“Easy Option”, Hard Consequences
The Taoiseach has defended the proposed 2% increase in the higher rate of VAT, saying it won’t apply to food, but only to purchases where the consumer has a choice. Certainly this was the spirit of the original VAT rules - the zero rate of VAT was clearly intended for basic staple items. You can see this, for example, in the rules on candles. The zero rate applies to the plain ones, defined as white and cylindrical, while spiral or perfumed “luxury” candles attract the higher rate of 21%.
Relatively discretionary items such as DVDs, wine, televisions and so on also fall into the 21% bracket. If it were as simple as this, there wouldn’t be much of a problem with the 21% rate moving up to 23%. If it were only a tax on luxuries, then it would be hard to argue against a 2% hike these days, when tax must be raised from somewhere.
But VAT isn’t that simple. It’s not simple at all, in fact. It can be ridiculously convoluted. Take printing: books are zero-rated, while magazines and periodicals are taxed at 13.5%. So the Beano is taxed, but the Beano Annual isn’t. If a book is serialised, and sold in instalments with a binder, it remains a book and avoids the tax, despite, perhaps, resembling a magazine. E-books are not books at all, so they are taxed. A diary is taxed at 21%, unless it has very few blank pages, in which case it’s a zero-rated book. A printed bookmark is taxed at 21%, unless sold with a book which would reduce the tax to zero.
The situation in food is even more complex. Yoghurt is zero-rated until it’s frozen, when it’s taxed at 21%. A sandwich could be zero-rated, unless sold from a vending machine, in which case it’s taxed. Ice-cream bought in a supermarket to take away is taxed at 21%, but if you eat it on the premises as part of a meal, the VAT is only 9%. Similarly, a bottle of juice will attract less tax as part of a meal than if sold to take away. Bread is zero-rated unless it has too much fruit or flavourings. Sausage rolls sold cold are taxed less than hot ones, but bread hot from the oven is considered cold, and so zero-rated. A jar of caviar is zero-rated, but a bottle of water attracts the luxury rate.
Not that it’s called the luxury rate. It’s called the standard rate, and perhaps that’s fair. After all, it applies to such “luxuries” as toothpaste, soap and spectacles. What’s unfair is that its paid by everyone at the same rate - homeless people, students, the unemployed, old age pensioners, millionaires. In fact a homeless person subsisting largely on takeaway food, or a child buying ice-cream and comics both pay a far higher proportion of their income in VAT than someone earning enough to save some of their money. It’s a regressive tax, attractive mainly because of its relentless efficiency, and relative invisibility.
A two percent change sounds small, but that is also deceptive. VAT is what you pay from your net income, after Income Tax and the Universal Social Charge. So a change from 21% to 23% on something like a pair of glasses will have a magnified impact on the amount of gross salary you need to earn to afford them. This on such luxuries as notebooks and pens, detergent, paper or cutlery. An increase like this cannot but curb consumer spending. In some ways, it’s the opposite of a stimulus package to the economy.
VAT is complicated and regressive, paid by everyone regardless of income. A 23% rate would be harsh for people on low incomes or none, and hard on those for whom it is doubled up by taxes. Right now, VAT brings in roughly a third of all Irish tax revenue, and yet people barely notice they’re paying. It must be almost irresistible for the government to dip into this particular well to raise more revenue. Taxes have to be levied, and this could look like an easy option. Let’s not pretend, though, that it’s a tax on luxuries. Let’s not pretend it will do no harm.
Discussion
We welcome and encourage lively discussion from the public about articles on Irish Left Review. You can leave a comment using the form at the bottom of the page. Please read through the existing comments before posting your own.
Leave a Comment
Sins of the Father
Subscribe by Email
Best of the Web
EU Should Admit Greece is Bankrupt | Christian Rickens
The unvarnished truth - the second Greek Bailout should not have happened.
The mistake isn’t the size, but the construction of the bailout package. It isn’t geared to the requirements of the people of Greece but to the needs of the international financial markets, meaning the banks.
How else can one explain the fact that around a quarter of the package won’t even arrive in Athens but will flow directly to the country’s international creditors? The holders of Greek government bonds are to get some €30 billion as an incentive to convert their old paper into new bonds. The aim is to keep alive the illusion that Greece isn’t bankrupt — after all, the creditors are voluntarily forgiving part of the debt. The financial sector is cleverly manipulating the fear that a Greek bankruptcy would trigger a fatal chain reaction.
That leaves €100 billion. But that too isn’t geared to what Greece needs in order to get back on its feet. It’s linked to an estimate of how much debt the Greek economy can bear without collapsing. International technocrats agree that with debts amounting to 120 percent of gross domestic product, the country can just about go on servicing its debt. That’s the level at which the cow can go on supplying milk without dying of exhaustion. So 120 percent became the goal.
Collaboration, with our European partners | Cunning Hired Knaves
The European project was supposed to be a bulwark against the dangers of fascist ambition, but now it is the instrument used to dismantle European democracy in the interest of the risk adverse looking for a steady income stream from the provision of the social net by those who cite the words and actions of old fascists while doing so.
The post Collaboration, with our European partners by Richard of Cunning Hired Knaves summed up in one sentence. For much better sentences and many more urgent points read the post.
On Sunday there were massive demonstrations throughout the Spanish state, with half a million people on the streets of Madrid and 450,000 in Barcelona, protesting against the labour ‘reform’ planned by the Partido Popular, the right-wing party that most closely represents the interests of the power elites that conserved their position when the transition from dictatorship to democracy was undertaken.
S.P.A.R.K. protest at cuts to lone parents, Dublin 18th February 2012
Many families were cut in the last budget but lone parent families were particularly hit by the Fine Gael/Labour Party government.
The key elements are that single parents can’t take advantage of training such as Community Employment (CE) Schemes and when the youngest child turns 7 years old, the parent is declassed as a lone parent but treated as an ordinary worker even though there are few affordable creche places. There is a bill coming up in March which will copper fasten some of the worst elements of government plans.
There is particular anger directed at the Labour Party because they are associated with women’s rights and a more progressive society.
Please share the link to this video
Exiting the euro | Michael Roberts
Michael Roberts argues that those in Greece who cite the example of Argentina when suggesting that Greece should leave the Euro are not necessarily looking at the whole picture. The situations are not the same, Roberts points out, citing Argentina’s former central bank governor at the time, Mario Blejer and his recent piece in the Financial Times. He also points to research based on the the experience of five recent devaluations of economies in crisis (including that of Argentina) which “shows that they lead to a 10-20% fall in real GDP and take five to ten years to recover to previous real GDP levels. But that is not to say that there is no alternative to “lowering wages, privatising the state sector, reducing taxes for the corporate sector (especially big business) and ‘deregulating’ labour markets i.e. the super-exploitation of the Greek people to raise profitability.”
But the left could also find an alternative policy to exiting the euro where Greece negotiates a full default on its debt to private and foreign bondholders; takes over the banks; and uses the savings from bond and interest repayments (€17-20bn a year) to start state directed investment in jobs, technology and funding small businesses, while staying in the euro to protect the savings of the people from destruction, keeping down inflation and avoiding a rise in foreign debt. The question of exiting the euro then becomes an issue for the Euro leaders to impose (and to be resisted by a campaign within Europe), not as the main policy plank of the left.
Corporate tax avoidance: where are the worst offenders?
This table comes via the Tax Justice Network (and Richard Murphy). It’s from a table produced by U.S. researcher Kimberly Clausing and as TJN notes “demonstrates which countries are working hardest to wage economic warfare on the United States (and, by extension, on other countries,) via the global tax system”.
Solidarity campaign to support the people of Greece
Mikis Theodorakis, famous Greek composer of Zorba’s Dance, and Manolis Glezos, veteran resistance fighter against the Nazi occupation, have issued a call for a European Front to defend the people of Greece and all those facing austerity. We have decided to support this call and work with trade unions, campaigns and parties across Europe to establish a European Solidarity Campaign to defend the people of Greece. We will organise solidarity and raise practical support for the people of Greece; they cannot be made to pay for a crisis for which they are not responsible.
Chris Dillow | Capitalism against freedom
[...]
During the Cold War, opponents of communism routinely, and not entirely wrongly, claimed to be champions of liberty. Freedom for capitalists and freedom of speech and thought go together, it was claimed. “Freedom is indivisible” wrote Bruce Winton Knight in 1952. “Economic freedom is…an indispensable means toward the achievement of political freedom“ wrote Milton Friedman in Capitalism and Freedom. And back in 1944 Friedrich Hayek complained that “We have progressively abandoned that freedom in economic affairs without which personal and political freedom has never existed in the past.”
Today, though, this seems wrong. Many threats to freedom come from capitalists. The story is no longer capitalism and freedom, but capitalism against freedom.
Ian Stewart | The mathematical equation that caused the banks to crash
In The Observer, Sunday 12 February 2012
Anyone who has followed the crisis will understand that the real economy of businesses and commodities is being upstaged by complicated financial instruments known as derivatives. These are not money or goods. They are investments in investments, bets about bets. Derivatives created a booming global economy, but they also led to turbulent markets, the credit crunch, the near collapse of the banking system and the economic slump. And it was the Black-Scholes equation that opened up the world of derivatives.
The equation itself wasn’t the real problem. It was useful, it was precise, and its limitations were clearly stated. It provided an industry-standard method to assess the likely value of a financial derivative. So derivatives could be traded before they matured. The formula was fine if you used it sensibly and abandoned it when market conditions weren’t appropriate. The trouble was its potential for abuse. It allowed derivatives to become commodities that could be traded in their own right. The financial sector called it the Midas Formula and saw it as a recipe for making everything turn to gold. But the markets forgot how the story of King Midas ended.
Greece: a Sisyphean task | Michael Roberts
In a Eurozone that is unwilling to share its surplus with weaker, hardest hit economies there is no other option for those economies but default. Despite the agreement of Greek politicians to shorten their political life and accept the deal all that they have done is simply postpone this eventuality once again. However, even that postponement might be shortened by the Greek elections in April where the smaller leftist parties outside the coalition currently have 40% of the vote. Or so says Michael Roberts:
Whatever the Greek coalition leaders agree to and try to implement, such is the weakness of Greek capitalism, it will not be able to meet its fiscal targets or get its debt down to reasonable levels. Before the end of the year, the Troika will have to report that Greece is not delivering. Then the EU leaders will have to decide whether they ‘let Greece go’ or not. The EU leaders have agreed to more money for Greece (or more accurately its bondholders and banks) in return for draconian cuts in living standards in order to provide more time to try and ‘ring-fence’ other vulnerable Eurozone states like Portugal and Ireland (where they are preparing extra funding). So when Greece goes down, it will not affect the rest (or so the EU leaders hope). Of course, the Greek people may force the issue earlier if they vote in an anti-Troika government in April.
As Greece stares into the abyss, Europe must choose | Maria Margaronis
Do we really want to live in an economic union that must destroy the future of millions in order to just tick along? Maria Margaronis points out that the situation in Greece today says little about Greece and everything about the EU.
The trouble with historical metaphors is that they can obscure the present: what’s really at stake here is not Greece’s identity but Europe’s. All eyes are fixed on Athens, but the way out of the crisis requires a choice about what kind of Europe we want. The one we have now, with its deep structural inequalities and its rigid adherence to a failed economic ideology, protects neither democracy nor human rights. Stiff-necked and punitive, it prefers to eat its children.
Comment by: William Wall
Nov 21st 2011 at 13:11
This is a glorious description of the madness. In many parts it could be a poem.
Comment by: CMK
Nov 21st 2011 at 17:11
Also, remember, the vast, vast, majority of inputs - goods and services - to the multinational sector are supplied VAT free. I’d like to see a breakdown of VAT returns by sector (i.e. business v. consumers) - I’d be eternally grateful if anyone could supply a link. A business busybody was reported in yesterday’s Sunday Business Post as stating that SME’s pay half of the VAT take. Don’t know how true that is, but I doesn’t ring true.
Comment by: Sheila Killian
Nov 21st 2011 at 21:11
@CMK I agree that doesn’t sound right, though I didn’t see the paper. It might be that half of all VAT is collected by SMEs, but it’s unlikely that it’s a cost to them, as they would be passing on most of it to customers. VAT more or less accumulates as a good or service moves along the value chain, and ultimately it’s all paid by whoever is at the end of the line. That’s generally a consumer who isn’t registered for VAT - most of us, in other words.
@William - thanks!
Comment by: Small Girl
Nov 21st 2011 at 22:11
“A two percent change sounds small, but that is also deceptive. VAT is what you pay from your net income, after Income Tax and the Universal Social Charge”.
About two years ago I made the very same point to my local town council who were charging me a parking fee to park in the ‘public space’ of the town square so that I could be charged VAT while patroning the businesses in my local town (thus helping to keep them alive) and all this with cash that I had already paid tax on. The town council replied that parking charges helped to alleviate congestion in the town thus making it more attractive for local people to shop in. Obviously they missed the bit in my letter where I said I was local and a shopper!!
Comment by: Sarah c
Nov 22nd 2011 at 12:11
In fact it nearly is a poem ! The proposals/threats plans for a general increase in Vat remind me of the tax on children’s shoes scenario that felled a government here. I wonder if Sheila’s article here might help us to pick out one aspect of something ridiculous that will be subjected to the vat increase and cause something similar?
Comment by: Small Girl
Nov 22nd 2011 at 12:11
Poetry indeed.
Does anyone have any idea why I (and the rest of the country) am charged 13.5% VAT on the Standing Charge and the Carbon Tax on my gas bill?
And 13.5% VAT on the Standing Charge and PSO Levy on my electricity bill from the same company, Bord Gais?
Is that not like paying a value added tax on a tax/levy? And I’m paying that taxed tax out of an income that has already been taxed before I get it. I’m not being poetically rhetorical, I’m wondering if that’s even legal and if so how it’s justified.
Comment by: John Fitzgerald
Dec 5th 2011 at 23:12
Lower Coyne Street,
Callan,
Kilkenny,
Ireland
Email: jfitzg3@eircom.net
Anti-Hare Coursing publication now a Free E Book
December 5th 2011
Dear Sir/Madam,
Just letting you know that my book Bad Hare Days, about the anti- hare coursing campaign in Ireland and its impact on the campaigners, is now available as a free e book.
I am hopeful that the book’s wider availability will assist the campaign to abolish this medieval so-called “sport”. There are many books promoting blood sports in shops and libraries, but this one promotes the campaign to protect the Irish Hare from the organized savagery of coursing clubs while also highlighting the sacrifices that campaigners have had to endure over the years for taking up this cause.
The national hare coursing organization in Ireland is politically well connected and very powerful. The coursing clubs affiliated to that organization will do anything to suppress opposition to the barbarism they promote.
But they fear the glare of publicity. Anyone seen with a camcorder at a hare coursing event is immediately ejected from the venue, and some would-be recorders of the truth about this blood sport have been assaulted before being forced to leave.
Pro-hare coursing contributors to Internet forums dealing with greyhound industry issues have attacked Bad Hare Days in the most vitriolic language, expressing outrage at its message and contents. All the more reason in my view to make the book as widely accessible as possible!
I hope that campaigners against the various forms of animal cruelty/exploitation in whatever country may find the book useful or of interest.
Bad Hare Days can be read or downloaded at either of the two links below and I’d be delighted if could you add this link to your website…or just pass on my message to another organization or campaigner for animals:
First link:
http://banbloodsports.files.wordpress.com/2011/11/bad-hare-days.pdf
Alternative link:
http://www.tinyurl.com/downloadbhd
I have a Facebook page devoted to this also at:
http://www.facebook.com/home.php#!/pages/Bad-Hare-Days-Free-E-Book/165979236831841
Many thanks for your attention and best wishes,
John Fitzgerald,
Campaign for the Abolition of Cruel Sports,
Comment by: UB
Dec 19th 2011 at 21:12
Let’s not forget telecommunications. Is a telephone in rural Ireland considered a luxury?
And what is office supplies to an SME that may be able to offset the VAT is pens, stationary, rulers, erasers, calculators etc. to ordinary schoolchildren in ordinordinary families. Hardly a luxury!!!
Comment by: UB
Dec 19th 2011 at 21:12
Let’s not forget telecommunications. Is a telephone in rural Ireland considered a luxury?
And what is office supplies to an SME that may be able to offset the VAT is pens, stationary, rulers, erasers, calculators etc. to ordinary schoolchildren in ordinary families. Hardly a luxury!!!