A Comparison of Tax Systems

DG-ECFIN of the European Commission has released this interesting report on the structure of tax systems in the member countries: you can download it here.

9 replies on “A Comparison of Tax Systems”

This is useful thanks Philip. It is particularly interesting to see the extending of flat personal tax regimes in the CEE countries.

Derek: I should point out that in the case of Ireland any comparables are irrelevant as the analysis does not cover the recent Lenihan & Co budgetary measures 🙁

The Lenihan Levies are a temporary government measure, as Prof. Milton Friedman put it:

“there’s nothing so permanent as a temporary government measure”

My point re. Direct Vs Indirect is that we still have taxation rates more suited to a high wage/growth inflationary developing nation rather than a mature economy now suffering deflation.

Until very recently we had an anachronistic Tax Policy i.e. Wealth Tax (CGT) was lower than Sales Tax (VAT) – the opposite of the UK & USA.

The debate re the merits of direct v indirect taxes is affected here by the existence of the border. In general, I’d favour indirect taxes over direct taxes. If the Republic of Ireland was an island, I’d definitely opt for indirect taxes over direct taxes. But, it isn’t. Having high indirect taxes is silly when you can drive to Newry in 45 minutes and avoid them.

While I don’t buy the argument that reducing indirect taxes would pay for itself, as some argue, it would be a very sensible move to have massive reductions (and I mean massive) in indirect taxes, but paid for by increasing other taxes by an exactly equivalent amount (say a property tax and possibly direct taxes). So, theoretically such a move would be fiscally neutral. However, in practice it would bring in additional revenue and increase employment here as there would be a switch in retail spending from north to south. At present no one seems to have a clue how much retail spending by residents south of the border is going north of the border partly because of high indirect taxes. I suspect its a lot more than the CSO down here estimate. So, such a move could easily surprise on the upside in terms of how much revenue it brings in. Given that no one seems to have a clue how much retail spending by residents south of the border is going north of the border, such a combination of tax changes should be implemented immediately, even if only for an experimental six-month period, to see what effect it has.

I’d include massive cuts in alcohol and tobacco taxes in this, even though I neither drink nor smoke. I can see the health arguments of those who want high taxes on these items. But, they are pointless as long as the border exists and the U. Kingdom has lower taxes on these items. The anti-alcohol and anti-smoking lobby, who continually argue for high taxes on alcohol and tobacco, don’t seem to realise that Newry is now 45 minutes drive from Dublin (thanks to the M1). If there was agreement with the U. Kingdom government to have common high taxes on these items, then fine. But, as long as its every man for himself, we should cut taxes on these items down here.

I agree with you. We also need to nip this cross border habit in the bud before it becomes ingrained. While people argue about the time factor the women I know doing it see it as a nice little day trip as well as saving money at the end of it.

I was in Dundalk myself overnight about a month ago and travelled to Sainsburys under instruction from the wife. It was a Tuesday night around 6.30pm and half the cars in the car park were Southern regs and the accents inside were too. There were a load of groups of Irish (Southern)accented people having fun!

We do though need a genuine comparison of wholesale costs into the North and South. One item I had to buy – Galaxy chocolate bar (for cooking) was 88p. I checked Dunnes Stores Cornelscourt the next time I was in – €1.86. Same bar. It was not on offer in Sainsburys. I do not believe Dunnes Stores are trying to rip me off to that extent. It has to be in the wholesale costs. Surely someone can get to see the invoice price into North and South.

I would not agree with the approach of reducing VAT solely to attempt to compete with NI. Especially if it provided another excuse to tax middle and higher PAYE workers e.g. a property tax would be another tax on this sector.

The real problem is not really VAT or at least the solution is not to be found in VAT reduction. The problem is mainly threefold (1) The speed of the exchange rate differential c.30% in under a year – very difficult to respond to in the short term; (2) The cost of business in the south i.e. wages, rent and local charges – easier to tackle by removing minimum wage and renegotiating rent and government assistance for most affected retailers; and (3) Perception (i.e. herd mentality, Prime Time last night was a great advertisement for the North – some PR job needed here by southern retailers.

NO to big VAT drop: You are right if you change VAT by small increment its effect will be immaterial, but if you change VAT “significantly” it will have a better chance of some reduction in final selling price. But (1) it will cost too much and will have to be financed once again by middle Ireland which already has a highly progressive tax system; (2) I strongly suspect the big culprits in this saga the major retailers will be slow to pass on the full reduction and instead pass much of the savings back to the UK in repatriated profits; (3) Exchange rates are naturally volatile, the reasons for sterling weakness versus Euro could abate and it would very difficult to later increase VAT rates if needed as past history has shown (4) Other imact: if the VAT rate falls significantly it will adversley impact our balance of payments due to our reliance on imports which currently fall within the highest VAT rate e.g. consumer electronics, motor vehicles… ALSO I have been reading that the temporary 2.5% VAT reduction in the UK has been a disaster!!

Market structure such as wholesale/distribution are also key problems here, but I agree would not be helped by VAT reductions. In fact by taking the pressure off could slow down any reform. I generally share your view that big VAT drops are not the solution (although perhaps some targetted mostly home grown products could be brought into lower VAT rates?). Anyway as you say you can be assured that any reduction would be slow to be passed on and through the large multiples probably end up providing HM Treasury with even more Irish euros through profit transfers.

It is obvious that the government is mentally unprepared for the current recession and tax receipts of Euro 30bn per annum. VAT is way too high end of story. Just look at the queues on the M50 going north what more proof does one want? The .5% increase that Lenihan did in october, revealed his addiction to the old way. It was nonsense! As for property taxes I hope the government do try to bring them in, and do try to collect them, which is different from announcing them in the Dail. Then we will have our change of government in double quick time.

If people are burdened with any more taxes on top of their already toxic assets and negative equity assets they will soon loose their fear of dumping them on the already under capitalised banks.

If the government think the situation is bad now it will be 10 times worse when the houses that Colm McCarthy cannot find soon turn up as yet more toxic assets on bank balance sheets. As indeed they will, believe me!

Meanwhile developers are still demanding high rise apartments and getting them from DCC who are so stuck for money that they are still giving them out like confetti at a wedding. In Dublin City Council there is no NAMA, no toxic assets, no oversupply only a need for revenues. Another 58 apartments granted around the corner from me just two weeks ago. While, at the same time, 70 meters from the afore mentioned development on another corn another developer did not even try to sell recently finished apartments!

Madness, unabated by any kind of recession. These reckless planners need to be hauled in by the government and told, do your job, “no more apartments until this lot have been got rid of” paid for by the taxpayer through NAMA.

There are no taxes to be had from the property sector its over, dead buried, Kaputt, for at least another two or three years and then it will slowly, very slowly, painfully slowly, start to resurrect itself. Tax that if you will!

Revenue will be down to 30 billion a year for the next 2 to 3 years as unemployment soars to 500,000 and higher, possibly 550,000 by the middle of 2010.

During that time, we can continue to try and borrow money so that the Public Sector can continue to be overpaid or they can bite the bullet, get rid of this sacred nonsense of jobs for life and reform the Public Sector. In other words, the government has a choice to join the real world or continue to flog a dead horse for more taxes. It is not just a matter of direct or indirect taxes we have hit the limitations of indirect taxation! Now, it is either take more and more PAYE from those with jobs as they scream and roar and demonstrate! Or reform! These are the stark choices. Usually the government does nothing!

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