Low Tax Levels

Garret Fitzgerald writes on the Irish tax system in today’s Irish Times: the article is here.

63 replies on “Low Tax Levels”

Before any other comment on Garret fitzgeralds views on taxation – I have a couple of questions which he might answer if he troubles to read this blog.

Did he pay a gift tax on the £130000 of a loan which AIB wrote offf in 1993 for him in connection with the GPA flotation in 1992?

Why did AIB write off his loan?

Who advised on the flotation price of GPA?

The latest OECD Outlook projects that Ireland will have a ratio of tax and non-tax general govt revenue to GDP next year of 34.4%, against an OECD average of around 42%. But as your GNP is so far below GDP, and I understand the tax rate on the net foreign factor flows is small, the effective tax rate on domestic incomes may be a lot closer to the OECD average. Of course, not high by international standards, but perhaps not unusually low either?

Or am I missing something?

Garrett’s information is out of date. He says “amongst the 30 developed countries in Europe, north America and east Asia that constitute the OECD, Ireland has by far the lowest level of taxation on incomes – subject to the single exception of Mexico. This is true at every level of income, although the tax differential is least marked in the case of those on the highest level of incomes”.

A review of OECD data for 2009 published at https://community.oecd.org/community/factblog/blog/2010/05/11/tax-who-pays-what shows that is no longer true.

In only one of the cases addressed by OECD has Ireland the second lowest tax wedge – the case of a single person at 67% of average earnings with two children. In the case of a single person at 167% of average earnings with no child, Ireland is actually close to mid-table.

In other cases addressed by OECD, all based on cases of incomes that are average or lower, Ireland has tax wedges that are low, but not as startlingly so as Garrett’s article suggests.

Excellent! He has even pinpointed the conspiracy of silence on the issue. The government is more like its zombie banks for leaving the issue fester for so long, as if the delay had no cost as we slide further into the Depression.

But he does not address land taxes… yet!

AMcGrath
If he had been wrongly advised by AIB, then he might have had a case against them for damages on his investment. That is what he may be advised to say.

Given that at that time, Taxes Investigation Branch had been told to cease all investigation into AIB and DIRT, as I and others know, he could not possibly have received any advantage from the time that the official policy, never officially acknowledged, came into existence? AIB profitted greatly from the increased deposit base as a result of being able to advertize that it was immune to Revenue investigation.

His conspiracy of silence is a straw man. A small example: on this blog, there have been many, many references to the fact that income taxation is low.
But he fails to place front and centre the simple arithmetical conclusion that its middle income taxation that is low. Our marginal rates are now getting up to Swedish levels (check it out – I know most of the contributors to this blog have no idea what it is to pay 55% tax).
Yes he does, sort of, reference all this, in an obiter dicta sought of way. But it should be up in lights: you have to follow the money. And that’s the middle classes. His artcle could – and will – be used by those who genuinely believe that the answer to all our problems is a 70% marginal rate. Ask the IDA what that will do to our chances of attracting proper FDI/
And he virtually dismisses the notion that our public services need fundamental reform! He seems to think that just throwing money at them will be enough. Why can’t anyone walk and chew gum at the same time? Why can’t anyone argue that our public services need reform and resources?

Having really low levels of corporate taxation and marginal income taxation works flawlessly, as the current state of the Irish economy will attest.

Given that our GNP was 133bn year and our GDP was 166bn, picking a midpoint of 152bn, our tax burden last year was about 21%, given we collected 33bn in taxes.

If we even collected taxes at a level at the bottom end of the OECD average of 30%, we would have collected 50bn in taxes and there would be no need to have borrowed for current spending last year.

For too long Ireland has sponged off others, when we were the richest fastest economy, the Germans were paying for our roads. Now we are still among the richest in Europe and our grandchildren are paying. Since we refuse to fund an adequate tax system.

Nice one Garrett! No mention of oversized early (and sometimes numerous) pensions for politicians.
Everyone knows the situation but it’s always amazing that the so called leaders want the changes to come from the bottom up – why not lead by example and implement changes from the top down.

@damienr
You’re missing out social taxes and other non-direct taxes (charges). Gov’t spending was 73 bn last year and revenue was 53 bn. It is expected to be 70/50 this year, I think. Unless the gov’t has off-short accounts somewhere, all it’s revenue is tax of one sort or another.

Simpleton is right. There have been plenty of discussion of low taxation on this blog. I’ve tagged my posts on this under “Taxation” so you can see them all here

http://www.irisheconomy.ie/index.php/tag/taxation/

For those of you playing the GDP\GNP game (fun for all the family!) one of the points covered in these posts is that you need to subtract taxes collected from multinationals if you want to switch to GNP as your tax base.

“you need to subtract taxes collected from multinationals”
What’s that, about 2.8bn?

But then you would also have to figure out the tax rate on the transfer payments, as some of the 2.8bn is related to activities that count within the state. No?

@ Hogan\Damienr

The presentation of our fiscal statistics appears to be designed to deliberately mislead. Almost everyone thinks that the state raises only about €30 billion in revenue.

For those who want the correct figures, I recommend page 44 of this PDF file.
http://www.budget.gov.ie/Budgets/2010/Documents/Final%20SPU.pdf

Brussels makes us report figures that make sense!

Bottom line is that hogan’s right: Projection for this year was 52.8 billion in revenue and 71.5 billion in spending.

@AMCGrath

I am less sure than you that AIB wrote of FitzGerald’s investment in GPA. If my memory is correct, he went to great pains to pay of this loan unlike another Taoiseach of the period.

A consequence of the “€30 billion in revenue” belief is misleading articles like this one from Mark Fielding of ISME

http://www.tribune.ie/business/article/2010/sep/19/straight-talking-mark-fielding-the-trouble-with-pu/

Fielding claims

“Out of the €30bn odd total government income, just under €20bn is being paid out in public sector wages, the equivalent of 60% of state income.

Only two years ago this percentage was 40% of total tax revenue. So by that measure each of us is currently paying far too much to run the public sector.

If the private sector operated on the same basis the economy would simply collapse, yet our taxes, both private and public sector taxes, are now funding a costly and inefficient state sector.”

Obviously, the two-thirds of income claim is incorrect. Also, since the wage share of income is about two thirds in many countries, the claim about private sector collapse also isn’t too grounded in reality.

Despite the PDs mantra of low taxes, related to GNP, the burden hardly changed in the 10 years to 2005.

In 1995, the tax burden amounted to 36.7% of GNP and in 2005 it was 36.25% of GNP.

In 2004, Cowen said that the government collected about 28% of the average value of a new house in taxes and levies.

Property related taxes accounted for 4% of total taxes in 1995 but had jumped to 17% by 2006.

In addition, as many Irish taxpayers see a necessity to pay private health insurance because of the perceived poor quality of the public health service, the cost is equivalent to a tax but is not included in the taxation figures.

Besides, for those without a medical card the low number of GPs give them monopoly pricing strength.

Eurostat terms tax collections as ‘tax receipts’ and they add social contributions to give ‘total tax revenue’ which is used in the ratio calculation.

Irish social security taxes on employment are low compared with for example in Germany and France. The majority of Irish private sector workers only get an old-age pension that is about 31% of the average wage; countries like Austria have a public pension system that covers 90% of pre-retirement earnings for low and middle income earners. In an OECD comparison, the replacement rate in Ireland is uniquely low (hope that doesn’t make the comfortable academics uncomfortable!).

So as Noel suggests, some don’t have to save for the rainy day. The C&AG in his report last week estimated that an additional year funding cost for ministers and judges’ pensions is 62% of salary!

Austria’s unemployment in July was 3.8% – -the lowest in the Eurozone. A real miracle economy surely?

Denmark funds social security from taxation.

http://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/KS-SF-08-047/EN/KS-SF-08-047-EN.PDF

@ Hogan

“But then you would also have to figure out the tax rate on the transfer payments, as some of the 2.8bn is related to activities that count within the state. No?”

Yep, it’s complicated. But just swapping GDP for GNP definitely gets a yellow card and overstates the tax burden on those folks who contribute to GNP.

@Karl
Well done for correcting a few myths. The govt receipts account for about 30% of GDP and expenditures account for 44% of GDP. How does that look in an international context?
Now how does it look when you adjust for lower defence spending and the fact that much of the pensions system is privately financed? I bet we are still have a lower level of tax and spend than the EU but it is in line with the UK.

Simpleton,
raising the effective MTR from here might please Garret and the Irish Times opinion writers plus some of the Old Labour crew in the next government but it will do little for international competitveness and it will lead to wholesale tax evasion. You had better dust off the Laffer Curve and sent it to E Gilmore TD.

It will be impossible to raise income taxes on the middle classes now. Many of those in the 40-100k bracket are in negative equity with huge mortgages. If income taxes are increased many of these will no longer be able to pay their mortgages.

IMO, the low income tax take over the years contributed to the property bubble as many simply used their inflated take-home pay to get ever larger mortgages.

Any increase in taxes should aim to tax where the real wealth in society is. A property tax that taxed the equity in people’s homes would do this without hurting those struggling to pay mortgages. Such a property tax strategy is successful in other countries with high property prices such as Switzerland.

So, for 2009:
GDP 166 bn
GNP 137 bn
(about a 17% gap)
(Current market prices)
Spending 53 bn
Spend/GDP: 32%
Spend/GNP: 38.5%

I really don’t see much out of line on GNP figures. Not if we want to claim that we are a low tax economy.

@bazza
Would it not be better to have property prices fall to levels that reflect the ability to borrow?

A debate about whether (income) taxes are ‘too low’ is a futile exercise. More fruitful would be discussions of (i) of value for money in the use of tax revenue, (ii) the distribution of the tax burden by tax category, and (iii) the deadweight cost of the tax burden, which would look at the various poverty traps set by the interactions between the tax and social welfare systems.
When making international comparisons including Ireland the GDP/GNP issue should be confronted (as others have already noted). Attention should also be paid to the role of social security charges in the ‘highly taxed’ countries – much of the contrast between us and several continental countries is due to the high rates of social security taxation in those countries – for comparability, occupational pension contributions should be included in the Irish tax burden.

@Aine Ui Ghiollagain

wsj article
“Mr. Lenihan told the conference Ireland’s economy had rapidly stabilized, adding that second-quarter gross national product—which excludes profits from multinationals based here—fell an unadjusted 4.1% year-to-year, compared with an 11.4% annual decline in the corresponding period a year earlier.

“There are very, very few economies in economic history that have moved from a 11% fall to a position of stabilization in a period of one year,” he said.

“This is a remarkable turnaround and it is important that we bring it to the attention of potential investors…”

Is this a credible argument to put to international investors?

@Aine re WSJ

‘Mr. Lenihan said he doesn’t subscribe to criticism that the media doesn’t report enough good news, but warned against sensationalism. “It is important for journalists to be aware of the self-fulfilling nature of doomsday scenarios … Media reports here at home are beamed around the world and can influence the decisions of foreign investors and multinationals,” he said.

He also advocated more debate between economists, whom he believed could be very critical of each other in private. “We rarely find economists going head to head with each other…There is a sort of cosy cartel in operation here.”

I agree with The Minister on more debate – why am I listening to Moore_een McDowell on RTE Radio right now? (one of Garret’s ideological right wing economists we may assume: ) or are the ideological right better at the PR game …….. we certainly seem to hear more of them on the airwaves, the hair-waves, and the Op-Eds ….. is this the cosy cartel he is referring to [95% of academic economists are under the table and thunderingly silent …..: fact – these ideological idiots are toxic, were toxic in driving the fallacy of the boom, and will be toxic to any recovery –

I also agree with The Minister on the quality of much commentary in the Irish media – especially over the past week ……….. e.g. there is NO dubble-deep ……….. perhaps someone around here might DEFINE what a DUBBLE-DEEP actually is ………….

@All

I also agree with G. Fitzgerald that taxation system needs reform to become more realistic – but this links to the type of public services and structure of Irish society that we, as citizens, wish to enact ………….the Question is HOW?

& Moore_een is now KUTTING the minimum wages ……. scrapping labour councils, scrapping agreeements, and more of this any_een_randite Sh1te that got us into this mess …..[somebody pls direct him to the Emeritus_Mairteen_Feldsteeen_recovery group in the middle of the pond in UCD ………[ and burn his two major peer-reviewed journal articles]… will RTE ever learn?

@Karl Whelan & Simpleton

There may be mention of low taxes here in this forum, but that doesn’t matter. The average Joe is not aware that this is a low tax country or that it is a major cause of the present crisis. If the average Joe thinks he is highly taxed (and a look at the comments on GF’s article on the IT site indicates he does) then economists have not alerted the general public to the true situation. They may mention it now and then, but if the general belief is contrary to the facts, then Irish economists are not saying it aloud enough, by definition. This amounts to a ‘conspiracy of silence’ in my book. Economists are not behind the door when it comes to bringing other types of bad news, which suits their ideological bent i.e. wages are too high.

Since we are Europe’s economic basket case, the default stance of any scientifically minded person must be that any economic policy that we have that is different from other European countries is most likely to be bad, by definition. We do have lower personal taxation than our neighbours. The burden of proof rests with defenders of of our economic peculiarities not with those like Garrett Fitzgerald who attack them.

@David O’Donnell

Was listening there to Moore_een also and he said he spent the summer abroad and only returned recently to find that the country hadn’t moved on a bit!

They are having a laugh at us now I think.

it is not credible for Mr lenihan, or any member of the current govt, to criticize the negative atmosphere and reporting in this country. a nations media will by and large reflect the mood and opinions of its people, even more so here in ireland where we are all pretty middle of the road and very little extremism exists. And without doubt the mood in this country is one of bitterness, despair and anger. we all know this. if our govt do genuinely want an about shift in all this negative reporting then they have it in their power to achieve this. merely give the people an election, an opportunity to take back control of their lives and immediately you will have a new beginning. a fresh start. no matter who steps into power, our nations media outlets will automatically switch to a positive, clean slate, lets put things right attitude. cos that will reflect the feelings of the people after they have lanced the current boil (best metaphor i could come up with for our current govt). it is not a complicated thing, it is just probably hard to stomach for those who are addicted to power.

@The Alchemist:
I could be wrong but I believe he paid off some of the loan by selling his house – but only about 40,000 of 170000 – hence my figure of 130000. My question is that since this figure is effectively a free loan there should be income tax implications- apart altogether from the questionable ethics involved in the write-off, which should have involved a more in depth investigation – and would involve another recent contributer to this blog – i.e Suds

From the Moriarty Report:
“In summary it would appear that in compromising his indebtedness with the Bank, Dr. Fitzgerald disposed of his only substantial asset, namely, his family home at Palmerston Road, a property which would now be worth a considerable sum of money. As in Mr. Haughey’s case, there was a substantial discounting or forbearance shown in Dr. Fitzgerald’s case. However in contrast with Mr. Haughey’s case, Dr. Fitzgerald’s case involved the effective exhaustion of his assets in order to achieve a settlement whereas Mr. Haughey’s assets were retained virtually intact.”

No figures here but if you have other information I am open to correction
Amg

I believe there is approximately 1.5 million households in Ireland. The yearly Irish government deficit is approximately 20 billion. So the Irish government is currently spending an unfunded 10,000 EUR per household….

I read a comment about low fee airlines that might apply here: “Anyone can run a low fee airline, however it takes real skill to run it at a profit”…. Ireland tried with a low taxes/fee plan. It would seem that it didn’t quite work as intended. What will the new plan be? Increase taxes, cut spending or a combination of the two?

Debt forgiveness that some are arguing for might happen but I think there might be at least two prerequisites:

1. The Irish tax levels have to be higher than any of the nations that it will be asking to forgive its debts. Who would ask their own electorate to make greater sacrifices than the Irish themselves are willing to make?
2. The NTMA prefunding has to be run down to zero. Who would forgive someones debts when the supposedly unable to pay still have plenty of savings?

@ AMc

how about this – try debating the points raised by Suds and Dr F, rather than dragging up events from 20 years ago? Ball not man and all that…

@Eoin
when it suits we can always trot out the old “ad hominem” arguments. There is nothing new in either Garrets or Suds articles, but people in here are using the big reputations of these guys as support for one side of an argument. On the other hand when attention is drawn to their feet of clay the old “ad hominem” arguments is brought up. Sauce for the goose is sauce for the gander.
Have to say – especially in regard to Suds and his vetsed interests – that the old saying from that well respected logician M. R Davies, always comes to mind:
” he would say that wouldn’t he”

@All

Me apologies to Moore_een – methinks a little overestimation on my part re the peer-review –

@PLM
“A debate about whether (income) taxes are ‘too low’ is a futile exercise. More fruitful would be discussions of (i) of value for money in the use of tax revenue, (ii) the distribution of the tax burden by tax category, and (iii) the deadweight cost of the tax burden, which would look at the various poverty traps set by the interactions between the tax and social welfare systems.”

More discussion about this is badly needed.
e.g. (i) I have received anecdotal reports over years from acquaintances from various political backgrounds about waste in middle-mgt (and encouraged or tolerated by upper-mgt) and case workers in various public service depts.

–One woman heard from a friend, previously in private industry, who then took a job at a Health Board (yes before HSE), who was STUNNED at the waste, inefficiency, & inactivity (mgt, not front-line staff)

–friend who’s a State Solicitor (current) reports on unbelievable ongoing widespread absenteeism among mgt/admin staff, people taking personal days & “sick” days all the time (implication being they are not sick at all)

–friend’s sister recently did a summer internship in social services; on first day of work was presented with cases to check up on. she completed the list by early afternoon that day and turned it in, only to be chided by her supervisor that that was her list of things to do for the whole WEEK, she should slow down or it would reflect badly on the other staff.

–acquaintance who worked for FAS several years ago told of practices encouraging staff to hugely maximize expenses, including all staff buying one another Xmas presents and listing them as business expenses; practice was to maximize payments to themselves, minimal amount being spend on projects from what I was told

–Anomalies in hospital consultants’ pay (by int’l standards) which are still not really addressed

–Add to this some of the practices (extra payments) detailed in McCarthy.

I’ve often received exceptional service from folks in various depts (e.g. Revenue, CRO, some quangos). The problem is there are good productive folks mixed in with bad unproductive folks.

Proposed cuts do not seem to address the mgt/admin levels where there is an endemic go-slow attitude, or practices designed to feather one’s own nest rather than provide efficient public service.

*How to separate the wheat from the chaff?* How to make sure the wasters get cut, not the ones who are providing excellent public service?

What reforms would bring about changes in *attitude* in those nooks & crannies where needed? How to ensure accountability?

Any amt of cuts, or comparing spending or income ratios to those of other countries, is pointless unless combined with a *process* that has a chance of ensuring we cut the chaff and not the wheat.

@ AMcG

what do you mean “when it suits”? Literally the first comment on this thread, 25 mins after the thread was created, was a comment by you bringing up crap well trodden on from the 80’s. Its not like you tried to debate his article, you went straight for the old stuff. Same with Suds, same with anything GS says. You’re stuck in the past and unwilling to move on or discuss the present.

@DOD
There is often little or no incentive to academics (in any discipline) to upset apple carts, usually the opposite.

With regard to economics, bad news can and does affect reality. The general inability to recognise the property bubble for what it was was compounded by the interests of those who were exposed and the political cycle. Do individual economists have an obligation to speak out? That is a philosophical question.

Even if particular economists decide to speak out, media, especially TV, are a completely different game to academia. You don’t have the opportunity to engage in explanations: you have to stick to soundbytes and you have to look good. On radio, you can only back up what you say in the most general way. Imagine Karl Whelan trying to explain his post of 22 September on bond yields on TV or radio. You have to be persuasive but you cannot argue in the same way you would at a debate or a lecture.

And then, even if you do decide to speak out, there’s no guarantee that media outlets will choose to give you time.

Anyway, there are ample opportunities for the government and its departments to set up fora for stakeholders/researchers to address specific topics in public or in private or use existing ones (NESC, NESF, Social Partnership, different policy fora within departments, tax commission etc.). If you want an answer, it is incumbent on you to ask the question, not complain that no one has come to you with the answer.

@Eoin
As I pointed not one thing in either of the articles was new. Every single item has been debated ad nauseam elsewhere in this blog,

The only reason Suds and GFs opinions are included is because of the “weight” of their supposed reputations, which is exactly the “playing the man” argument in reverse.

If you are going to quote the stature and reputation of these guys as adding weight to one side of an argument, it is equally valid to point out the other side.

@Aine

Thank you. That was most prescriptively helpfull (-;

But with such a supine strategy in a time of unavoidable crisis, due to infection with a rampant ideological virus, I would have to hold out little hope of the eventual recovery for the present patient.

…

@ Aine Ui Ghiollagain

“There is often little or no incentive to academics (in any discipline) to upset apple carts, usually the opposite.”

The incentive surely is simply doing the right thing. Academic economists have secure jobs, paid for by the ordinary citizens. When they see a dangerous bubble they should speak out, when they see that our difficulties are caused by a refusal to tax, they should speak out. Remember that this is the second time in thirty years that we here in Irealnd have entered a depression due to a fiscal crisis caused by a refusal to collect taxes (I know nominal rates were high in the 80’s but really we all know that was only for the PAYE people, farmers and everyone non-PAYE were scot free, and farmers were 16% of the working population back then),

@Aine

Yes, the decline of property prices to sustainable levels is desirable. But, my point is that it is not desirable to increase the hardship of those who are already struggling to pay crippling mortgages by raising their income taxes.

@ OAC
Off thread but +1

The difficulty is that those charged with reforming the public sector eithher have vested interests of their own, or they get rapidly nobbled by the vested interests already installed.

@ AMc

“If you are going to quote the stature and reputation of these guys as adding weight to one side of an argument, it is equally valid to point out the other side”

You need to read what was actually commented on and in what order – on both situations you started by questioning the history/integrity of the person before ever getting into what they argued, and i responded by noting their stature (a direct response to what you wrote). If you hadn’t gotten personal, i would never have had to note this. Like i said, you are pathologically bound to some sort of personal hatred of GS & Suds, and its flowing over to one of our former Taoisigh. It has no place on here.

@Eoin/Philip
“If you hadn’t gotten personal, i would never have had to note this. Like i said, you are pathologically bound to some sort of personal hatred of GS & Suds, and its flowing over to one of our former Taoisigh. It has no place on here.”

Nowhere Eoin have I attacked you personally – but I must admit your increasingly rude personal attacks are getting more than a mite irritating.

I am more than willing to take advice from independent commentators, but if there is evidence of
– being compromised in some way, as in GFs case in the write-off of loans from AIB,
– having a clear but undeclared vested interest, as in Suds with GS,
– or a very recent and ongoing history and reputation for systemic fraudulent practices as in GS,

it is important that these opinions are read in that context. My posts are intended in those cases to serve as health warnings which you are free to ignore. Instead you seems to have adopted a dismissive and bullying attitude, This certainly has no place here

– GS paid $550 million in fines in July by the SEC
– were fined a further £18 million by the FSA less than three weeks ago.
– Only three days ago a conflict of interest in relation to their work with NTMA was headlined in the Indo.
– There is also their involvement in the Greek dbt concealment
– ongoing front running automated trading on the Wall street stock exchanges which is yet to be properly investigated.

I could go on but you appear to consider GS crimes as unimportant trivialities, and that my reference to them is evidence of “a patholigical hatred”.

I have a rght to question the credentials of those people who would attempt to influence our economy, and in GS case, whose advice we are paying for. I believe, given their record and reputation, that it is nothing short of disgraceful that NTMA or any other government body, should retain the services of GS as advisors, at taxpyers expense.

As for the question of whether or not I am entitled to comment like this on this site – I will leave that to the moderator to make a decision on.

@ AMac

personal attacks? bullying attitude? Eh, simply pointing out the facts – you quite clearly have a very strong hatred of GS and you’re letting this get in the way of any rational analysis of what either they or Suds are suggesting, and ditto for Dr F.

But fine, lets just leave it at that – you issue your health warnings, and the rest of us will debate the merits of their opinions, and sure everyone will be happy.

@DOD
I am not prescribing anything, only pointing out why so few put themselves out there. We definitely need a few more backbones, but properly prepared ones with media skills.

@TOH
an incentive is not the same as a moral imperative 😉

@bazza
I agree but in the longer term I think it would be preferable not to have house prices artificially high.

While Garret is ultimately right, and we will eventually have to start raising taxation (although i favour other taxes apart from income), he is wrong to bemoan the underfunding of the public service. Probably our greatest strength as a country is that we keep public services lean and force ourselves to fight the temptation of vanity public projects, such as the Bertie Bowl. It is too easy, where revenues are high to embark on catastrophic projects with spiralling cost overruns. While we still manage to produce white elephants, they are mercifully few and relatively small. Even with the revenue splurge of the last few years, we resisted spending public money in a lavish way, embarking on a bigger NDP and debt reduction program was the most exciting things we did. Those investments are helping us in our current crisis (albeit we tend to forget about them), whereas the Bertie Bowl would not be as useful.

I agree with him that taxes must rise, but a tour around public expenditure was definitely merited before moving on to this.

I’d like to see more wealth/consumption/environmental taxes before income tax. We should tax things we want to discourage (like excess water usage), and avoid taxing things we wish to encourage (like the earning of income).

@ AMcGrath – first comments are pretty sad stuff. First sign of a weak mind is to attack the messenger.

@Michael – “But as your GNP is so far below GDP, and I understand the tax rate on the net foreign factor flows is small, the effective tax rate on domestic incomes may be a lot closer to the OECD average.”

Surely this must be one of the key points to address – if corporate taxation is kept low, then all things being equal, taxation somewhere else must compensate if comparable services are to be maintained?

The elephant in the room – the continuing belief in some circles of something for nothing?

People in the short term – say 3/4 years I fully suspect that most large corporate entities have now built up sufficient case 1 trading losses to adequately swallow any tax burden of a corporate nature in this period. Such are the levels of trading losses seen in a huge number of corporates ( especially in the financial services arena………! ) it is quite probable that even an increase to say 25% CT would impact only marginally profitable companies and not actually result in any net increase in tax take.

I suspect that it is this back of an envelope rational that will actually negate any leanings towards an increase in our CT rates in the medium term. One would hope…….

Just on the CT issue – ie to increase the rate or not????

One of the main stimulus (i?) in the area of innovation improvement and tech advancement is the current low CT rate. Our R&D Tax incentives are just ok – they are certainly not agressive nor market leading ( in an international sense ) in any way – However when put in tandem with our low CT rate there is a marketable interest in ramping up of qualifiying activities in this regard.

Any increase at all in our CT rate puts a huge volume of high profile blue chip employment at risk. It is these same employers who at the very least are responsible for a significant tranche of PAYE / PRSI tax take in very worthwhile areas. These guys, in many their hands are forced by the current worldwide econ climate, are merceneries with little or no loyalty to brand Ireland. Increase the CT rate and big co pharma and electro ltds will walk.

thoughts?

@ Mark G

Geoffrey Garreth did some research on the effect of taxation rates on MNC and he found very little evidence of movements because of changes in taxation rates.

More significant factors include stable governments etc.

If if this is the case; we have no excuse after 60 years of attemping to attrach FDI of still offering low taxation as principal competive advantage.
This is a dangerous game as any country can ‘race to the bottom’

@Ger:
“We should tax things we want to discourage (like excess water usage), and avoid taxing things we wish to encourage (like the earning of income).”

What do we do when people have stopped doing the “things we want to discourage”?

bjg

Sorry Ger

The ONLY reason MNC migrate from jurisdictions is to achieve tax advantages elsewhere. Its the elephant in the room.

I had a quick look for the research you mention but couldnt find any thing of relevance. If you had a link Id be interested to have a further look. Tks.

@ Mark

I assume you me not Ger. I read a summary of his work in this book below.

Garrett, G. (2000) ‘Global Markets and National Politics’ in D. Held and A. McGrew (eds) The global transformations reader: an introduction to the globalization debate. Cambridge: Polity Press.

I’ve found this link online (haven’t had a chance to read but I assume it’s along the same lines)

http://faculty.msb.edu/murphydd/cric/Readings/Garrett–Global%20Markets%20and%20National%20Policies%201998.pdf

BTW don’t i agree with Garrett, i’m very concerned with the affect of allowing global capital to dismantle the welfare state.

I’ll admit that I have moral issues with Low CT (transfer pricing etc) but even from a purely realist economic perspectice its a model that way too easy for competitors to copy. We’ve had 60 years of trying to attrach and retain foreign capital and this is still our only competitive advantage.

Our other so called strenghts are also flawed:

Low regulation (easy to copy but who in their right mind would want Ireland’s exposure to the financial sector); English speaking (also way too easy to copy)

Our principal attraction is (and has been since the early 1990s) membership of the single market and our pro-european attitude (as compared to our nearest neighbour) meaning Ireland is considered a stable member of the EU.

No one (apart from a an ex-leader who presided over a mid-50s income tax rate) would say that because they were spending more than they were earning “I need a wage increase”. Lets continue to cut public services until the books are balanced. My brother is having trouble filling a 20k for a three day week role in Munster. He says anyone who interviews quickly realises they are better of on the dole.

@ BJG,
oh we’re a long way from running out of sins. I wouldn’t lose sleep over it.

A tax on advertising is one of my favourites. (http://www.jolitics.com/p/post/103/)

Advertising can serve a useful purpose if it is kept small (classified adverts etc.), but the big media campaigns of large companies only serve to promote irrational decisions by consumers, unhealthy stereotypes and self-image among citizens, and lastly causes media outlets to skew their editorial decisions in favour of a bling, consumerist worldview which helps their advertisers to sell luxury goods, and away from serving the needs of their paying readers for impartial commentary.

A tax on advertising would be a tax on a very large, well endowed industry, capable of sustaining a substantial income stream for government. Effected will be companies that produce inferior goods and need to invest in perverting the rational decisions of consumers (cry me a river).

Furthermore, advertising itself is a blight on our lives, so less of it will raise the standard of living in simple terms.

I would levy a tax on all media outlets carrying a paid message from someone else (covers product placement too).

@ Kwong.
that’s an unpleasant story (although believable).

I unhappily have experience of the interplay of welfare and low paid work. In reality, the level of welfare is the crucial factor in making a low paid job viable or not. The prices, spending patterns and consumer choices of the low paid and those on welfare are closely aligned and when social welfare rates rise compared to the wages of low paid workers (as they did in 2009), then the prices of goods become unaffordable for the low paid worker. Far from choosing to abandon working, the unaffordability of basic goods, may force them out of work and onto welfare. It is not greed so much as compulsion.

There is nothing more gutting, or full of humiliation than working all week, and then not being able to afford basic goods which are within the spending range of dole recipients.

The combination of tax rises, pay cuts and welfare increases resulting from the first and second Lenihan budgets, created a perfect storm at the bottom of the employment ladder. This was not fully recorded in the media which focused in on the battle between public and private pay in higher level posts. But it is one of the most important problems in the country in terms of human impact.

Garrett Fitzgerald is merely stating the obvious in his article. Any person who thinks Ireland can survive this crisis without substantial cuts in excessive higher pay levels and Scandinavian like tax rates is living in cloud cukoo land. The cuts and taxes should impact higher paid and therefore have a much reduced effect on reducing domestic consumption.
In addition a property could be easily and quickly introduced. A simple combination index of the CPI index and an offsetting housing index since 1990 applied to the puchase price of a house would give a housing price on whcih to apply a property tax rate. A base 1990 house lavel could be set at say €25,000 which would act as a minimum base value.
The psycholigical inability derived from self interest to admit to the necessity of higher taxes is as treasonable as most of the government actions over the last 13 years.

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