Brian Purcell examines the potential impact of future political alliances on Ireland's tax landscape, exploring party policies on wealth and income taxes
Besides the actual results, the general election had two significant outcomes: the centre held, and a vote for the far right did not materialise.
But for how long will the centre hold in Ireland?
From a tax perspective, it is interesting to review the manifestos of each of the main political parties.
Although they all agree on preserving the 12.5 percent corporation tax rate, they diverge on how those with wealth and higher incomes should be taxed.
Fianna Fáil and Fine Gael promise tax cuts for all, subject to continued tax receipts buoyancy, while left-leaning parties advocate wealth taxes and an increase in income tax for high earners.
Such taxes are highly unlikely to be introduced by a new coalition government of Fianna Fáil and Fine Gael. However, any future alliance between Sinn Féin, the Social Democrats and the Labour Party would be a real alternative government, with some commentators speculating that such an alliance could secure 40 percent of the vote at a future general election.
So, their proposals should be taken seriously.
If you read the Sinn Féin, Social Democrats and Labour Party manifestos, you will see that they have much in common regarding taxing those with higher incomes and wealth.
Each proposes a wealth tax. Labour is proposing a Spanish-type wealth tax which levies an annual tax on individuals whose non-exempt assets exceed €2 million at progressive rates up to 3.5 percent.
The Social Democrats propose an annual wealth tax of 0.5 percent on assets over €1 million and one percent on assets over €2 million, again with certain assets excluded.
Sinn Féin also proposes a wealth tax, but before doing so, they recommend a taxation commission to examine how best to implement it effectively.
As well as a wealth tax, Labour proposes an increase in tax rates for wealth transactions (not defined). Sinn Féin proposes a three percent solidarity tax for incomes over €140,000 and reducing tax subsidies on what they describe as gold plate pension schemes. The Social Democrats would introduce an exit tax for individuals who leave Ireland for tax purposes.
Each party proposes restricting tax credits for those earning over €100,000.
We only have to look at the most recent Commission on Taxation and Welfare Report to see the types of taxes that could be introduced to expand the tax base.
Reporting in 2022, the Commission made several recommendations:
- The abolition of the capital gains tax exemption on gains from selling a family home.
- Capital gains tax payable on transfers of assets on death.
- The parent/child gift/inheritance tax threshold (currently €400,000) significantly reduced.
- Limits on the quantum of assets which qualify for business relief from gift/inheritance tax.
- Restrict the remittances basis for non-domiciled individuals to three years.
- Increase the self-employed PRSI rate from 4 percent to 11.05 percent.
Interestingly, however, they did not recommend the introduction of a wealth tax.
Although the outgoing Government rejected most of their recommendations, I am not sure a future left Government would.
It should also be remembered that most of our European neighbours are now seeking a greater tax yield from higher earners and those with wealth. Indeed, research on the Irish tax system suggests that the tax base must be widened for additional tax revenue, which will be required because of the uncertainty on the corporation tax yield and our ageing population.
Higher earners and those with assets could be a soft touch.
Brian Purcell is Partner and Co-Founder Purcell McQuillan Tax Partners.
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