Renua’s Carnival Ride Back to Boom-and-Bust

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renua_the_boom_and_bustThe silly season usually refers to August.  Now we have the silliest of seasons –the run-up to a budget in the run-up to a general election.  Minister Richard Bruton has recently called for a low flat rate tax on immigrants and returning Irish, along with cutting capital gains tax to 10 percent.  Brian Lucey has called some of the ideas both bad and stupid.

But Minister Bruton runs a poor second to Renua in the race-to-the-ridiculous stakes.  Renua has called for a flat-rate tax.  It represents a massive transfer from the lowest income groups to the highest income groups.  It will require low and middle income groups to fund not only their own tax cuts but even higher tax cuts for those on much higher incomes.   As Brian says of Minister Bruton’s proposals – it is an idea whose time has not come (and hopefully never will).

Renua proposes that income tax, employees’ PRSI and USC be abolished and replaced by a flat-rate tax of 23 percent.  This will be complemented by what is called a ‘Basic Income’ that tapers out slightly above average earnings (this is not actually a basic income – it is a hybrid of a tax allowance and negative income tax).  Renua doesn’t detail how this tapering works so we can’t do an income distribution impact assessment for all income groups.  However, here are a couple of examples from their own pre-budget submission with some estimates of my own.

Renua

Yes, you’re reading the graph right.  A low-paid worker on €20,000 would end up paying more tax.  Someone on an average wage would benefit by €800.  However, it’s bonanza city for those on €100,000 and more.  Calculations for €36,000 and higher are my own.

There is a similar regressive impact when considering couples.   Renua states that a couple on €50,000 (both working, same salary) would gain €1,665.  A couple on €100,000 would gain €9,741 – or more than six times the nominal amount.  Couples on even higher incomes would benefit disproportionately more.

Renua has already admitted that those on the minimum wage would lose out under their proposals but they have this following suggestion:

‘Renua leader Lucinda Creighton has admitted her party’s new tax proposals would result in those on the minimum wage being marginally worse of . . . She acknowledged those on the minimum wage would earn less but had the capacity to increase their earnings by working more hours.’

Let’s see:  you’re on the minimum wage working full-time.  Renua cuts your take-home pay but advises that you can limit this cut if you work longer hours.  How many extra hours?  45 hours per week?  50 hours per week?  How unreal does it get?

Renua claims that the impact on higher income groups would be less given that they intend to limit/abolish tax reliefs like mortgage interest relief, medical insurance and pension contributions.  However, there is not as much there as might be thought.  Mortgage interest relief is no longer available to new buyers and is being phased out while medical insurance relief is already capped.  Those on the highest incomes already face a minimum tax rate of 30 percent regardless of reliefs (my own estimates above factor this in).  So, the benefit will be somewhat reduced.  But so will the benefit for middle income earners – they, too, avail of mortgage interest, medical insurance and pension contributions relief which, if abolished/limited could well eliminate most of their gains under Renua’s plan.

Renua’s flat-rate proposal is of a piece.  For instance, they want to cut inheritance tax to 20 percent while raising thresholds to €500,000.  Someone inheriting €1 million would gain over €150,000.

But the real problem with Renua’s pre-budget submission (apart the fact that its flat-rate is un-costed and could leave a €3 billion hole in the public finances) is that it would starve the productive economy and cut people’s living standards.

First, there is no proposal to increase public investment – even though we have one of the lowest investment rates in the EU.   Put this alongside their proposal to cut capital gains for unproductive activity (currency speculation, passive shareholders, etc.).

Second, apart from a headline childcare proposal (with no detail), there is no proposed increase in public services or social protection.  Rather than increasing support for primary and pre-primary education, they want to bring in student loans; rather than building houses for the homeless and those on the waiting list, they want to give tax breaks to landlords.  Even though we have a public health crisis, Renua proposes  . . . nothing.  Even though we have one of the highest public transport fares in the EU Renua proposes  . . . nothing.

Renua ignores the productive economy and peoples’ living standards.  Instead, they want to give cash away, as if we are going to have long-term unsustainable growth based on shopping.  And they want to give the most cash to people who already have the most cash.

This is not a long-term plan for sustainable growth, investment or living standards.  This is a crude, election-informed, carnival-like cash give-away which will return us to the same kind of boom-and-bust that wrecked the economy only a few years ago.

This just proves that some people learn nothing and forget nothing.

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