How Low Can We Go?

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From top: Enda Kenny and Joan Burton at government buildings yesterday; Michael Taft.

Taoiseach Enda Kenny plans to move Ireland ” to US levels of income tax”.

So what does he think we have already?

Michael Taft writes

Ireland already has a US-style taxation system – if we use general government revenue as the benchmark.Before the crash Ireland was awash with revenue from the speculative boom; revenue that quickly evaporated. Since then, Irish government revenue has been steadily falling.

graph

The graph (above) is what the EU Ameco [the annual macro-economic database of the European Commission’s Directorate General for Economic and Financial Affairs] database tells us:

By 2017:

The Government projects revenue will be below 32 percent of GDP. When we factor in multi-national accountancy practices, this figure rises to 34.5 percent

Ameco projects that US revenue will be 34 percent

Ameco also projects that Eurozone revenue will be over 46 percent.

A few things stand out in this. First, we are already at low US low-levels of taxation. Second, we are certainly not at European norms. We’d have to raise taxation by a mind-boggling €26 billion to reach the Eurozone average.

Even with the demographic benefit of having fewer elderly (which is substantially negated by a higher level of young people) we’d have to increase taxation massively.

Third, the Government projections foresee revenue falling even further out to 2021 when it will be below 34 percent.

And here’s the kicker: this doesn’t factor in tax cuts that a future government may introduce. For instance, Fine Gael wants to abolish USC. That will drive tax revenue down further, potentially falling behind US levels.

When measured as a percentage of GDP, Ireland is at the bottom of EU tables – fighting it out with Romania and Latvia for the rock bottom prize. Nods towards quality health and education services, childcare and eldercare, public transport, pensions and incomes supports are made, but these are little more than nods; perfunctory gestures in a debate that effectively excludes the social.

What the Taoiseach really wants is for Ireland to be a basement-without-a-bargain economy where public resources are squeezed, investment is starved, and the energy bulb frequently cuts out without any window to let in the light.

Michael Taft is Research Officer with Unite the Trade Union. His column will appear here every Tuesday. Follow Michael on Twitter: @notesonthefront

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65 thoughts on “How Low Can We Go?

  1. 15 cents

    oh wait, so the bunch of ex-primary school teachers haven’t done their homework? oh the irony.

    1. Neilo

      Like trade union officials are a fount of knowledge: David Begg was practically in tears when that kleptocratic oaf Chavez died.

      1. Clampers Outside!

        A couple of percent onto the effective rate… no, I don’t believe they would. Charge the full twelve and some, maybe many, certainly would. A couple of percent would be a few billion to the economy (been a while since I checked).

      2. Clampers Outside!

        I would also put in place a bank transaction tax… is that going ahead in the EU… was talk of it….

        And, a proper enforceable Capital Gains tax, particularly on speculative non-product producing stock exchange trades / hedge funds, (gambling, if truth be told) etc…. but that would require a world wide effort, as would the above…

        1. Neilo

          @Clampers: a bank or financial transactions tax would drive the international financial services sector – and its shadow banking area, in particular – straight into the Netherlands and Luxembourg. These companies servicing speculative trades like BONY, State Street etc are big employers in the IFSC and in regional locations. Even a media-generated possibility of such a tax imposed on the City of London is fueling much of the momentum towards Brexit.

          1. Clampers Outside!

            My disclaimer, you appear to have missed… “but that would require a world wide effort, as would the above…”

            Then there’d be no ‘Brexit’ to move to. Everyone would be the same.

            I am also for an International Wealth Tax along the lines proposed by Thomas Piketty

  2. Kolmo

    Are we not one of the highest indirectly taxed nations in the world? (VAT, Excise, VRT etc…) – I’d be happy to be corrected..

    I don’t want a Americas style society – dangerous levels of wealth disparity, a 100% rigged game, a small elite with all the cards and the rest of us killing each other for the crumbs

    1. Neilo

      We would have a relatively high level of indirect taxation, yes, but then our workforce is still quite small so we need the services/manufacturing sectors to really start ramping up output.

    2. Rob_G

      Are we actually?

      – VAT is standardised across the EU (more-or-less)
      – VRT (true – but could be argued that this is an elective tax)
      – excise (we’re definitely up there, alright, but not the highest)

      When you consider that other countries’ property taxes are multiples of the Irish one, we are not doing too badly, indirect tax-wise.

      1. John M

        VAT is not standardised across EU – so it’s definitely less, not more.
        No VAT on childs clothes here.
        VAT on PPE here (some)
        No VAT on buildings or construction in the UK, there is here.
        No VAT for schools in the UK, there is here. School here buys a PC – gets charged 23% VAT. School buys a PC in the UK, no VAT.

      2. george

        VAT is not more or less standardised in the EU. It ranges from 15% to 27% That is a very significant difference.

      3. ollie

        Wrong. property tax in other Countries include other charges, for example French property tax includes TV licence costs. Also, there are many Irish people paying both property tax and service charges.

        Then factor in doctor, dentists, legal fees, etc. So as regards indirect taxation we are doing really badly.

    3. Michael Taft

      Kolmo – there are indications from both Ameco and Eurostat that Irish indirect taxes are slightly above the Eurozone average but by no means the highest. The Nordic countries are much higher where higher VAT rates pertain and items like food, excluded from VAT here, are taxed.

  3. Jake38

    Fantastic obfuscation by the beardies from the unions on this one. Kenny is talking about INCOME TAX which is grossly high here on people making the average industrial wage compared with the US, and Taft and his buddies are talking about GOVERMNEMT INCOME which is an entirely different thing. Orwell would have been proud.

    1. MoyestWithExcitement

      The very first sentence reads “Ireland already has a US-style taxation system – if we use general government revenue as the benchmark.”

      Taft wasn’t obfuscating, you were.

      1. Jake38

        Its hard to argue with someone who wilfully choses to ignore what is said in black and white, but, at the risk of repeating myself, Kenny was referring to INCOME TAX while Taft and the beardies then chose to speak about GENERAL GOVERNMENT REVENUE. This is not the same thing, which is why we use different words for it in the English language. Or is that too hard for you to understand?

    2. Michael Taft

      Jake38 – I was not aware that the Taoiseach was referring specifically to income tax. I assumed he was referring to taxation as a whole. However, it is of little matter to the argument. Ameco projects that by next year in Ireland current taxes on income and wealth will make up 12.7 percent of GDP (13.9 percent when multi-national accountancy practices are taken into account). In the US these taxes make up 14.8 percent. So whether it general revenue or taxation on income, Ireland is still at the US level.

      1. Owen C

        Michael

        isnt the real issue here the “net social contributions” that the government receives? This is an area where the Irish levels are far below that of the rest of the EU (like 5-6% of GDP vs 13% or so). This goes to my point about how demographics will impact on how much we ultimately levy the economy on certain areas of taxation, and conversely where and how we will spend. At the moment, we do not spend very much on old age pensions, and so therefore we do not levy the population very much directly to fund them. Seamus Coffey deals very well with this issue here:

        http://economic-incentives.blogspot.co.uk/2015/01/ireland-is-not-really-low-tax-or-low.html

        1. Michael Taft

          Owen C – that is absolutely correct. Irish social contributions are very low; in particular, employers’ social insurance (it would have to more than double to reach the EU average). On the other hand, personal taxation (combining incomes taxes and PRSI) are only slightly below EU averages. Seamus is correct to point out that we don’t need as much revenue because we don’t have to spend as much on pensions due to our lower elderly demographic. However, there are two problems with this. First, there is high expenditure in other EU countries on pensions because they spend more per elderly capita (they have state pay-related pensions). This is not a demographic issue but rather a policy one. Second, if we wish to use demographics we have to factor in youth spending. Ireland has the highest level of under-18s / 21s in the EU – over a third above the EU average. This expenditure – on family income supports and education – if at EU levels, would cancel out much of the elderly demographic relief (though Ireland spends less on education than most other EU countries despite having higher pupil numbers).

          I would also point out that social contributions just don’t go towards pensions, though that is a big category. Many EU countries direct their spending on health through social contributions rather than the Exchequer. Further, higher social contributions pay for pay-related unemployment benefit, pay-related sickness and injury benefits, stronger maternity/paternity benefits, other family supports, etc.

          In short, the main cause of our low-tax status is the low levels of social contributions.

      2. Jake38

        Mr Taft. Ireland might be at US tax levels, it is not at US income tax levels. For example, the marginal rate of tax of 26% on income in the US kicks in at about 411,000 dollars, not 36,000 like here. I suspect US overall tax is greatly dependent on their 35% corporation tax rate. If we had that in Ireland we would have no industry. There’s a lot of comparing of apples and bicycles going on here. It kind of reminds me of your polemic about the massive income inequality in Ireland which takes place, if one completely ignores social welfare transfers.

        1. Michael Taft

          Jake38 – you might be interested in this dataset from the OECD which is more detailed than Ameco: https://stats.oecd.org/Index.aspx?DataSetCode=REV It shows Irish and US personal taxation on individuals pretty much the same. Arguing from tax rates might not be as robust as so much depends on the base. A high rate, low tax base economy might generate less revenue than a low rate, high base economy. And in comparing with a Federal system has to include state taxes (many states have income tax systems). The OECD, like Ameco and Eurostat factor in tax revenue from all government levels.

          I note that you omit my past analysis on inequality after transfers.

  4. ollie

    Tax take for 2014 was 41 billion, against GNP of 245 billion and GDP of 160 billion.
    GDP is a more realistic figure for comparison as GNP includes includes revenue earned abroad that never enters the County.

    Looks to me like Taft’s figures are worse than he’s presented, although to be fair he’s looking forward to 2017.
    Bottom line is;corporate taxation is too low, personal taxation is too high.
    There are exceptions, SMEs pay their full corporate tax rate and TDs and Senators pay an effective tax rate that’s less than the rest of us PAYE taxpayers.

      1. ollie

        Clampers, salary plus unvouched untaxed expenses of circa €3,000 a month results in a lower effective tax rate.

    1. Owen C

      “Tax take for 2014 was 41 billion, against GNP of 245 billion and GDP of 160 billion”

      Other way around on GDP and GNP, and the figs actually dont look right for the 245bn. See below for CSO data. Also, you are forgetting that “tax take” does not equal “total revenue”. Lots of other revenue accrues for the government which is not classified as “tax”.

      Full years 2015 figs as follows:
      Tax revenue: 45.6bn
      Non tax revenue: 3.5bn
      Other capital receipts: 9.5bn (around 5.5bn of this is normal and recurring)
      Total revenue = 58.6bn (54.5bn if adjusted for exceptional bank related items)

  5. Owen C

    Couple of observations:

    1. “When measured as a percentage of GDP, Ireland is at the bottom of EU tables – fighting it out with Romania and Latvia for the rock bottom prize. ”

    True. But then we’re always told about the GDP vs GNP divide. Accounting for this, which is currently $230bn vs $180bn (end 2013 figs), would bring a 34.4% of GDP revenue spend to a 44% of GNP revenue spend. This would be against 45% avg for EU and 47% for EZ, and bang in line with Netherlands. Not quite such a big or notable gap.

    Even sticking to the % of GDP calculation, while we are indeed right down the bottom of the table, we are sandwiched in between Switzerland and the UK, so it is not so simple to say that the likes of Romania and Latvia are our only neighbours down there.

    The point here is that using a blunt % of GDP metric tells us nothing of the qualitative or subjective context of the figures (ie demographics, make up of the economy etc). Hungary has 47.4% and Greece has 46.4%, not sure if we’d like to compare ourselves to these guys.

    2. Why does Michael Taft respond to an Enda Kenny quote on income tax (note: not necessarily all taxes) with statistics on overall revenue? Its not a particularly fair way to address the issue.

      1. Owen C

        The point is, we could have low income taxes (US level of income taxes) but higher other taxes (ie indirect taxes, employer social insurance contributions). Low income taxes are not necessarily Ireland’s problem, its about the balance. Obviously Taft knows that he cannot reasonably claim that Ireland’s level of income taxes are low, so he decides to go off into an entirely new argument.

        1. MoyestWithExcitement

          And yet, with very high income taxes, we still have very low levels of government income which can be used to invest in social infrastructure. That’s his very simple point which you, yet again, have failed to understand.

          1. Owen C

            How have i not understood that part of his argument? I’m simply saying he needs to compare like (“income tax”) with like (not “overall revenues”). How is it that you can’t understand that? You seem like someone of at least average intelligence, it should be straight forward enough for you to get. Some countries have very low levels of income taxes, but high wealth, indirect and capital transaction taxes, and these are based around the individual nature of their economies. If Taft wants to argue about low levels of revenue and investment, he needs to do it on the correct basis. We can fairly assume that Kenny or FG have not said “we are seeking to reduce government revenues by a large amount if we are re-elected”.

          2. MoyestWithExcitement

            Jesus. His point isn’t about income tax per se. It’s about low levels of government investment in social infrastructure and their plan to reduce the amount of money they to have to invest by even more. Seriously pal. It’s basic English, like. How do you consistently embarrass yourself like this so much?

          3. Owen C

            I use you as inspiration buddy. You are a pioneer in the self-embarassment stakes. Keep up the good work fella.

        2. ollie

          Kenny would like everything to be the US model, for example people in the hospitality sector working for tips, unemployed living in tents.

      2. Jake38

        Income tax is tax on income. Revenue includes income tax, VAT, VRT, CGT, corportiaon tax, etc etc. Different……….. Not. The. Same.

          1. Jake38

            To quote Owen C………….”You are a pioneer in the self-embarassment stakes. Keep up the good work fella”

  6. john

    this article is nonsense. Irish GDP is massively inflated by multinationals running money through the country, hence people usually look at GNP when talking about us. This means the above chart is complete crap and cannot be used to prove any point.

    Furthermore i seriously doubt that the marginal tax rate in the US is 52% and i dont see Enda claiming he is going to lower it so i am not sure how he ever hopes to get to US levels of taxation.

    1. Jake38

      The marginal tax rate is less than 52% in the US and it begins at about 250,000, not 36,000 like here.

  7. John M

    Great – going to US tax styles.

    So abolishing VRT, lowering fuel excise, cutting VAT to 5%.

    Can’t wait tbh..

    1. Frilly Keane

      And all that comes with it;
      US Health Insurance rates
      Public Education standard
      3 level Fees and costs

      Indeed

  8. george

    Presumably then he wants Ireland to have US style public services? Like their Health Care and Social Welfare systems?

  9. Happy Molloy

    maybe I’m thick but Govt income as a % of GDP has been falling because GDP has risen so much, GDP which all would state isn’t a great indicator of a country’s earnings, especially in Ireland’s case, as so much of our GDP is earned by multi-national companies where profits are repatriated elsewhere?

    our success has been in attracting EMEA headquarters here but if we think that we are going to get 12.5% of everything a company makes in EMEA, or worlwide, we are dreaming.

    the above chart is indicative of multi-national industry growing much faster than indigenous, which is what we need to happen in this little rock if we are to have the high standard of living we want.
    Still need to improve our indigenous growth massively though…

    1. george

      A strong SME sector with exports is what we need to provide good lifestyles not a dependancy on foreign direct investment which can be withdrawn at the drop of a hat as we’ve seen happen many times in the past.

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