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30 July 2009 Edition

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Tax rises will be necessary

THE Commission on Taxation is due to complete its work later this week. Established in February 2008, its remit was to “review the structure, efficiency and appropriateness of the Irish taxation system”. Its report was expected to help the government set the framework for tax reform for the coming decade.
Its terms of reference included a commitment to “keep the overall tax burden low” and a “guarantee that the 12.5% Corporation Tax rate will remain”.
Sources close to the commission indicate that, while the report will go some way to simplifying the notoriously complex system currently in place, it will keep its word on keeping the tax-take low.
If this proves to be the case, should we welcome the report? Absolutely not!
One of the great myths of our time is that low-tax economies are more competitive. Of course, there is no evidence to support this claim.
A quick look at the World Competitiveness Scoreboard for any recent year demonstrates that there are more high-tax countries in the top ten than there are low-tax countries. In particular, Norway, Sweden and Finland always feature prominently as amongst the world most competitive economies despite their relatively high-tax-takes.
The real determinants of competitiveness are science, technology, education and affordable health and childcare, all of which require investment by the state.
And where does the state get the cash to invest? It gets it from taxation, of course.
And here’s our problem.
The 26 Counties has one of the lowest tax-takes of any the EU’s 27 member states. In 2007, the total tax revenue as a percentage of GDP was 31%. Only Latvia, Slovakia, Lithuania and Romania took less.
At the other end of the scale, world leaders in competitiveness (such as Sweden, Denmark and Finland) had tax revenues at 44% to 51% of GDP.
You don’t have to be an economist to conclude that if you have Latvian levels of taxation you cannot have Scandinavian levels of investment in job creation or public services.
In the same year, the 26 Counties has the third-lowest level of government expenditure as a percentage of GDP in the EU. Only Lithuania and Estonia fared worse. Again, at the top end of the spectrum, the Scandinavian countries ranged from 49% to 54%.
There is also a clear link between a country’s total tax-take and the levels of inequality. The larger a country’s tax-take, the more money it has to invest in various forms of social protection and wealth redistribution. In 2008, the 26 Counties spent 18% of GDP on social protections compared to Sweden’s 32%.
So what does all of this tell us?
If you want greater competitiveness and less inequality you need to have enough money to invest in research and development, education, job creation, public services and social protection.
If you don’t, then your economy will be weak and your society crippled with inequality.
It is time to start making the argument to raise taxes, for the good of the economy and the good of society. If the report from the Commission on Taxation fails to do this then it should be thrown in the bin.

An Phoblacht Magazine


  • The first edition of this new magazine will feature a 10 page special on the life and legacy of our leader Martin McGuinness to mark the first anniversary of his untimely passing.
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