10 September 2009 Edition
Flawed tax code has made Ireland a 'profoundly unequal society'
More tax for workers, their families and even children!
BY ROBBIE SMYTH
The Irish tax code is a mess and this week’s Commission on Taxation Report does little more than point up the scale of the challenge facing Irish society to find a fair way to levy taxes.
In rare moments the report offers startling moments of clarity like the proposal to abolish the ceiling on employee’s PRSI or the need to reform inequitable tax relief provisions on pensions, but more often the report is nobbled by the narrow constraints of the terms of reference imposed by Fianna Fáil Finance minister Brian Lenihan in February 2008.
It leaves the report’s authors prone to either a lot of hand wringing on equity issues, with little real positive actions, hiding behind the buzzwords of “tax neutrality” or “low tax burdens”, ignoring the fact that the Commission has armed the sinking Fianna Fáil/Green coalition with a range of new stealth taxes that will hurt the average Irish family and the low paid economically marginal communities in Ireland disproportionately more than any of the high income earners, speculators, developers and financiers who paid little tax during the boom times and will get away it again now in a time of crisis.
Running to over 500 pages with 280 proposals the Taxation Commission report is a huge piece of work and there are detailed pieces of analysis that offer rarely seen dissections of the 26-County tax regime. There is a lot of lip service to the idea of equity but too often the other “guiding principles” of the reports authors take precedence.
Equity, flexibility, simplicity, evidence based approaches and pragmatism were the so-called guiding principles adopted by the commission, but on balance pragmatism wins out nearly very time when it comes to formulating proposals.
For example, the report tells us that, “Ireland has experienced significant economic growth with living standards.... in some cases surpassing, those of other developed economies”. There is no room to mention that a lot of this economic growth was illusory and the profits were pocketed by large multinational firms taking advantage of tax loopholes that allow name plate operations open up in the state to pay less corporation tax, which wont be rising after this report. In fact there will be little if any increases in taxation on businesses of business profit, or high income earners if this reports recommendations are implemented in full.
There is no mention that economic and social inequality grew during the boom years, or that only the USA had a greater gap between rich and poor than the 26 Counties over the last decade. There is a lot of talk about balance in taxation, but the idea of a wealth tax is not mentioned.
Siptu Vice President Brendan Hayes, a member of the Commission who refused to sign the report voiced his concerns in a letter to the Commission chairperson Frank Daly. Hayes wrote his letter in early August but the contents were only published this week.
Hayes said that the Commission “took its task seriously” and went “about its work in a conscientious manner”, but that the Commission’s recommendations will not correct the disparities that have “made ours a profoundly unequal society” and that the report will not “fairly distribute the burden of taxation”
Tax report targets households – Morgan
Sinn Féin Finance spokesperson Arthur Morgan TD described the Tax Commission report as deeply flawed. Instead of making the tax system fairer, the majority of the recommendations would further squeeze ordinary householders. The Sinn Féin TD said the Government has shown with NAMA, Bord Snip and now the Commission on Taxation report that it is determined to exploit the economic crisis for which it is responsible to further its own agenda of creating a system where lower and middle income earners are ripped off by the state.
Morgan said: “This report unfairly targets households, as does the McCarthy report, to pay for the government’s mismanagement of the economy. It is not a restructuring of the tax system based on fairness – it is an attempt to squeeze even further ordinary people struggling to make ends meet.
“The recommendations for water charges, property and carbon taxes and the taxation of child benefit will all hit low to middle income earners disproportionately. At the same time, the Commission, by its Fianna Fáil terms of reference, was refused permission to examine corporation tax. The fact that a so-called independent body of experts would allow itself to be constrained to the point that it would not even make suggestions on corporation tax, such as the potential for bands to be introduced that could essentially help and foster indigenous small to medium enterprise, is a sorry reflection on the integrity of the entire report.
Others have fairer tax system
“The terms of reference for this report are so outdated that they are laughable. The report completely ignores the gaping hole in the public finances stating that the extra revenue raised by measures to broaden the tax base will be available to reduce existing tax rates. The Commission states repeatedly that it wishes to keep the overall tax take low. It fails to take account of the fact that for the last number of years we have had the 3rd lowest tax to GDP ratio in Europe. Other countries have pursued the model of a fairer tax system that provides for proper public services. We have one of the fastest growing deficits in Europe. We cannot keep the overall tax take low, unless we are prepared to completely sacrifice all our public expenditure on services like health and education.
“There are some useful measures, such as a capital gains tax on windfall gains, a property tax on land rezoned to increase its value and the ending of the ceiling on employee PRSI, which we have long called for. We particularly welcome the suggestion to end some of the government’s pet tax breaks. Sadly, rather than dealing efficiently with tax relief for private pensions, which last year cost the state almost €3 billion and unfairly help the wealthy, the Commission leans towards an SSIA type scheme where the state backs those who can afford to save for their pensions. The use of the taxation system for the provision of a universal fair and equitable state pension would be Sinn Féin’s desired outcome of any examination of the pension system.
“The government has showed with NAMA, Bord Snip and now the Commission on Taxation report that it is using the economic crisis to further its own agenda of creating a system where lower and middle income earners are ripped off by the state. We need a restructuring of our tax system to make it progressive while ensuring a sustainable base. Sinn Féin will not stand by while this government tries to make the majority pay for the minority’s greed.”
The core features of the Tax Commission report
• A three-rate income tax structure has “merit”, but no figures are given for what a new third tax band would be set at.
• “The general aim should be to continue to exempt the minimum wage from paying income tax”, but there is no discussion of the last two budgets that have pushed new income levies on a substantial amount of low paid workers.
• The employee PRSI ceiling should be abolished.
• The health levy should be “integrated into the income tax system”, so you keep paying it, but it will have a new name.
• Capital Gains Tax, halved by Charlie McCreevy when he was finance minister, will remain unchanged.
• Taxes on ATM cards should be phased out.
• Tax exile status will not be abolished but the system for making claims should be “supplemented by additional criteria”.
• Property tax is back as the Commission proposes that the government should “Provide for an annual property tax on all residential housing units with the broad exceptions of local authority and social housing units”.
• Stamp duty for home buyers should be zero rated.
• Windfall gains from rezoning decisions “should be subject to an additional capital gains tax charge”.
• A recurrent property tax on land zoned for development should be introduced
• The corporation tax holiday for new businesses should be extended.
• Stamp duty on all share transactions should be reduced to zero, so no Tobin tax but the prospect of more tax free speculation.
• There should be a review of the 2009 air travel tax.
• Persons who are made unemployed should be entitled to offset the retraining costs they incur on certified training courses.
• Child benefit should be taxable income.
• Income tax exemptions and capital allowances for childcare facilities should be “discontinued”. So another decade of inadequate childcare provision and not enough pre-school places is coming.
• End income tax relief for those renting private accommodation.
• Private healthcare tax tax relief should be lower.
• Tax credit for R&D should continue, but tax exemption for patent royalties should be discontinued.
• Tax relief for trade union contributions should be discontinued.
• Artists tax exemption should be discontinued but sports person’s tax relief should continue.
• A carbon tax on fossil fuels should be introduced.
• A retirement savings scheme along the lines of the former SSIA scheme should be introduced
• Domestic water charges should be introduced
Taxation Commission reaction
“Where the state adopts a low tax policy, in the manner in which this state has, the result is an underfinanced set of public services, including health, education and local government, and an inadequate social security infrastructure which further exacerbates inequality, reduces social cohesion and retards economic growth”
Brendan Hayes, Vice President of SIPTU, Tax Commission member outlining his reasons for not endorsing the final tax report.
“While we acknowledge that the county is in crisis and that the government faces difficult policy and budgetary choices, child benefit must not be played around with”
Jillian van Turnhout, chief executive, Children’s Rights Alliance
“The commission’s recommendations, if implemented in full, could see working people hit with higher costs at an already difficult time, while the business sector would benefit from a transfer of resources from one to another. That is neither fair nor sustainable”.
Paul Sweeney, ICTU economic adviser.
“The Government’s game plan is now clear. They intend to keep income taxes low – especially on high earners – and to pay for this through imposing even more taxes on low and average income groups. At the same time, they intend to target low and average earners with the public expenditure cuts in the McCarthy Report”.
Jimmy Kelly, Regional Secretary UNITE trade union
“We support the implementation of local taxes based on property and water usage”.
Ian Talbot, chief executive Chambers Ireland
“The artists’ exemption scheme is not a ‘rich man’s’ relief as has been portrayed in some quarters. The greatest number of its beneficiaries struggle for financial viability on a year-on-year basis. This is true of relatively unknown beneficiaries, as well as certain of Ireland’s most internationally renowned and critically acclaimed artists.
“Arts Council research has shown that over half the beneficiaries of the Scheme have average earnings of less than half the minimum wage.
Pat Moylan, Arts Council Chairwoman