IRELAND IS A low-tax country. Our tax take as a percentage of GDP is amongst the lowest in the EU. This is a distinction we share with countries like Slovakia, Latvia and Romania. Even Greece, for all its current difficulties, has a higher percentage tax take than we do.
Our low tax system is defended with reference to boosting our competitiveness. Corporation tax must be kept low to attract foreign direct investment. Marginal rates of income tax must be kept low to attract and encourage entrepreneurial spirit.
Changing our tax system, we are told, would damage our economy and in turn our society.
This is simply untrue. Higher tax economies out-perform Ireland in terms of economic and business competitiveness while ensuring that fewer of their citizens are at risk of poverty.
Ireland’s low tax take is part of the reason for decades of underinvestment in our social and economic infrastructure. It is also one of the reasons why the Government’s deficit continues at such an unsustainable level. For too long proponents of this low tax strategy have dominated the public debate.
In order to challenge this consensus, The Community Platform – a network of community sector organisations working to address poverty, social exclusion and inequality – commissioned research on the Irish tax system. The findings of the research, carried out by the think tank TASC, were published this week.
Entitled Paying Our Way, the report sets out to challenge the myths underlying the low tax consensus. It also outlines practical proposals for bringing our tax system into line with EU norms.
The central argument of Paying Our Way is that a progressive reform of the Irish tax system would provide this Government, and its successors, with the revenue required to invest in economic and social recovery in a way that would create a better society for all.
Our High Level recommendation is to introduce a programme of reform which, over the course of a decade would bring our tax take as a percentage of GDP to 40 per cent.
In addition to a detailed schedule for reform, the report proposed 14 individual recommendations.
In general, the report finds that our income and corporation tax takes are consistent with EU averages. However we have an overgenerous system of tax breaks which costs the exchequer billions of euros every year in lost revenue. We have weak social insurance provision and no local taxation. Combined these difference with EU norms make us an outlier when it comes to overall levels of tax.
To rectify this, The Community Platform believes we need a European style social insurance scheme with contribution levels, including from employers, raised to EU norms over a ten year period. The range and quality of social insurance programmes must be improved in tandem with increases in social insurance rates.
We must also bring the cost of tax breaks into line with European norms. Currently they are three times the EU average. The burden of this reduction must be born by high income groups and based on clear cost-benefit analyses of each tax break examining their distributional, equality and economic impacts.
There is also a strong argument for increasing taxes on wealth. The report outlines proposals for a Comprehensive Property Tax on all assets, including global assets, for those earning in excess of €100,000 per year.
In addition to these proposals, Paying Our Way also makes arguments for the introduction of a system of refundable tax credits; reform of the VAT system to shift the burden from lower income groups; and the imposition of sunset clauses on all corporate and business tax expenditures unless they have a demonstrable social and economic value.
Paying Our Way does not pretend to have all the answers. Its intention is to provoke an informed and serious debate about progressive tax reform.
At the heart of this debate must be a vision for the kind of society we want to build out of the wreckage of our current crisis.
The Community Platform wants to participate in building a society and economy that is based on principles of equality and inclusion. We believe that it is possible to have a social and economic model that provides growth, equality and sustainability in equal measure. However this can only be achieved if we reform our current low tax system.
The current Fine Gael and Labour government have a unique window of opportunity to embrace positive and progressive change in this policy arena. If they do they will have played an important part in assisting Ireland’s social and economic recovery.
Anne Costello works with The Community Platform, an umbrella organisation for groups working to address social exclusion and inequality.
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