16 December 2009

On TASC and taxes

Continuing with the theme of democracy and debate within Ireland's Public Sphere, I received an interesting email this afternoon from TASC, the progressive think-tank, on their analysis of the budget.

TASC is a fascinating group that definitely is at the forefront of the Irish Public Sphere, bringing together academics, politicians, trade unionists, journalists, activists and even writers such as Colm Tobin, and has been responsible for some of the best publications in recent years on the state of democracy and equality in contemporary Ireland.

In the email and on the subject of the budget they write:
"TASC notes that, in 2010, the savings made by cutting Social Welfare will be almost exactly the same as the spend on tax breaks for landlords (SW saving = €809 million in a full year, landlords tax breaks = €782 million in a full year)"
and that:
"Tax breaks for landlords cannot be justified either on economic efficiency grounds (since Ireland has a surplus of empty housing units, and the rental sector is not a job-creating sector) or on equality grounds (since they disproportionately benefit higher earners).”
This follows on from an excellent piece in yesterday's Irish Times from Fintan O'Toole, who chairs the TASC advisory board. He writes that:
"...if tax breaks on personal income and corporation tax were reduced to average EU levels, their cost to the exchequer would fall from €7.4 billion to €2.2 billion – a saving of €5.2 billion (We are spending three times as much on tax breaks on personal income and seven times as much on corporate income as the EU average.)"
He then counters the Government argument that the top earners in the country are paying the highest rate of tax:
"According to accountants KPMG, the current effective tax rate (including PRSI) for someone earning the equivalent of $100,000 in Ireland is just 34 per cent and for someone on $300,000 it is 44 per cent. The constant citation of rates of 54 or even 57 per cent is simple (but highly effective) propaganda"
Depressing as this analysis is, historically this is just the tip of the tax-avoidance iceberg. Back in August the Revenue Commissioners reported on the results of the 2006 and 2007 Finance Act that removed some of the tax reliefs introduced by successive Fianna Fail governments since 1997, and according to the Irish Times:
"Studies by the Revenue Commissioners in successive years showed that a significant number of the country’s highest 400 earners had used the reliefs to minimise their tax payments to below 10 per cent of the income.

The 2006 and 2007 Finance Act introduced measures which were designed to ensure that all those with an income over €500,00 would pay an effective rate of 20 per cent in tax.

The department analysis shows that the 214 high-income individuals with an income of €500,000 or more who availed of tax reliefs paid an average effective tax rate of 20.8 per cent in 2007.

As a result of the measures, the Exchequer received an additional €34 million in revenue, representing a 129 per cent increase on the tax paid by this cohort.

Some 20 of these people would not have paid any tax at all in 2007 if the new restrictions had not been introduced. The majority of these would have been artists, writers or composers.

For a further 225 people with incomes of between €250,000 and €500,000, the increases in tax-take was tiered up to 20 per cent as the income increased. Their effective tax rate almost doubled from 7.2 per cent of income to 13.6 per cent, resulting in an additional €5.8 million in revenue for the Exchequer."
The simple fact of the matter is that the tax legislation in this country is one of the most unequal in Europe, and if the wealthiest 1% paid their fair share of tax, or even paid tax at the same rate as those on the average industrial wage, then the level of cuts in the current budget would be completely unnecessary. While I am a strong proponent of the introduction of a third tax bracket of at least 48% for income of above €100K, there is simply no point in fighting for this proposal until the entire tax system itself is reformed to remove the cornucopia of exemptions and reliefs that would render this higher tax rate mere window dressing.

The above graph compares the value of existing tax breaks with welfare cuts introduced in the most recent budget, and comes from TASC's Post Budget analysis that can be downloaded from here. It's also well worth checking out their website and regularly updated blog.

Its always good to have some actual verifiable data and the occasional bit of peer reviewed analysis to back up one's wrath and ire-filled rants.



At 9:49 pm, Blogger ryano said...

I got sent a copy of that TASC submission, and I'm sorry to say I don't find it very plausible. It's extremely useful that they've enumerated all of the tax reliefs (although they seem to be quoting the report of the Commission on Taxation), but they don't provide any breakdown of savings that would be made by axing each of them.

They're not just talking about property-based reliefs either, but of tax credits availed of by ordinary workers. If you removed or decreased the employee tax credit, say, or the one-parent family tax credit, you'd surely have to compensate affected earners in some other way, or you'd effectively be raising taxes on low earners.

Maybe their €2.2bn figure is the magical threshold at which tax credits start to benefit higher earners only, but I don't see any evidence that they've done such an analysis - they seem to have just taken a "European average".

Perhaps I'm missing something, but from my reading this is not a particularly helpful submission. It would have been very useful if they had enumerated property-based tax reliefs and other reliefs that only benefit higher earners, and shown the savings to be made from scrapping each of these.


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