property Tax.
- Recommendation 14.2: There should be differential treatment in the application of Site Value Tax to agricultural land.
- Recommendation 14.3: The current structure and broad features of Local Property Tax (LPT) should remain. This includes a market value basis for applying the charge, keeping exemptions to a minimum and the continued use of regular revaluations.
- Recommendation 14.4: Revenues deriving from LPT should increase to form a substantially larger share of total revenues through the adjustment of the basic rates of taxation and potentially through an adjustment of valuation bands. The ability of local authorities to decrease the basic rate of LPT should be removed.
- Recommendation 14.5: In the case of multiple property owners, a LPT surcharge should apply to properties not occupied as the principal private residence of the property owner or a registered tenant.
- Recommendation 14.6: A LPT surcharge should be introduced for vacant properties.
- Recommendation 14.7: Tax incentives should not be used in order to stimulate the supply of housing.
- Recommendation 14.8: The CoTW supports the reform of the differential rent schemes towards a national system based on ability to pay. Any proposed changes to social housing supports should fully consider the potential impact on incentives to work
- Recommendation 14.9: The tax system should be neutral in its treatment of different tenure types.
- Recommendation 14.10: The Help to Buy scheme should be allowed to expire as planned at the end of 2022.
Chapter 15: Promoting Good Public Health
- Recommendation 15.1: The CoTW supports the use of taxation in promoting public health in Ireland. In particular, it supports the levying of Excise Duties/taxes at high rates related to the social cost arising from the consumption of alcohol, tobacco and sugar sweetened drinks. The Government should seek to strengthen the link between the public health rationale and design of these taxes over time.
- Recommendation 15.2: The Government should develop fiscal measures which could be introduced to encourage a reduction in the consumption of ultra-processed foods, to support reformulation measures to reduce the harm of such foods and promote healthier eating.
- Recommendation 15.3: In the context of the implementation of Sláintecare, tax relief for private health insurance should be phased out over time.
Part 3: Better Systems
Chapter’s 16 – 18 address recommendations to develop the system of tax administration as well as reforms to policy development and evaluation:
Chapter 16: Tax Expenditure Review Process
- Recommendation 16.1: The Department of Finance should ensure that adequate evaluation data on tax expenditures is collected, and where necessary propose legislative amendments in order to allow collection to address existing data gaps and allow more comprehensive understanding of the taxes forgone, the objectives achieved and at what cost.
- Recommendation 16.2: The Department of Finance and the Revenue Commissioners should regularly examine the most appropriate way to cost tax expenditures on a case-by-case basis and consider alternative costing methodologies where data becomes available.
- Recommendation 16.3: The CoTW supports the continued inclusion of sunset clauses for the review of all new tax expenditures, Government should also consider the retrospective inclusion of sunset clauses in respect of existing tax expenditures. This would provide a statutory basis for the regular review of all tax expenditures.
- Recommendation 16.4: The expansion of dedicated economic evaluation capacity within the Department of Finance, peer-reviewed by an appropriate outside body, to work specifically on tax expenditures with the aims of providing more and better information on tax expenditures.
- Recommendation 16.5: Strengthening the ex-ante evaluation of tax expenditures ahead of their introduction to ensure better policy outcomes.
- Recommendation 16.6: The Department of Finance, with support from the Revenue Commissioners, should publish and maintain a single agreed definition of the benchmark tax system and compile a master list of all tax expenditures to ensure that tax measures are systematically included either in the benchmark or the tax expenditure list.
- Recommendation 16.7: The Department of Finance should devise a strategic plan to regularly and rigorously evaluate all tax expenditures in line with relevant guidelines.
Chapter 17: Modernisation of Tax Administration
- Recommendation 17.1: The CoTW believes that digital transformations are fundamental to the successful modernisation of tax administration processes and recommends that such transformations should be a central tenet of a structured programme of tax administration reform that should be commenced as soon as possible.
- Recommendation 17.2: Compliance obligations should be built into natural taxpayer systems and that due consideration should be given by the Revenue Commissioners, in conjunction with other Government Departments as required, as to how such systems should be leveraged in order to improve real-time reporting.
- Recommendation 17.3: The CoTW endorses the use of whole-of-government solutions to improve service delivery.
- Recommendation 17.4: The CoTW recommends that the necessary steps are taken to ensure that modernisation of tax administration is fully supported by legislation.
- Recommendation 17.5: That the necessary investments are made by the State to further develop the appropriate technical architecture required to properly support modernised tax administration and data collection, including developing appropriate frameworks for stakeholder engagement as part of a co-design approach to such modernisation.
- Recommendation 17.6: The Revenue Commissioners and the Department of Social Protection (DSP) should be given supports, as necessary, to develop the skills base required to digitally transform tax and welfare administration.
- Recommendation 17.7: Data protection and data security must be a key consideration in any modernisation process, and the public must have a clear understanding as to how their data is being used.
- Recommendation 17.8: The CoTW recommends that the necessary supports and alternatives are retained, or developed where necessary, to address digital exclusion.
- Recommendation 17.9: Existing linkages between the Revenue Commissioners and the DSP be further enhanced to explore a solution that provides for application of PAYE to taxable payments made by DSP as they are being paid.
- Recommendation 17.10: Further linkages should be developed between the Revenue Commissioners and the DSP to facilitate the more effective means testing of DSP payments.
Chapter 18: Strategic Reform
- Recommendation 18.1: The annual budgetary cycle should be augmented in order to enhance debate about and public knowledge of long-term issues of fiscal sustainability.
- Recommendation 18.2: Government departments should build on existing long-term fiscal analysis capabilities to develop a system of scenario modelling and associated stress testing. The system should be used to examine different future public finance scenarios and how well the State could react to them. It should also analyse whether there are adequate policy tools and administrative systems in place to address potential outcomes.
- Recommendation 18.3: The CoTW recommends greater use of medium-term roadmaps to provide certainty as to the direction of travel of policy in respect of specific elements of the taxation and welfare system.
- Recommendation 18.4: Public Service Performance Reports, and where appropriate other public accounts, should include information on the total amount of resources allocated to each Department and what has been achieved with these resources, including information on tax expenditures.
- Recommendation 18.5: Greater access should be provided to suitably anonymised administrative data to support public interest research
- Recommendation 18.6: The CoTW recommends ongoing support for research in the areas of the distribution of income and wealth and the effects of taxation and welfare policy, as well as the development of improved tools for ex-ante evaluation and impact assessment of proposed policy changes.
- Recommendation 18.7: That the public service continues to invest in the people and skills needed to improve policy analysis and policy development in the realm of taxation and welfare across a range of disciplines.