Category: Fiscal Policy

Carbon tax galore

The Dept Finance has reinfored the expectation that there will be carbon tax as of January 1st, according to the Irish Times.

IBEC does not like a carbon tax (Irish Times), but the Royal Irish Academy does (Irish Times).

Frank McDonald writes about the impact of a carbon tax on the upcoming climate negotiations in Copenhagen. As things stand now, the carbon tax will be announced on the second day of international negotiations. The opening shots will have been fired on the first day, and nothing much will be happening on day 2 with thousands of journalists hanging around Copenhagen itching to write about a success in climate policy. Ireland’s carbon tax will thus attract worldwide media attention.

The economic rationale for a carbon tax in Ireland was first set out in a paper from 1992.

Child Benefit

Tim Callan and Brian Nolan argue here that taxing child benefit has superior distributive properties to a cut in the level of child benefit payment.

David Begg on Fiscal Policy and Deflation

In the Monday edition of the Irish Times, David Begg lays out his analysis: you can read it here. It is in line with the interpretation put forward by ICTU in its recent “There is Still a Better, Fairer Way” report.

Below I make some comments on specific points articulated in the article; I will return to the broader analysis in the near future.

Comment 1:  Mr Begg has persistently made the analogy to Japan, arguing that overly-aggressive fiscal retrenchment could “impart a severe deflationary shock to the economy which could precipitate a prolonged slump.”  As has been persistently pointed out,  this analagy is not appropriate:  Japanese-style deflation is not possible for an individual member of a monetary union, since declines in the price level are ultimately self-correcting through a competitiveness gain from cumulative real depreciation.

Comment 2:  Mr Begg suggests that a 50 percent tax rate on high earners (as has been announced in the UK) could be copied here.   Putting together the various levies on top of the statutory income tax rate means that a top rate of effective tax in excess of 50 percent already applies and kicks in at a relatively modest income level.  (See the graph in my note here.)

Comment 3:  Mr Begg notes that there may be €1.8 billion in outstanding uncollected taxes.  I am not familiar with the source of this number – I wonder how much of it may be explained by business enterprises that have failed (with little chance of recovery of the outstanding taxes), rather than by tax evaders.

Overview on Fiscal Situation

My TCD colleague John O’Hagan provides a wide-ranging analysis of the fiscal and economic situation in today’s Sunday Business Post: you can read it here.

Fiscal Consolidation II – Lessons from the Last Time

Colm McCarthy’s Kenmare paper is now available as Irish Economy Note No.8.