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28 October 2004 Edition

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It's the tax system, stupid - 11 millionaires pay no tax, while 632,000 PAYE workers pay top tax rate

BY ROBBIE SMYTH

It's been a busy week for the Irish tax system, which is under the spotlight from the Irish Congress of Trade Unions (ICTU) and the Organisation for Economic Co-operation and Development (OECD), while new finance minister Brian Cowen has been sending mixed messages on his upcoming tax and budget plans.

Then the icing came last weekend, with the disclosure by the Revenue Commissioners that 242 people who earned more than €100,000 in 2003 legitimately paid no tax.

Sinn Féin spokesperson on Finance, Caoimhghín Ó Caoláin TD, said "PAYE workers can rightly feel aggrieved today. As public services continue to crack and crumble under the pressure of poor financial resources, this revelation is concrete evidence of the shameful legacy of Mary Harney and Charlie McCreevy."

Brian Cowen's justification for this inequality and his other musings of the week must put him firmly among the hot contenders for "yes minister" awards 2004.

RACE TO THE BOTTOM

The government needs to reconsider its low tax strategy, according to ICTU economist Paul Sweeney. Speaking at a Conference of Religious in Ireland (CORI) seminar last week, Sweeney said, "Ireland's low rate of Corporation Tax is unsustainable and is fuelling a race to the bottom."

Sweeney argues that "the reduction of the rate to 12.5% was a major policy mistake because an industrial development policy which is based on artificial tax subsidies is not sustainable. It has Ireland leading the race to the bottom in Europe - a race which cannot be won by any state.

"We are being pursued by the new members on the tax competition race to the bottom. Estonia actually has a rate of zero for many firms. This will be hard to compete with."

Sweeney believes that "the competition to attract investment through low corporation tax will invariably lead to a lowering of standards in other areas: It could be followed by lower labour regulations and lower health and safety regulations."

There is a myth that low taxes created the Celtic Tiger, according to Sweeney, who is proposing a 20% corporation tax rate. It is, he says, part of a wider "conservative political agenda", the aim of which is to "limit the role of the state and maintain the benefits reaped by a small minority".

The result is that public spending on health and education is kept low and the tax regime "does not become an instrument of redistribution".

Sweeney's analysis is detailed and thought provoking, but perhaps the most telling conclusion in his summary is where he baldly states: "The wealthy do not care too much about public services, as they can afford to buy these services privately."

Maybe this explains why the Sunday Independent devoted a whole editorial to attacking the ICTU proposals last weekend.

OECD COMPARISONS

Though Irish politicians may be clinging to the mantra that low taxes are the cure for every illness, it is clear that internationally this is not the case.

An OECD report published last week found that tax levels have risen continuously over the last 30 years among member states, and that Ireland, with one of the lowest rates of tax as a percentage of Gross Domestic Product, has a tax burden far lower than most other EU states.

Then there is the question of what effect taxation has on that other great economic mantra, the issue of "competitiveness". In Ireland, the logic is that low taxes make the economy, especially in terms of firms and workers more competitive.

A recent World Economic Forum league table on global competitiveness found low tax Ireland languishing in 30th place, while four out of the top six most competitive economies were those nasty high tax Nordic states, including Finland, the league's toppers for the second year running.

FLIP FLOP

Barely two weeks ago, Cowen, speaking in Leinster House, said his priority was towards those on low pay and he rejected any assertions that the government had ducked out on tax justice.

Last Friday, after the disclosure of Ireland's high earners who pay no income tax, it seemed that Cowen had forgotten about low pay and tax justice. The reason that people who earn €1 million pay no tax is a simple one.

Cowen said tax-free millionaires happened because "the gross income is reduced by various relevant deductions and allowances, such as capital allowances, losses, allowable expenses and retirement annuities. In some cases, these will reduce the tax income to nil".

He could have said that these people's money is invested in race horses, car parks, hotels, nursing homes, etc, for which his government gives them massive tax writeoffs. One wonders how long it will be before new bus shelters or LUAS stops will be designated also as writeoff opportunities.

Then, just to compound things further this week, Cowen declared that despite buoyant tax revenue, there will be no change in the government's budgetary economic policy and that he has adopted a "conservative" stance on the coming budget.

What this actually means is unclear and time will tell if Cowen is indeed a new broom or just a McCreevy lite.

In the Dáil, Caoimhghín Ó Caoláin attacked the pontificating of Fianna Fáil about the need for a low tax economy "when what was really operating for their super rich friends was a no-tax economy.

"It is absolutely sickening to constantly be lectured to on economics by the likes of Mary Harney and her PD colleagues and fifth columnists in Fianna Fáil," he fumed. "This admission alone exposes the flawed, selfish and ultimately dangerous economic policies of the PDs, who are clearly the driving force behind the Government.

"If everybody paid their fair share then our public services would not be in the state they are in," said the TD. "People would not be dying for want of a hospital bed; schools would not be rundown and overcrowded; parents would not want for adequate childcare facilities and we would not have endless housing waiting lists."

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