There are three groups who enjoy special income tax privileges.
2. top executives of multinationals
3. sports people
Artists Tax Relief
An artist – writer, playwright, music composer, painter or sculptor – is exempt from tax on all income up to €50,000 a year. Above €50,000, they still enjoy the usual tax credits (around €3,300 a head) before paying income tax. Since 2011, they have also had to pay the USC.
The Artists tax break was introduced in 1969 by Mr. Haughey, who is remembered more for his corruptly-funded lifestyle. Up to 2011 there was no limit on the amount of tax-free income an artist could receive. But thanks to successful lobbying by NGOs and unions, a ceiling of €40,000 on tax free income was finally imposed in 2011. The threshold rose to €50,000 in 2014.
This means that artists making big bucks at least contribute something in income tax.
I don’t have up to date data but back in 2001, 28 artists earned €62 million between them (2% of artists). In 2012, 36% of artists claiming the privilege were hit by the ceiling and had to pay some income tax. Almost 10% of artists earned over €100,000.
Conversely many were earning well below the ceiling with 44% of claimants earning under €20,000. There are around 350-500 claimants each year.
Thus for most artists, the ceiling has no impact at all.
In spite of the recent increase in the ceiling last year of €10,000 to €50,000, this income tax privilege will be reviewed again this year by government. It will do nothing for the vast majority of artists and would add to tax inequity.
Top executives of multinationals
Under a special privileged tax deal, top executives of multi-national companies (MNCs) who earn over €75,000 will pay little income tax in this great little country to do business in!
The Special Assignee Relief Programme (SARP) had given an exemption from income tax on 30% of salary between a minimum of €75,000 and up to €500,000 over 5 years, with additional benefits. In Budget 2014, the ceiling was abolished after lobbyists from the accounting industry representing the multinational bosses persuaded the government to abolish the ceiling. For all the lobbying, the take-up was only seven executives in its first years of operation.
These executives also get an additional tax break of €5,000 a year for school fees!
SARP is a tax subsidy, which contravenes the core tax principle of horizontal equity as do the other two tax deals.
There is a special deal for all sports people who make money from their game. Under this tax subsidy, they are allowed to substantially reduce income tax for ten of their best 14 years.
The tax break applies only sporting income. It excludes fees from sponsorship appearances and use of images etc. It is very generous and it is not capped. The sportsperson - motor racer, rugby player, jockey, golfer, athlete, swimmer, cyclist, etc. is allowed to deduct 40% of their gross income which is then un-taxed.
The remainder is then taxed in the usual way. This allows them to deduct all expenses and then tax credits etc. before they begin to pay tax. The tax paid over their best paid decade is repaid by the Revenue at the end of the career.
So they can pick the best ten years out of the last 14 and get their income tax back. If they earn €100,000 each year, that equates to €1 million. But only €600,000 is assessed for income tax. They can claim legitimate expenses travel etc. as well.
The argument is that they only have a short career and should be able to make the most of it and also it may keep some of the sports stars here rather than in other countries.
There may be merit in this scheme but there is no reason why a threshold which applies to artists, already a very generous €50,000, should not be brought in in the Budget to also apply to sports stars.
There can be a case made for some tax privileges for artists and sports people. However, first there is no reason in equity or in economics for special privileges for top executives paying less income tax than well paid executives and public servants elsewhere.
Secondly, there is no reason why there should not be a ceiling on what sports people can earn and it seems in logic that it should be the same as that of artists at €50,000. If they have ten good years that can be a big subsidy from the rest of us.
The whole tax system is greatly improved on what went on in the past. Many of the big tax breaks began small, grew in size and scope and they contributed greatly to the property crash.
Politicians love tax breaks. Lobbyists love tax breaks. They think they are free. They argue that they don’t have costs - but they do.
Tax “incentives” can grow like viruses, can be uncontrollable, have unintended consequences and distort the market.
For example, before reforms brought in in 2010 (after a decade of lobbying by ICTU and others) 168 individuals claimed a total of €25m in tax reliefs in 2010 on stallion fees, greyhounds, woodlands, patents, and mining operations, with 124 persons getting tax breaks of €15m for investing in nursing homes and another 37 wrote of 4.3m in 2010 for investing in sports injuries clinics and private hospitals. A further 500 people wrote down tax of €89m for capital investment in hotels or holiday camps.
So these three income tax privileges (there may be more) give artists, top executives and sports-persons a far better income tax deal than the rest of us get. There is no merit in the SARP scheme and the deal for sports stars i.e. big earners should be capped just like the Artists’ Relief.
Personally, I think the income cap at €50,000 before they begin to pay anything, is too high. It should be reduced to €30,000 for artists and sports stars. Few artists will be affected and such a ceiling for sports stars would still then give them up to a huge sum tax free in ten years.
Why should you subsidise high paid artists and sports people?
Paul Sweeney is Chair of TASC's Economist's Network