Thursday, 17 April 2014
Its main categories of risk are i) Economic; ii) Environmental; iii) Geo-political; iv) Social; and v) Technological. But it covers food safety, infrastructural development, social cohesion, migration and integration, the banking system, pandemics, cyber security, terrorism and more.
However, it is both contradictory and disappointing in a few areas. It is thin on what the responses should be, but that should follow later, on revision, we hope.
This publication states at the very beginning that it seeks to avoid “group think.” Enda Kenny in his introduction specifically demands that “never again should dissenting voices be silenced”. It warns against “herding” and “selective reading.”
It was this “group think” which dominated property supplements and business pages of Irish newspapers and the selection of many economic commentators who urged endlessly that “you need to get on the property ladder” or be left behind.
What the Taoiseach and other commentators never say is the Group Thinkers who dominated were all from the Right. It did seem, for a while, that the unregulated free market worked, but boy, did it implode, necessitating massive public bail-outs of the private sector.
While wisely warning of the dangers of “group think”, the assessment paper immediately falls into “group think”. Workers are called “human capital” and competitiveness is defined solely as wage movements over the short term and not in its complexity. However, it is only a draft and that shows some foresight and we trust it will be amended, as it is important.
It has a crude reductionist view of competitiveness. This is surprising as Ireland has a National Competiveness Council (NCC) which examines the complex issue of competitiveness and has done so with continuing refinements for decades.
The NCC is recognised as a world leader in its area. Several countries are emulating its work. Indeed this risk assessment acknowledges the existence of the NCC and quotes one of its publications. Yet it is a clear the authors have not actually read the reports of the NCC. They are published by the Government, with forewords by the same Taoiseach. The NCC reports point out that wage movements are but one issue in a complex area.
It was not rising wages that caused Ireland's downturn, despite the needless battering of trade unions and workers by conservative economists and think tanks over the last 30 years.
Wage movements are important in an economy but less so than productivity, which is mentioned. The issue of competitiveness is much more complex than the crude depiction in this report.
In contrast, the report does not cover the dangers of “excessive profit-taking” directly. US MNCs famously make huge profits here it is stated in IDA reports. The assessment does cover this vaguely, in the sense that it is mentions Ireland’s over-dependence on a small number of foreign MNCs in a small number of sectors. This is a welcome and timely recognition. It also expresses concern about the low rate of Corporation Tax in a vague way, and while oblique, this recognition is long overdue but welcome.
The biggest issues facing Ireland’s competitiveness today are, in my own view: i) the cost to taxpayers of the infamous private bank guarantee; ii) the lack of credit for small businesses (i.e. via the banks); iii) the potential impact of a change in the US tax regime which wipes out the attractiveness of low effective corporation taxes overnight (the vague but welcome mention); and d) our reputation as a place to do business (ethics are too flexible in business and those in the elite are not brought to task, while private enterprise is becoming less transparent, with the growth of secret unlimited companies, deliberately obscure accountancy and other evasions).
The NCC has 16 members, 10 of who are representatives of business. Clearly it is a contested space, but yet it reports are sophisticated and contribute much to an understanding of what is a complex issue, provided they are read by policymakers; i.e. those who should do so.
The risk report also misses out in its lack of emphasis on inequality. This is the big economic and social issue of the 21st Century. Besides the terrible impact on poorer people, from an economic point of view it is leading to falling demand as the rich get richer without doing a hand's turn, and it is undermining meritocracy and democracy.
The other big issue neglected is media plurality. This is a defining issue for this Government for it was the lack of economic debate (which is admitted so forcefully by the Taoiseach in his Foreword) which allowed right-wing group think to rule the air and printed media. I would argue that the bias remains and may be deepening.
And while on the subject of “group think”, and the how deep the dominance of the language of the Tea Party and the Right has gone in discourse in Ireland, we should look at a recent publication by the Department of Finance. It is an interesting and detailed response to widespread publicity internationally on the extraordinarily low (and in some cases no) tax paid by highly profitable MNCs in Ireland. (Or not based 'in' Ireland yet stepping in and stepping out). For example, Jim Stewart’s revelations that the effective tax rates paid by many MNCs in Ireland are much lower than the low nominal rate of Corporation Tax.
The risk report deals with MNCs and never once referred to “transfer pricing”. This is truly remarkable!
In contrast, virtually every time it mentioned the word “tax” it appended the word “burden” to it. The term “tax burden” appears a staggering 24 times in the paper. This is a pejorative Tea Party term which no tax-funded civil servant should use, ever.
Why is my payment to the doctor a “payment” but the payment under a medical card a “burden”? The implication is that every civil servant in the same Dept of Finance is a “burden” because he or she is paid fully out of taxation, which is a burden.
What is even more laughable is that when it comes to Corporation Tax in Ireland the word “burden” is wholly inappropriate. For in Ireland the nominal rate is very low, the effective rate is even lower and the social charges paid by employers are among the lowest in the world. How can they be called “burdens”?!
I do not think that the authors even realise that they are using Tea Party language, so inculcated is it in the psyche of many. Even the Department’s PR section did not see the use of this degrading word which is attached to the word “tax” by those who want a small state and inequality.
Words are weapons.
Paul Sweeney is a member the NCC
Thursday, 10 April 2014
From the outset, it’s important to point out that what is being referred to as a tax ‘cut’ is in reality a widening of the tax bands so that the higher rate (41%) kicks in a bit later than it currently does (€32,800). The effect of this type of ‘cut’ won’t be the same for everyone.
The first and most important thing to note is that if a person doesn’t earn more than €32,800 per year, then this change will have no impact on their take home pay. Given that more than half of Irish workers do not earn that much, then that is a significant amount of people who won’t see any benefit from the tax cut.
It is also important to point out that 41% is a ‘marginal’ rate, which means everyone, no matter how much they earn, pays 20% on their income up to €32,800, and then 41% on anything earned above that.
To show the impact of widening the tax bands, we therefore need to see how it would change a person’s ‘effective’ tax rate, the amount of tax they actually pay.
We can show effective rates (including USC and PRSI) using tools such as the Deloitte Tax Calculator. We can then compare two different scenarios (for a single person); the current system and a hypothetical system where the tax band has been widened. As an example, we can show what would happen if threshold was raised from €32,800, to €36,400 (which is where the cut off was in 2010) to see who benefits from a widening of the bands.
The results are:
In chart form, the change in effective tax rates look like this:
Expressed as a percentage ‘tax cut’ it would look like this:
It is often presented that the greatest benefit of this type of cut is for those earning just above the current cut-off (between €32,800 and €36,400), who will now pay no taxes at the higher rate.
However, because it is a marginal rate, this is not the case. The real benefit goes to those who pay more of their income at a higher rate. From the figures above it is clear that those who benefit most from this tax cut (in percentage terms) are those earning €40,000 per year, who would get a 1.9% cut. These are people on above average incomes.
Widening the band would also bring significant benefits (in real terms) for those on much higher incomes; 1.5% for someone on €50,000, 0.9% for someone on €80,000 (and note; this does not take into account other forms of tax breaks available to higher earners).
At the same time, those earning around average wages (c. €35,738) see a much smaller benefit (0.5%). And crucially, these figures confirm what we already knew: that this type of change would be of no benefit to around half of all workers in Ireland who earn less than €32,800.
Given that 20% of workers in Ireland are officially on low pay, one of the highest levels in western Europe, and that manual workers’ wages have fallen since 2010, while managers and professionals have increased their wages in that time, it is likely that that widening the tax bands would widen the already high levels of income inequality in Ireland today.
Cormac Staunton is TASC's Policy Analyst. You can follow him on Twitter @Cormac_Staunton
Wednesday, 9 April 2014
The presentation is designed to explore the concept of 'economic equality' by moving beyond a narrow focus on incomes (from employment and/or social transfers) and including wealth and public services, both of which provide cash-equivalent benefits and other personal benefits (such as security against risks).
The larger and more nuanced concept of 'benefit from the economic system' gives a better sence of how different social groups benefit from the way in which the economy is structured to provide a combination of market incomes, welfare incomes and public services (with both cash-equivalent value like social housing or less tangible but no less important value like security against illness or loss of a job). What emerges is a contrast between wealth confering benefits on those households who have assets versus public services confering benefits upon a wider pool of recipients, with those on low incomes (from work or welfare) gaining most from public services.
While we know that employment is the number one route towards more income equality, the Irish economic system (in 2011) was only able to provide 65.5 per cent of adults aged 25-64 with employment, and the numbers seeking employment far outweigh number of job vacancies annually. When we look at the over one million adults of working age who benefit from a weekly welfare payment, this paints a picture of a society where the large majority of people have low cash incomes, and therefore the importance of public services (and the harm of cuts) becomes more obvious. Conversely, tax changes that benefit people with higher income and wealth more clearly benefit a small minority of Irish people, not just a minority of those in employment.
Wednesday, 2 April 2014
Tuesday, 1 April 2014
Two sections stand out: Chapter 2, I. Some Challenges of Today's World and, in Chapter 4, a section on "The economy and the distribution of income".
Pope Francis writes:
"52. In our time humanity is experiencing a turning-point in its history, as we can see from the advances being made in so many fields. We can only praise the steps being taken to improve people’s welfare in areas such as health care, education and communications. At the same time we have to remember that the majority of our contemporaries are barely living from day to day, with dire consequences. A number of diseases are spreading. The hearts of many people are gripped by fear and desperation, even in the so-called rich countries. The joy of living frequently fades, lack of respect for others and violence are on the rise, and inequality is increasingly evident. It is a struggle to live and, often, to live with precious little dignity. This epochal change has been set in motion by the enormous qualitative, quantitative, rapid and cumulative advances occuring in the sciences and in technology, and by their instant application in different areas of nature and of life. We are in an age of knowledge and information, which has led to new and often anonymous kinds of power.
No to an economy of exclusion
"53. Just as the commandment “Thou shalt not kill” sets a clear limit in order to safeguard the value of human life, today we also have to say “thou shalt not” to an economy of exclusion and inequality. Such an economy kills. How can it be that it is not a news item when an elderly homeless person dies of exposure, but it is news when the stock market loses two points? This is a case of exclusion. Can we continue to stand by when food is thrown away while people are starving? This is a case of inequality. Today everything comes under the laws of competition and the survival of the fittest, where the powerful feed upon the powerless. As a consequence, masses of people find themselves excluded and marginalized: without work, without possibilities, without any means of escape.
"54. In this context, some people continue to defend trickle-down theories which assume that economic growth, encouraged by a free market, will inevitably succeed in bringing about greater justice and inclusiveness in the world. This opinion, which has never been confirmed by the facts, expresses a crude and naïve trust in the goodness of those wielding economic power and in the sacralized workings of the prevailing economic system. Meanwhile, the excluded are still waiting. To sustain a lifestyle which excludes others, or to sustain enthusiasm for that selfish ideal, a globalization of indifference has developed. Almost without being aware of it, we end up being incapable of feeling compassion at the outcry of the poor, weeping for other people’s pain, and feeling a need to help them, as though all this were someone else’s responsibility and not our own. The culture of prosperity deadens us; we are thrilled if the market offers us something new to purchase. In the meantime all those lives stunted for lack of opportunity seem a mere spectacle; they fail to move us.
"56. While the earnings of a minority are growing exponentially, so too is the gap separating the majority from the prosperity enjoyed by those happy few. This imbalance is the result of ideologies which defend the absolute autonomy of the marketplace and financial speculation. Consequently, they reject the right of states, charged with vigilance for the common good, to exercise any form of control. A new tyranny is thus born, invisible and often virtual, which unilaterally and relentlessly imposes its own laws and rules. Debt and the accumulation of interest also make it difficult for countries to realize the potential of their own economies and keep citizens from enjoying their real purchasing power. To all this we can add widespread corruption and self-serving tax evasion, which have taken on worldwide dimensions. The thirst for power and possessions knows no limits. In this system, which tends to devour everything which stands in the way of increased profits, whatever is fragile, like the environment, is defenseless before the interests of a deified market, which become the only rule.
No to a financial system which rules rather than serves
"57. Behind this attitude lurks a rejection of ethics and a rejection of God. [...] Ethics – a non-ideological ethics – would make it possible to bring about balance and a more humane social order. With this in mind, I encourage financial experts and political leaders to ponder the words of one of the sages of antiquity: “Not to share one’s wealth with the poor is to steal from them and to take away their livelihood. It is not our own goods which we hold, but theirs”.
"58. A financial reform open to such ethical considerations would require a vigorous change of approach on the part of political leaders. [...] I exhort you to generous solidarity and to the return of economics and finance to an ethical approach which favours human beings.
The economy and the distribution of income
"202. The need to resolve the structural causes of poverty cannot be delayed, not only for the pragmatic reason of its urgency for the good order of society, but because society needs to be cured of a sickness which is weakening and frustrating it, and which can only lead to new crises. Welfare projects, which meet certain urgent needs, should be considered merely temporary responses. As long as the problems of the poor are not radically resolved by rejecting the absolute autonomy of markets and financial speculation and by attacking the structural causes of inequality, no solution will be found for the world’s problems or, for that matter, to any problems. Inequality is the root of social ills.
"203. The dignity of each human person and the pursuit of the common good are concerns which ought to shape all economic policies. At times, however, they seem to be a mere addendum imported from without in order to fill out a political discourse lacking in perspectives or plans for true and integral development. How many words prove irksome to this system! It is irksome when the question of ethics is raised, when global solidarity is invoked, when the distribution of goods is mentioned, when reference in made to protecting labour and defending the dignity of the powerless, when allusion is made to a God who demands a commitment to justice. At other times these issues are exploited by a rhetoric which cheapens them. Casual indifference in the face of such questions empties our lives and our words of all meaning. Business is a vocation, and a noble vocation, provided that those engaged in it see themselves challenged by a greater meaning in life; this will enable them truly to serve the common good by striving to increase the goods of this world and to make them more accessible to all.
"204. We can no longer trust in the unseen forces and the invisible hand of the market. Growth in justice requires more than economic growth, while presupposing such growth: it requires decisions, programmes, mechanisms and processes specifically geared to a better distribution of income, the creation of sources of employment and an integral promotion of the poor which goes beyond a simple welfare mentality. I am far from proposing an irresponsible populism, but the economy can no longer turn to remedies that are a new poison, such as attempting to increase profits by reducing the work force and thereby adding to the ranks of the excluded.
"206. Economy, as the very word indicates, should be the art of achieving a fitting management of our common home, which is the world as a whole. Each meaningful economic decision made in one part of the world has repercussions everywhere else; consequently, no government can act without regard for shared responsibility. Indeed, it is becoming increasingly difficult to find local solutions for enormous global problems which overwhelm local politics with difficulties to resolve. If we really want to achieve a healthy world economy, what is needed at this juncture of history is a more efficient way of interacting which, with due regard for the sovereignty of each nation, ensures the economic well-being of all countries, not just of a few.
"208. If anyone feels offended by my words, I would respond that I speak them with affection and with the best of intentions, quite apart from any personal interest or political ideology. My words are not those of a foe or an opponent. I am interested only in helping those who are in thrall to an individualistic, indifferent and self-centred mentality to be freed from those unworthy chains and to attain a way of living and thinking which is more humane, noble and fruitful, and which will bring dignity to their presence on this earth."
Monday, 31 March 2014
Capital in the 21st Century is published by Harvard University Press and weighs in at 696 pages in the English translation. The book provides detailed empirical evidence of the rise in inequality between the top one per cent and everyone else, but goes much further by providing a novel and challenging analysis of the future direction of capitalism.
Thomas Piketty will be giving a keynote address at the TASC-FEPS annual conference in Dublin on 20th June 2014.
There is a review of the book in the Irish Times by Paul Sweeney.
There is no shortage of other reviews to be found online:
- Thomas Piketty's own article in the Financial Times
- An article on inheritance by Robin Harding in the Financial Times
- A blog post with charts from John Cassidy in The New Yorker, and a longer article from the same magazine.
- Posts in The Economist magazine (here and here)
- Various links on Irish Economy
- A long review is given by Branko Milanovic of the World Bank here.
- A "wonkish" note on the book by Paul Krugman here.
Piketty (and colleagues) have brought the issue of economic inequality centre stage as one of the most pressing issues to be addressed in any model for the future direction of the global economy. The solid empirial evidence underpinning Piketty's analysis is just as relevant for Ireland as everywhere else, and its policy implications are far-reaching.
Friday, 14 February 2014
TASC will be video-recording the panel discussion that is part of the screening and this will be available on our website. The panel will be chaired by RTÉ's Sean Whelan and features Margaret E Ward, Marie Sherlock, Colm O'Regan and Nat O'Connor.
TASC has created a mini-site to give more information about the film, and a range of facts about economic inequality in Ireland: check out www.inequalityforall.org
"First, America’s real job creators are consumers, whose rising wages generate jobs and growth. If average people don’t have decent wages there can be no real recovery and no sustained growth.
"Second, the rich do better with a smaller share of a rapidly-growing economy than they do with a large share of an economy that’s barely growing at all.
"Third, higher taxes on the wealthy to finance public investments — better roads, bridges, public transportation, basic research, world-class K-12 education, and affordable higher education – improve the future productivity of America. All of us gain from these investments, including the wealthy."
TASC is hosting a panel discussion (SOLD OUT) as part of a screening of Reich's documentary, Inequality for All, as part of the Jameson Dublin International Film Festival.
Monday, 10 February 2014
Summary: "The PwC/World Bank ‘Paying Taxes 2014’ shows cross country comparisons of various aspects of the tax system as they affect companies, for example ease of compliance. In Ireland this Report is frequently cited in media coverage to the effect that reported effective profits tax rates in Ireland (shown as 12.3% in the Report published in 2013) are higher than those in France (8.3%) and other countries. The Report is based on a hypothetical (fictional) company which is small, domestically owned, has no imports or exports and produces and sells ceramic flower pots. These and other assumptions automatically rule out many tax minimisation strategies. This note assesses the claim that this report shows effective tax rates in Ireland are close to or above those in other countries such as France. It is argued data from the US Bureau of Economic Analysis gives a more accurate estimate of effective tax rates for US subsidiaries operating in Ireland and elsewhere. This data shows that for 2011, US subsidiaries operating in Ireland have the lowest effective tax rate in the EU at 2.2%. This tax rate is not that dissimilar to effective tax rates in countries generally regarded as tax havens such as Bermuda at 0.4%."
Wednesday, 20 November 2013
The study estimates that a universal pension would cost €0.7 billion more than current expenditure on the state’s contributory and non-contributory pension schemes and that this cost could be met by reducing the tax expenditure on top earners private pension schemes. The additional cost of introducing a universal pension in 2014 could, therefore, be met without imposing an extra burden on middle and lower income taxpayers and without having an adverse impact on the public finances.
Using official projections of the population up to 2046, growth and earnings, it is shown that, contrary to arguments in the Green Paper on Pensions, paying for a universal pension “would be no more difficult than funding existing arrangements”. However, a universal pension would have considerable advantages in ensuring gender equality by not penalising women who take time out of the labour force to care for children and relatives, reallocating resources from private pensions for higher earners to middle and lower income earners who derive little benefit from the private pension system, providing a secure framework in which people can plan for their retirement, simplifying the administration of the state pension system and providing older people with a guaranteed income to protect them from poverty
Monday, 4 November 2013
Apparent growth of inward investment to Ireland is largely a mirage
Monday, 14 October 2013
Is Enda Kenny pulling Ireland out of the IMF? If so, he didn't mention it at the Fine Gael conference.
As long as Ireland remains in the IMF, we are entitled to seek credit from it in the normal way. The usual cap on credit is eight times a country's 'quota' (which is how much money we have deposited with the IMF to fund its global operations), although some credit facilities have no cap. Ireland has deposited $1,258 million with the IMF (in SDR, dollar value), so we are generally able to borrow just over $10 billion.
The IMF offers Stand-by Arrangements, Flexible Credit Lines and Precautionary and Liquidity Lines, among other forms of credit. Ireland is currently availing of an Extended Arrangement. A look at the current list of credit facilities active at the IMF shows the normal operation of their credit system.
What is currently different is that Ireland borrowed $19,466 million from the IMF, which goes beyond our normal entitlement to borrow. That's what brings the European Union into the issue and has required the creation of EU credit institutions. The IMF is constrained in its ability to lend to rich countries (and that still includes Ireland, and indeed any country in the Euro zone). Firstly, the IMF doesn't have enough money to lend into hard currency zones like the Euro zone, and secondly, developing countries with much greater economic problems take issue with the IMF bending its rules for countries in the rich developed world.
The conclusion I draw from this is that Ireland could probably take out a credit line of up to $10 billion from the IMF using the normal rules, which would probably be a relief to the IMF as it would normalise Ireland's relationship with the fund and end one instance of the IMF bending its own rules.
What is really at issue is whether Ireland needs a credit line of more than $10 billion (or c. €7.4 billion), which represents more than half of the deficit. In other words, is Ireland in sufficiently good economic shape - with capacity to borrow from the international markets - that we don't need a special deal from the EU institutions to underpin a larger precautionary loan?
That's the more interesting question. Ireland is already holding €25 billion in cash balances (held by the NTMA), which means that even if all tax revenue ceased overnight, the State has six months or so to reorganise itself.
Minister Noonan is also quoted as saying: Ireland cannot go back to “an economy built on the quicksand of a credit and property bubble”.
The debate is finally swinging around to where it should have been five years ago at the beginning of the crisis (and as discussed at length on this blog at that time and not least as outlined in TASC's industrial policy discussion papers). Ireland needs a credible strategy for economic growth that is not based on tax breaks or unsustainable debt-fuelled recovery. If we can present such a pathway to recovery to the world, we can convince international lenders that buying Irish government bonds is a safe investment with a reasonable rate of return.
Tomorrow's budget needs to present some convincing evidence that Ireland is on a pathway to full employment based on sustainable growth, but there is insufficient evidence (to date) that Ireland's model has shifted sufficiently away from a reliance on laissez faire approaches like tax incentives for multinationals and using poverty disincentives to squeeze people who are unemployed (into non-existant jobs!), rather than facing up to real and concrete issues like investment levels. (Currently Ireland has the lowest fixed capital formation - public and private combined - in the EU).
However, as argued in TASC's industrial policy papers and elsewhere, Ireland does have a lot of potential for a very different type of economy - we can harness our education levels and inventiveness, combined with global networks, to create growth based on innovation and new products and services. And the low levels of investment currently means that new investment is likely to have lots of options to find higher rates of return from credit-starved Irish businesses. But part of any new strategy to focus on real investment has to include a careful process of giving up our worst tactics (including facilitating global tax avoidance). These tactics are ultimately unsustainable, inequitable and have led to the systematic distortion of investment decisions in the economy away from productive sectors into financing short-term bubbles in construction and property.
Wednesday, 9 October 2013
Please click on the following links to see Job Descriptions and application instructions:
Policy Analyst (Economic and/or Social Policy)
Project Officer (Open Government/Freedom of Information)
All applications should be made using the linked Application Form and submitted by 5pm, Friday 25th October.
(Save and email, or print and post, the application form to TASC, Castleriver House, 14-15 Parliament Street, Dublin 2, email@example.com)
Thursday, 5 September 2013
The 14-point summary goes as follows.
1. There is a strong public interest in lowering the deficit and controlling the extent of the national debt. But a narrow focus on deficit reduction through cuts would be misguided.
2. Official policy on addressing the public finances has ignored the international evidence that a more balanced approach is required to closing the deficit and recovering the economy. The multiplier effect of cuts has probably been much higher than was anticipated. Large scale fiscal consolidation has a substantial contractionary effect on growth and employment.
3. TASC proposes that the discretionary fiscal adjustment should be accompanied by a targeted programme of investment using funds from the Strategic Investment Fund (ISIF), which will also act as a stimulus to the economy.
4. The Government’s re-engineering of the promissory note repayments allows flexibility with regard to the level of adjustment for 2014 to a much greater extent than in previous years’ budgets.
5. Further cuts to public services are likely to deepen inequality in society and put Ireland’s economy onto a lower developmental trajectory for years to come. More reductions in public expenditure risk being false economies that will do long-term damage to education, health and other areas of public services. Vital programmes such as homeless services and mental health services need increases to cope with much higher demand – not cuts. TASC’s analysis is that the adjustment in the public finances in this year’s Budget should be lower than €3.1 billion.
6. Specifically, TASC proposes that, as part of the effort to restore sustainability in the public finances, while taking account of the cost to growth and employment, and the need to avoid deepening inequality and inequities, the discretionary adjustment in 2014 should not exceed €2.7 billion. Apart from the adjustment of €350 million in 2014 under the Haddington Road Agreement, the adjustment should be made entirely on the revenue side.
7. In addition to the €600 million in carry-over measures from previous budgets, TASC is proposing €1.75 billion in new measures on the revenue side. Alongside this adjustment €1.5 billion from the Strategic Investment Fund (ISIF) should be used for strategic investment in 2014 in order to boost growth and employment.
8. Ireland’s overall tax take is low compared to EU averages. In 2011, Ireland’s total revenue from tax and social security contributions was less than three-quarters of the average in the EU (28.9 per cent of GDP compared to the EU27 weighted average of 38.8 per cent).
9. TASC is proposing a range of costed reforms to capital taxation including reform of tax relief for landlords; the introduction of a small wealth tax, and a number of changes to Capital Acquisitions Tax (CAT)
10. TASC is also proposing reforms to pension tax reliefs. Research has shown that 80 per cent of the benefit from pension tax reliefs goes to the top 20 per cent of earners. TASC is proposing the standard rating of pension tax relief as well as a curtailment of the tax relief on pension lump sums.
11. Social insurance contributions in Ireland are extremely low by EU levels. Raising the social security contribution of employers to euro area averages (as a proportion of GDP) would be sufficient by itself to meet the next two budgets combined targets. TASC is proposing the introduction of a third band of employer’s PRSI contributions at 17 per cent charged on the portion of salaries above €100,000.
12. Finally, TASC is proposing a range of tax increases on socially ‘bad’ goods and services, e.g. gambling, tobacco, alcohol, and carbon emissions, the social benefits of which counter-balance their regressive distributional impact.
13. Steps must also be taken to address the ways that Government can reduce the cost of living for people, such as influencing rent levels, utility prices, transport costs and professional fees. This would also help small businesses.
14. The international evidence shows that excessive consolidation, or consolidation focused on the wrong areas, can have disastrous economic and social consequences in the short and long term. TASC’s budget proposals show that it is possible to lower the deficit in a way that lessens the impact on jobs and is consistent with equality and social justice.
Friday, 2 August 2013
Can we do something about this? Well, yes. Admittedly, the gap between Ireland’s tax revenues and day-to-day spending needs to be addressed, but there is an alternative way to reach the Government and Troika target of a 3% budget deficit in 2015.
In our most recent Quarterly Economic Observer (Summer 2013) the NERI has outlined the details of such an alternative policy approach. Our proposals demonstrate that there are choices open to Government and it is possible to pursue a jobs-friendly, growth-friendly and equality-friendly fiscal adjustment. At the core of our suggestions for the next Budget are three points:
- Government should use the €1 billion of savings from the Anglo Irish Promissory Note restructuring earlier this year to reduce the scale of the planned budget adjustment from €3.1 billion to €2.1 billion. It makes sense to do this; these are ‘cuts’ to planned government spending on debt service costs and we should count them as such.
- The remaining adjustment should be re-orientated towards taxation measures with the only expenditure cuts being those already agreed and announced under the two public sector wage agreements. As we have shown, there remains potential for those on the highest incomes to contribute more in taxation to the adjustment. For example, an increase of just over 2% in the effective tax rate of the top 10% of households would provide an additional €600m in revenue over two years. Similarly, there is potential for a greater contribution from corporate taxes, wealth taxes, employers PRSI and capital taxes. Overall, tax increases should represent just over 80% of the adjustment.
- Government should recognise that no matter how it undertakes its adjustment, the domestic economy will continue to suffer. To overcome this, the Budget should include an investment stimulus targeted at key deficits and job intensive sectors of the domestic economy. Areas such as water infrastructure, broadband connectivity, green energy, early childhood education facilities are obvious targets. These represent opportunities for investments which will deliver large returns in the medium-term alongside immediate benefits to the state in additional jobs, increases in taxation revenues and reduced welfare costs.
Friday, 19 July 2013