Anne Costello of the Community Platform argues that Progressive tax reform will promote economic activity. It will retain consumer demand, protect jobs and protect low and middle income earners.
The Government is planning to cut €3 billion from public spending in the coming budget. They say there is no alternative. The Community Platform, a network of 29 national community organisations working to address poverty and inequality believes that this approach is fundamentally flawed.
Such drastic cuts in public expenditure will drain vital money from the economy, undermine jobs and ultimately mean that those least able to pay for the current economic circumstances will bear the burden. Cuts of this nature are also certain to damage the country’s social infrastructure and delay any meaningful economic recovery.
Our current tax system does not generate sufficient revenue to fund employment, public services and infrastructure. It is also grossly unfair and reinforces inequality.
There is an alternative. Progressive tax reform will promote economic activity. It will retain consumer demand, protect jobs and protect low and middle income earners.
The Community Platform has just launched its recommendations for progressive tax reform (pdf) that includes four realistic proposals that, if implemented, would generate approximately €3billion. This revenue will address the Government deficit but will also, crucially, maintain spending power and provide a much needed stimulus to the economy. Moreover, it is socially just and will ensure that all citizens pay proportionately according to their ability to pay through a progressive tax system.
High income earners pay less in tax as a result of generous tax breaks. In 2009, the State lost €7.4 billion from tax breaks, over 3 times the EU average. The Commission on Taxation identified over 100 tax expenditures costing over €8 billion.
The overwhelming majority of tax breaks benefit high income groups. An ESRI study showed that 80% of the benefit of pension contributions goes to the top 20% of earners, while the Commission on Taxation found that these same earners benefitted by nearly €300 million a year in mortgage interest relief.
The Community Platform believes that a phased reduction in these tax breaks to EU levels over a three year period would save an estimated €1.5 billion a year.
The Community Platform believes that a wealth tax should be introduced here for high earners with assets worth more than €1 million. Initially, only those earning over €100,000 should be eligible. Liabilities such as mortgages and productive assets such as farms and businesses should not be liable to the tax.
Approximately 33% of financial property and assets are owned by the top 1% of households. Much of this wealth remains untaxed.
Many European countries have taxes on high wealth or assets.
On the basis of other European countries’ experiences, this could raise between €500 million and €1 billion in tax revenue when fully operational.
High earning Irish citizens can limit their tax liabilities to €200,000 per annum by limiting the number of days they reside in Ireland and using tax havens to avoid taxes on their income. According to the Revenue Commissioners the number of people claiming non-resident tax in the state was approx 6,000 in 2007. This list includes some of Ireland’s wealthiest people.
This massive tax avoidance can be removed by making citizenship, rather than residence, the basis for taxation, regardless of where the income is earned. Citizens paying tax in legitimate tax jurisdictions (UK, other European countries) would not be affected. Only high income earners (above €250,000) using tax havens would be targeted.
A substantial amount of income is exempt from PRSI and income levies (i.e. PRSI contributions, Health Contribution Levy, and Income Levy). This costs the government hundreds of millions of euro in lost revenue annually.
Income from capital, investments and rents should be treated the same as PAYE income – and should be subjected to all the PRSI and income levies. Also, the income ceiling on PRSI payments (currently €75,000) should be removed so that all income is eligible for PRSI and other levies.
This would raise substantial income for the government and create a more progressive tax and social insurance system.
Budget 2011 provides the Minister for Finance with very real choices. He and the Government can continue the failed policy of cuts to services, jobs and social welfare, the result of which will be more unemployment, more poverty and further reduction in the quality of our public services.
Alternatively they can choose to take action to develop a progressive tax system that is just, equitable and sustainable, a system that will help to stimulate the economy and put Ireland firmly on the road to recovery.