I am very pleased to have been invited here to address you this evening on the occasion of the Institute’s annual dinner and I would like to thank your President, Frank Hussey, and Chief Executive, Mark Redmond, for the invitation. I am always interested to meet with and hear the views of the members of the Institute on tax issues as well as on the broader economic picture. Despite the different perspectives that we bring to the whole area of tax policy I believe that we have a shared interest in ensuring that Ireland has a tax system that is fair and equitable as well as one that meets the challenges of the competitive global economy in which we find ourselves.

The Economy

Indeed, an approach to tax policy that aims to reward work and encourage enterprise, as well as underpinning our competitiveness, has been a keystone of our remarkable economic performance in recent years. Over the past decade Ireland has recorded one of the best economic performances in the world. From 1997 to 2003, Irish GDP grew by an average of over 7½ per cent, compared to an average of just over 2 per cent in the EU. The fruits of this economic success have been put to good use and have benefited people the length and breadth of the country.

The taxation system has been significantly reformed, public services have been improved and significant provision for the future has also been made with the establishment of the National Pensions Reserve Fund.

Our public finances have been put on a sound footing and the General Government Debt level has been more than halved from 74 per cent of GDP in 1996 to 31 per cent in 2004.

Prospects for continued economic growth in 2005 are good. The Central Bank in its recent Winter Review forecast a growth figure of 5% for 2005, in line with the assessment made by my Department in the Budget.

In its commentary on Ireland’s Stability and Growth Pact, 2005 to 2007, the European Commission also notes our strong growth and sound public finances. It also commends our solid progress in adhering to spending targets, advancing structural reform and the relatively favourable position we have with regard to the long term sustainability of our public finances. Of course our situation also contains risks, including the US dollar exchange rate and oil prices. However, if we focus on protecting our competitiveness we will remain better placed than most to respond effectively to any unexpected shocks.

Key Challenges

There are a number of key issues upon which we must keep focused.

First, it is imperative for our social and economic well being that we remain competitive if we are to continue the economic progress we have made so far and enhance our capacity to grow in the medium term. That is why we must ensure that wage developments remain moderate and in line with those negotiated under Sustaining Progress.

Secondly, maintaining the public finances on a sound footing is essential and I intend to follow the policy of my predecessor, Mr Charlie McCreevy, in that regard. Within that context it is necessary for us to make clear choices between present and future consumption. Inadequate infrastructural investment might provide funding for higher living standards today, but that would be at the expense of economic growth and consumption in the future. We must therefore ensure that we have the infrastructure in place to ensure our continued economic success.

I was very proud to have the opportunity to present my first Budget as Minister for Finance in December. It was framed with these key issues very much in mind. The approach is one of continued fiscal prudence where the key challenge is to regain competitiveness and protect jobs by controlling our domestic cost base and by maintaining sound fiscal policies where the mixture of taxation and spending policies delivers long term sustainability.

Ireland and the International Economy

Ireland is an open international economy. Our prosperity is intimately linked to the health of the world economy. We have been, and will continue to be, heavily reliant on foreign direct investment. This investment is critical to employment in Ireland both through the jobs these firms create directly and through the jobs they create indirectly when they purchase goods and services in the domestic economy. This additional economic activity gives rise to additional tax revenue under a number of tax headings – corporation tax on profits, income tax on wages and salaries and VAT on their purchases of goods and services. This is the tax revenue we are using to improve public services such as Health, Education, Social Welfare and urgently needed infrastructure.

The foreign firms that invest in Ireland have to sell the vast bulk of their output in markets outside Ireland. Indeed Irish firms have also to export to grow because of the relatively small size of the Irish market. It will be apparent from what I have just said that in order to support our current level of income and wealth we need to be an active player in the international economy. Given our small size the only way we can do that is through effective participation in the European Union. To do anything to put that effective participation at risk would be to risk our current prosperity.

These considerations are critical to our consideration of the European Constitution. That Constitution is the legal framework which will facilitate our effective participation in the European Union while meeting our legitimate aspiration to continued economic prosperity. That participation is essential to maintaining the income and wealth levels we have achieved in recent years.

Revenue Powers

Turning now to the 2005 Finance Bill, which goes into Committee Stage in the Dáil next week, I am sure we all agree that a wide tax base is essential if we are to maintain our current low tax rates. This means ensuring tax compliance and, to that end, I have aimed to provide Revenue with the powers needed to assist in achieving this goal.

I think it is fair to say that change has taken place in the way Irish society views tax evasion. It is not socially acceptable to admit to being a tax dodger.

The existence of this degree of moral suasion, which is also exerted by the members of the Institute, is a powerful factor in the ongoing effort to ensure all of us pay our fair share of taxes.

My predecessor wanted to be sure that the powers available to Revenue are balanced with the rights of the taxpayer. Accordingly, the Revenue Powers Group, which reported last year, studied the powers with this balance firmly in mind. They found that the powers were generally in line with international standards but recommended some changes. So too did the recent report of the Law Reform Commission on the question of a Revenue Court and Fiscal Prosecutor.

The Institute has expressed some concerns to me about a broadening of the existing aiding and abetting offence so that it applies to a person knowingly concerned in the fraudulent evasion of tax on their own behalf or on another’s, rather than just to assist someone to make a false tax return. I am currently looking at some changes to the section proposed by the Institute, the Law Society and the accountancy bodies. I accept the measured tone of the Institute’s comments on this section of the Bill which is designed, following concerns expressed in the Oireachtas, to catch those who are the clear offenders. The issues that arise are being carefully considered and if any Government amendments are brought forward, they will be for the Report Stage of the Finance Bill. The Committee Stage is being taken in the Dail next week.

The Finance Bill also contains provisions that tilt the balance in the direction of the taxpayer, notably in the area of interest and penalties and in a significant increase in the threshold for publication for the Revenue list of tax settlements.

I have also signalled my intention to return to some of the other recommendations of the Revenue Powers Group in the context of next year’s Finance Bill.

Review of Tax Schemes

I announced in my Budget statement that a full review of certain tax reliefs and exemptions would be undertaken with a view to introducing measures in Budget 2006 that balance the economic benefit of such reliefs with the need to ensure that such incentives and exemptions are not used by high earners to reduce their tax bill to negligible or relatively low amounts.

A substantial element of the overall review will involve consultants evaluating various property based tax-incentive schemes. Tenders were invited in respect of two separate studies of the cost effectiveness, cost-benefit and equity of:

Firstly, the tax incentive area-based renewal schemes, such as the urban, rural and town renewal, and

Secondly, the remaining sectoral property incentives, for example relating to hotels, nursing homes, student accommodation and so on.

The closing date for receipt of tenders was 21 February 2005 and seven valid tenders have been received, four for the area-based review and three for the property incentives. It is intended to make a decision on the successful bidders by end-March 2005.

What I want to do here is to improve the equity and effectiveness of the tax system. We cannot have a situation where there are a small number of tax-free millionaires if we want to reinforce a belief in the equity of the system. On the other hand, we cannot simply cut off-tax reliefs, of our own bat, if this means losing jobs. Getting the balance right in the public interest will not be easy but it is what Governments are expected to do.

I know that I can count on the support of your Institute in seeking to get it right.

Conclusion

Finally, I would like to pay tribute to the excellent work the Institute does in the public interest. Its wide-ranging role in educating, informing and representing those who work in tax practice throughout the country is not always recognised or appreciated as it could be. I would like to make it clear that I welcome the cooperative and informed way the Institute conducts its business, while acknowledging, of course, that it is not reluctant or slow to puts its point of view when it considers it has to. This is as it should be.

Thank you for your attention here this evening. I wish the Institute and its members every continued success in their endeavours for the future.

[ENDS]