Priorities for Taxation Reform in Budget 2027
It is important that Budget 2027 should strategically approach taxation issues with the objectives of prudently using the available resources, continuing to build a fairer and more sustainable taxation system, and acknowledging the unavoidable need for Ireland to raise more sustainable and recurring tax revenue. The experience of the last two decades has highlighted the centrality of taxation in budget deliberations and to policy development. Taxation plays a key role in shaping Irish society through funding public services, supporting economic activity, and redistributing resources to enhance the fairness of society. Consequently, it is crucial that clarity exist with regard to both the objectives and instruments aimed at achieving these goals.
There are a series of reforms necessary to establish a just taxation system.
Government’s key policy priorities in this area should be to:
• increase the overall tax-take;
• adopt policies to broaden the tax base; and
• develop a fairer taxation system.
Overall, our views are driven by principles of fairness, sustainability, and the need for structural reform.
Increasing the overall tax-take
Social Justice Ireland believes that, over the next few years, policy should focus on increasing Ireland’s tax-take. The current abnormal levels of corporation taxation, and other short-term unsustainable taxation revenue flows, have left the state very exposed to a severe fiscal event. Put simply, the state is not collecting sufficient resources to sustainably provide current levels of public services and supports. Ongoing public service deficits in many areas will necessitate new investment and spending in the years ahead. Consequently, an increase in the amount of tax sustainably collected by the exchequer is a question of how, rather than if.
We warmly welcomed the opening recommendation of the 2022 Commission on Taxation and Welfare which made a similar point. In other publications, we have outlined the details of our proposal for a national tax-take target set on a per-capita basis. Our target is calculated using CSO population data, ESRI population projections, and CSO and Department of Finance data on recent and future nominal overall taxation levels. It also incorporates an adjustment for current windfall corporation tax revenues. The target argues for overall tax revenue equivalent to €15,000 per capita in 2017 terms, with that target growing in line with annual growth in GNI*.
In 2026 the updated per capita tax target is €29,247 and compares to expected tax revenue of €22,709; meaning that the current tax system has a shortfall of approximately €6,500 per person (€35 billion overall). While this figure looks large, it should be understood in the context of current windfall taxes from corporations, which are being mostly spent , dramatically reduced income tax levels over recent years , a narrow tax base, and persistent deficits in the provision of public services and infrastructure.
Gradually increasing the overall tax-take to this level would require a number of changes to the tax base and the current structure of the Irish taxation system. Budget 2027 should commence this process and shift the taxation system towards providing more sustainable sources of recurring revenue.
Reforming and broadening the tax base
Social Justice Ireland believes that there is merit in developing a tax package which places less emphasis on taxing people and organisations on what they earn by their own useful work and enterprise, or on the value they add, or on what they contribute to the common good. There are a number of approaches available to Government including:
• Reforming Tax Expenditure / Tax Reliefs
• A Minimum Effective Tax Rates for Higher Earners
• A Minimum Effective Rate of Corporation Tax
• Increasing PRSI to strengthen the social insurance system
• Introducing a Site Value Tax
• Taxing Second Homes
• Taxing Empty Houses and Underdeveloped Land
• Taxing Windfall Gains
• Supporting a Financial Transactions Tax
• Continued implementation of the Carbon Tax
A Minimum Effective Rate of Corporation Tax
Social Justice Ireland believes that the issue of corporate tax contributions is principally one of fairness. Profitable firms with substantial incomes should make a contribution to society rather than pursuing various schemes and methods to avoid such contributions.
Over recent years the OECD BEPS Pillar 2 proposals have been adopted for large firms (turnover above €750m) who will now pay an effective taxation rate of 15 per cent. This is welcome and should bring additional revenue, in the short-term, from 2026. Budget 2027 should announce an extension of this measure to all corporate taxpayers over the next few years. We suggest this should be phased in, with a minimum effective rate of 10 per cent applying from 2027 and increasing by one percentage point a year after that until it reaches 15 per cent in 2032.
Revenue Commissioner data suggest that most firms are already above this level, and so any initial additional revenue will be minimal. However, this will increase to provide an additional €700m in 2028 and €1.4 billion per annum over 2029-32.
Developing a fairer taxation system
Social Justice Ireland believes that fairness should be a central objective of any forthcoming reform of the taxation system. The following reforms that would greatly enhance the fairness of Ireland’s taxation system:
• Standard Rating Discretionary Tax Expenditures
• Favouring Fair Changes to Income Taxes
• Introducing Refundable Tax Credits
• Reforming Individualisation
• Making the Tax System Simpler