3 September 2009 Edition
Tax Commission report to be published on Monday
Finally time to tax the rich
BY ROBBIE SMYTH
TWO key reports hit Cabinet ministers’ desks in Dublin this week. One was the 600-page Commission on the Taxation Report, which comes with 250 proposals including new taxes on property and services such as water, as well as so-called ‘carbon taxes’ on energy and fuel emissions.
The second report is the latest Exchequer tax returns (released on Monday) which show that the Government’s tax revenue predictions are now off target by up to €1 billion. As the economic downturn continues, it is VAT and income tax returns that are holding up Government funding.
So once again, it is the low-paid who contribute proportionately more of their income on VAT and income tax who are carrying the heaviest burden. Reform of the Irish tax code has never been more needed, but will the commission deliver?
In 1997, when Caoimhghín Ó Caoláin was elected to Leinster House as a Sinn Féin TD, his call for the establishment of a commission on taxation that would have the principles of creating an efficient, transparent and fair tax code was ignored.
Instead, we got another decade of loopholes, ill-judged tax cuts for the wealthy in society and the systematic introduction of stealth taxes undermining the living standards of not just the weakest in society but most working families.
In February 2008, Brian Cowen established a Commission on Taxation and rather than guide it by the simple principle of what would be a fair, efficient and transparent tax code, he meddled with the terms of reference, putting the commission in a position where they would always come up short on public expectations of serious tax reform.
This is what Cowen wanted and leaves him able to make another NAMA-type claim of ‘but we got the best international advice available’ when it is clear that the hard questions on tax justice have not been put at all. (The terms of reference of the commission are summarised in a box accompanying this article.)
TAXES IN CONTEXT
Traditionally, taxes are levied in three basic contexts. The first is that the government needs to raise revenue to pay for vital social services (schools, hospitals, social housing, etc) and building economic infrastructure such as public transport systems, energy and communication networks. So it makes sense to have a tax code to pay for these socially valuable services where the taxes are levied fairly and the system is transparent and efficient.
The second principle is that governments also use tax policies to assist what is deemed socially useful and promote good behaviour.
So we give tax relief, for example, to people who pay to go back to college, who start up a business, who open a crèche, who invest in R&D. For some reason, this mutated in the 1980s and onwards into tax relief for developers building sub-standard homes, for hotels and car parks, for private healthcare and for the pensions of the very wealthy.
The third principle was to use the tax code to penalise socially harmful activities and so smokers and drinkers have hefty taxes levied on the goods they consume.
In the Irish tax code, short-term expediency over-rode all of these considerations, income tax cuts aided all workers, but the wealthy disproportionately. They were funded by cutting public services, hurting the low-paid and disadvantaged the most as they cannot afford to pay for private healthcare and education when the public service is gone.
The most visible example of tax cuts that benefited the wealthy was the decision by Fianna Fáil, with Charlie McCreevy as Finance Minister, to halve Capital Gains Tax from 40% to 20%. The tax itself was not that important; what was crucial was that it became the conduit for a small, wealthy elite to channel their income through and avoid tax.
Figures from the Revenue Commissioners, released in July, show the ongoing benefits of such loopholes to a wealthy minority in Irish society who have never paid their fair share of tax.
The Revenue Commissioners found that almost 20% of people earning between €250,000 and €500,000 in 2007 paid less than 5% of their income in tax. The 439 high-earners analysed in the study shared €290 million in tax reliefs.
Those earning above €500,000 are only paying tax rates of up to 20%, while the top rate of tax for average earners is more than double that.
It is unclear whether the commission’s report will tackle these key tax justice issues. What has happened so far is a series of leaks which point to a proposal for a property tax and a water charge. There is also apparently no proposal for more effective taxing of the state’s highest earners
Commission member and SIPTU trade union Vice-President Brendan Hayes has refused to sign the report. This decision was reported in some news media as being because the report was not “sufficiently redistributive of tax revenues”.
So for now we won’t be having a discussion on tax justice: we will be talking about the backbone of working Ireland carrying the cost of Government failures for the foreseeable future.
10 tests for the Taxation Commission
1 Will low-paid workers and low-income families be taken out of the tax net and will there be a reversal on income levies?
2 Will they propose abolishing the PRSI ceiling and other measure for bringing higher income earners into the tax net?
3 What proposals do they have on removing the last tax loopholes that allow high-income earners pay almost no tax?
4 Will they recommend ending tax exile status? According to the most recent Revenue figures, there was a 13% rise in tax exiles in 2007. A total of 5,803 people avail of this tax loophole and 440 would be described as high-net-worth individuals.
5 What proposals do they have for a Corporation Tax regime that helps small business, particularly when it comes to encouraging innovation, R&D and retraining workers?
6 What about multinationals? We need a positive approach that takes account of the tax policy changes in the United States and other regions while not being a doormat for nameplate multinationals.
7 Can there be green carbon taxes that promote alternative energy use but do not penalise hard-working families?
8 Do they have an all-Ireland dimension that can harmonise taxation across the island?
9 What about a long-term focus? Incoming Irish Taxation Institute President Olivia Lynch wrote last week: “Taxpayers now rightly expect a vision for a long-term tax strategy in Ireland.”
10 What about a Tobin Tax on speculative financial transactions? Last week, the British Financial Services Authority chairperson said he was happy to consider such proposals for the financial markets in London. Should it not be part of the debate here?
Terms of reference of Cowen’s Commission on Taxation
- To keep the overall tax burden low and implement further changes to enhance the rewards of work while increasing the fairness of the tax system;
- To ensure that our regulatory framework remains flexible, proportionate, and up to date;
- To introduce measures to further lower carbon emissions and to phase in, on a revenue neutral basis, appropriate fiscal measures including a carbon levy over the lifetime of the Government, and the guarantee that the 12.5% Corporation Tax rate will remain.