Scale and Oversight of Tax Expenditures in Ireland

The Select Committee on Budgetary Oversight of the Irish Parliament (Oireachtas) held a hearing on tax expenditures in Ireland. On behalf of the Tax Expenditures Lab, Flurim Aliu (CEP) and Christian von Haldenwang (IDOS) provided an opening statement and participated in the discussions. The full session is available here.

Dear Chairperson, Dear Deputies,

Thank you very much for giving us an opportunity to share our experience with you. My name is Flurim Aliu and I am here today alongside my colleague Christian von Haldenwang, representing the Tax Expenditures Lab, a joint initiative by the Council on Economic Policies (CEP), where I am based, and the German Institute of Development and Sustainability (IDOS), where my colleague is based. The Lab provides global, comparable information on tax expenditures and supports evidence-based discussion on their transparency, design, and use.

In our remarks, we will first offer a brief international perspective on tax expenditures, and then turn to some observations that are specific to Ireland.

– International Perspective on Tax Expenditures

Internationally, tax expenditures represent a major component of fiscal policy. The data we collect in the Global Tax Expenditures Database (or GTED, in short) shows that the global average of revenue forgone reported by governments is close to 4 percent of GDP, or almost a quarter of total tax revenue. In many countries, they rival or even exceed some of the largest direct spending programmes.

So this is not a minor issue, but all too often tax expenditures are applied without robust evidence regarding their costs – and even less, their effectiveness. Tax expenditures are introduced to promote investment, employment, welfare policy objectives, or environmental goals, among others. Yet systematic evaluations remain rare, and the available evidence suggests that many measures are only moderately effective or not effective at all. In some cases they may actually even harm the common good.

Having looked at the evaluations of more than 660 different TE provisions across the world, we found that two thirds of them were either only moderately effective or totally ineffective at achieving their stated policy objectives. Only one third received a positive evaluation. This highlights the importance of systematic evaluation, because tax expenditures involve significant fiscal costs, and without evidence it is difficult to know whether they represent good value for money compared to other policy instruments.

A consistent international finding is that these costs are often highly concentrated. On average, the ten largest tax expenditures account for nearly three quarters of total revenue forgone in a country. This suggests that even limited evaluation efforts can deliver meaningful results if focused on the largest and most consequential measures.

At the same time, most tax systems also contain a large number of small, highly targeted provisions. While their individual fiscal cost may be modest, together they add complexity, increase administrative burdens, and make the overall system more difficult to monitor and reform.

Another consistent finding is that tax expenditures are sticky. Quite often, tax expenditures are difficult to remove even if proven to be ineffective, because they benefit well organised groups of taxpayers with a high amount of lobbying power, while their costs are borne by the general public. At the same time the political gain that may be associated with granting tax expenditures is typically short-lived because taxpayers quickly grow used to the specific benefits they bring.

All of this would already warrant close scrutiny, yet in many parts of the world even the basic transparency needed to assess tax expenditures is still lacking. While more countries now publish tax expenditure reports, close to half of all jurisdictions worldwide still provide no information at all. Among those that do report, coverage and quality vary widely, and key information on policy objectives, targeted beneficiaries, or legal bases is often missing. This lack of transparency makes it difficult for parliaments and the public in general to understand the true size of government support delivered through the tax system, or to assess who benefits from these measures. In many cases, tax expenditures remain in the tax code for years without systematic review, unlike direct spending programmes, which are subject to regular budget scrutiny.

– Tax Expenditures in Ireland

Against this international background, it is important to acknowledge the work of the Irish government, and the Department of Finance in particular, in this area. In many of our country engagements, we actually cite Ireland as an example of good practice, particularly with regard to its structured evaluation framework for tax expenditures. I will talk a bit more on that in a minute.

First, on tax expenditure reporting, Ireland has made great progress in recent years. One of our projects at the Lab is the Global Tax Expenditures Transparency Index (GTETI), which ranks countries according to the quality of their reporting, based on 25 different indicators. The latest version of our index which was based on reports published until the end of 2024 ranks Ireland as the 30th out of 116 countries in the world, which is a positive achievement. But since then, the Department of Finance has further improved its reporting by introducing the so-called “Tax Expenditure Passports” which contain detailed information for each measure, including its fiscal cost (for multiple years), its policy rationale, and the number of targeted beneficiaries (as well as actual claims), to name a few. This implies that in the next edition of the transparency index Ireland is likely to improve its ranking considerably.

On evaluation, Ireland is one of few countries worldwide that have established formal guidelines for evaluating tax expenditures, and one of an even smaller group that regularly carries out such evaluations in practice.

The main area where further progress could be made is in strengthening the link between evaluations and tax expenditure reform. International experience shows that evaluations are most effective when their findings are systematically discussed in parliament and used to inform reform decisions. In this sense, the reports published by the Department of Finance can be highly useful to determine whether there are avenues for the rationalisation of certain provisions.

– Recommendations

Seen from the outside, two practical steps could perhaps help build on the strong foundations already in place.

• First, there might be room for greater parliamentary engagement with the evaluation reports produced by the Department of Finance. These are valuable analytical documents, which could always be discussed in depth in parliamentary proceedings and inform policy decisions.

• Second, consideration could be given to a wider use of sunset clauses. At present, the majority of tax expenditures (93 of the 116 in the report) do not include an expiry or review date. Introducing such clauses more systematically could help ensure that provisions are periodically reassessed and remain aligned with current policy priorities.

Thank you.

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