Friday, 25 November 2011

Who will pay more and who will be protected in Budget 2012

Sinéad Pentony: Budget season is well and truly underway and the slow drip feed of information and kite flying continues. The broad thrust of the fiscal adjustment is presented as a fait acompli – ‘we have no choice’ but to continue on the long hard road of austerity, with those least able to absorb reductions in income and access to essential services being faced with bearing the brunt of the adjustment. TASC and others continue to point out that there is an alternative and this involves ensuring that those who can afford to make a greater contribution to the adjustment are made to do so.

Once again, child benefit appears to be in the firing line and it's filling plenty of column inches. There are also plans for a range of other savings across the Department of Social Protection In the area of health, the proposals being considered include the imposition of an annual fee of €50 for medical card holders along with increases in other user health charges covering prescriptions and access to A&E services.

Even if only some of these proposals make their way into the budget, when they are combined with the confirmation that the main rate of VAT will be increased by two percentage points, this year’s budget is looking very similar to last year’s budget.

In contrast to the debate about where the cuts should be made and by how much, last week Revenue provided details on the amount of tax that was collected through the ‘domicile levy’. This levy of €200,000 was introduced in Budget 2010 on Irish people who are domiciled in Ireland but non-resident for tax purposes. The levy is applied to individuals whose income and assets exceed certain thresholds.

Revenue reported that less than €1.5 million was collected and this was based on a average return of €147,000 by ten individuals who are liable for the levy. The returns are made on a self-assessment basis. Revenue also estimated that, in 2009, there were almost 6,000 individuals who were classed as non-resident for tax purposes and that 440 of these were considered to be very wealthy.

By anyone’s standard,s the domicile levy has failed to ensure that this particular group of Irish people is made to pay their fair share as part of the adjustment. The question is - will the up-coming budget send a clear message that this situation is not going to be tolerated any longer and that other measures are going to be put in place to ensure that the wealthiest Irish people will be made to contribute to the fiscal adjustment on a more equitable basis?

The Community Platform's taxation proposals have highlighted the types of measures used in other countries to tax wealthy non-residents – the US citizen-based tax and the French tax on global assets. The TASC proposals also include measures to increase the level of taxation on assets and passive income from assets held in Ireland, along with reducing the number of days that non-residents can be present in the State from 183 to 90 days.

The economic and equality arguments have been well rehearsed at this stage for targeting taxation measures high earners residing both inside and outside the country. TASC’s Equality Audit of Budget 2011 clearly illustrates who was made to pay more in the last budget. It will come down to the political choices and priorities in relation to who will be made to pay more and who will be protected this time around.


Paul Hunt said...

There is an argument that, since it benefitted from the Euro, Germany should consent to transfers to protect it. But the peripheral countries benefitted and could have secured sustainable benefits - and not converted them into burdens - if they had been well-governed. There is a direct correlation between, on one side, the effective use of parliamentary democracy, the quality of governance and the extent of democratic legitimacy enjoyed by governments and, on the other, the economic, fiscal and financial performance of EZ members.

Our Club Med cousins have always had difficulties securing and applying parliamentary democracy to impose effective democratic governance on native power elites. Ireland shares some of these difficulties in terms of being able to secure parlamentary democracy but of not being able to apply it. In this sense it is probably the most northerly member of Club Med. And all EZ members have struggled to deal with the Neo-con economic and financial lunacies exported from the US, both via the UK and directly.

There seems to be a sense in Germany that the current pressures being exerted will compel a demand for effective democratic governance in the Club Med and for genuine stiuctural reforms that will lead to better economic performance. Providing transfers could kill that demand.

Simultaneously, I don’t doubt Chancellor Merkel’s intent to subject financial markets to some measure of democratic governance. But I fear that her approach may be based on a poor grasp of economics, history and the nature of the markets she is confronting. It is almost that she is challenging them to their worst as she believes they will also lose. The threat of ‘mutually assured destruction’ may well have contained the Cold War, but it won’t work with markets - and certainly not with these markets. These markets are not entities with a single mind and purpose. There are participants who will profit during chaos and meltdown - and it is in their interests to encourage the generation of chaos and a meltdown. All other market participants can do is to limit, hedge, unwind or protect their exposures.

Those who profit from ‘disaster capitalism’ will simply press their attacks if they sense political weakness. Chancellor Merkel simply has to consent to the use of the ‘big bazooka’. Merely deploying it could be sufficient; there might be no requirement to use it in anger. These ‘disaster capitalists’ tend to be cowardly bullies. Once they detect the gleam of a sharp steel blade they will melt away to re-group and attack a weaker entity.

This will provide the time and space to improve the decision-making process and to pursue the necessary structural reforms

Paul Hunt said...

Apologies. Coomented in wrong thread; should be in previous one. But while I'm here...

Yes, of course the distribution of the impacts of adjustment is being skewed by those who exercise power and influence. And, yes, the the incidence, type and level of tax needs refrom, but is taxation the only (or principal)tool - as suggested here:

In some cases there is no option but to tax away (or remove so-called 'tax expenditures'contributing to) rents and monopoly profits, but in many cases a mix of competition and regulation may be sufficient to generate benefits for a majority of citizens - and more often than not for those on fixed or low incomes. And there are the structural and financing inefficiencies that taxation will simply make worse, but which often impose as much deadwwight costs on citizens as rents and monopoly profits.

But the so-called 'progressive-left' would never contemplate these policy options as they might have to concede that markets might generate economically and socially useful outcomes and their trades union constituency might have to question their worship of a few 'household gods'. And worst of all there might be far less of 'other people's money' to spend as they would desire. Now we couldn't have that now, could we?