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Aaron McKenna: Has 'success' become a dirty word?

Envying the successful is not a viable tax policy – it is a disincentive to honest, hard work.

Aaron McKenna

IRELAND HAS A highly lopsided tax policy that has soaked anyone earning more than the average industrial wage or those trying to make his or her living self-employed. The policies, attitudes around them and tax plans by opposition are based on the lazy maxim that “the well-off can afford to pay a little bit more” – where ‘a little bit’ equals however much they want to increase spending.

The Government spoke at length before the budget about how our top marginal rate of income tax, at 52% for PAYE workers and 55% for the self-employed, was too high. They took steps to reduce the burden by slicing the top 41% rate to 40% and they also widened the tax band by €1,000 and reformed the ‘temporary’ Universal Social Charge, which is looking evermore like a permanent addition to the tax code.

The fact is that the Government didn’t actually solve the issue of our top rate at all, because they capped the reforms at €70,000 income; which now seems to be the de facto line at which one becomes rich in Ireland. Pre-budget submissions and calls from opposition parties and independents, who stand a decent chance of forming some sort of government after the next election, target the €70-100,000 range as where ‘a little bit more’ can kick in.

It might not be amazingly popular to wave the flag for those earning this kind of money, because 77 % of income tax payers earn €50,000 or less according to the Revenue Commissioners. Therefore, I am flying the flag for less than a third of income earners; who themselves represent just barely a majority of people of working age in Ireland according to the CSO. At best, I’m rooting for 15% of the working age population.

Portraying the successful as undeserving of their, supposedly, vast riches

It’s worth considering, however, when listening to the folks calling for ‘a little bit more’ that this 77% majority of taxpayers contribute 19% of the total income tax collected. Some 856,000 people, representing approximately 39% of the income tax base, are exempt from income tax altogether.

The top 6% of income earners, meanwhile, pay 44% of all income tax. The top 1% represents 21%. Indeed, the top 24% of earners pay for 80% of all income tax collected in the State.

In looking at the numbers alone we often allow those calling for more spending to be funded by ‘a little bit more’ tax to portray the successful as undeserving of their supposedly vast riches. Rarely do we stop and consider quite what someone earning €70,000 or above has managed to deserve their salary. We dehumanise them so that it comes down to how much money the State needs to keep itself in stamp-licking allowances for secretaries.

How does one obtain a €70k salary? 

Looking at the salary surveys released by recruitment firms each year, we see jobs with titles like “Financial Controller”, “Engineering Project Manager”, “IT Manager” and “Director of Quality Control in Pharmaceuticals” come up. Much of the time an individual needs several years in the role itself to be in the Irish category of ‘rich to super rich’, and attaining these roles is a long slog in the first place.

Take a Financial Controller with five or more years experience. They’ve spent time in their current job, but before that will have come up through the ranks. Many who work in accounting departments study at night for years after getting their degree for further professional qualifications needed to advance in the job. They play a vital role in keeping a company compliant and solvent, and I cannot stress enough their importance in keeping less-financially-minded entrepreneurs from running companies straight into walls.

A person in this role could advance on to be a Finance Director and earn well into the six figures. They got there because of hard work, long study and for showing results.

Engineering Project Managers or IT Managers, again with several years experience in the role, handle big budgets, lots of infrastructure and people. It takes continuous learning and showing results to get there. These people are grafters.

Look at a Director of Quality in a pharmaceutical factory. Not too long ago something went wrong in a factory making Nurofen and boxes went out with an antipsychotic ingredient mixed in. It was supposedly sabotage, but goes to show that you really want well qualified folks running those production lines.

A disincentive to hard work and success

The point is, those earning more are usually there because of their hard work. The mantra of those looking to increase government spending that they can afford to pay ‘a little bit more’ is insulting, as they already contribute far more than their fair share.

It is a disincentive to hard work and success, and for a country that places such a premium on education and attainment we have a funny attitude towards those who utilise one to gain the other.

Entrepreneurs are even harder hit, as we know, facing higher income tax bills without the supports of the social safety net. The Government talked a good game about making life fairer, but when push came to shove they failed to walk the walk and support the people who generate 66% of employment in Ireland through the SME sector. It’s sexier to be photographed chin-wagging with the darlings of Silicon Valley than bother with the elbow greasers who create jobs up and down this country, sometimes only for themselves but often too for others.

There are many parties talking about introducing even higher bands of income tax like a 48% rate proposed by Sinn Fein that would, in conjunction with PRSI and USC, drag the top marginal rate well over 60%. When you come to a point in the year that you’re working for the Government three days out of five, why bother?

During the lifetime of the recession, total current government spending has not come down below its peak. We are already talking about opening up the sluice gates of spending, with money thrown around child benefit and public sector recruitment, with promises to reverse pay cuts. There are areas badly in need of more money, but the priority will be on what’s popular, not always what’s needed.

A quasi-flat tax model

Meanwhile, the chances of reducing the burden on those have worked hard is reducing. Michael Noonan has told us that it would be difficult to cut out the USC from the tax code. If we did, and the Government modelled itself after the tax measures introduced this month, we’d likely see even the pro-enterprise Fine Gael introduce a third rate of income tax to compensate.

A fairer way to get money from people would be a quasi-flat tax model. The Government has said that it could replace all income tax, USC and PRSI with a 27% rate and a €15,000 tax free allowance to keep the lowest paid out of the tax net. This would still see higher earners pay proportionally more, and would actually cut off a lot of the reliefs used by the super wealthy to lower their bills unfairly. Everyone would see a tax cut under this model, and it would be transparent and fair.

Alas, politicians find votes in complex tax codes. And the trend seems to be that the pro-enterprise types ignore the soaking of the hard working, and the pro-tax and spend at any cost types are happy to contemplate taking another big chunk of their earnings for daring to do well.

Read: Michael Noonan: No, the Budget wasn’t ‘a series of smart-alecky tricks’

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