Ireland is not paying ample tax — look at Danish model

Ireland has a tax problem. We don’t, really, as an economy pay as much as we should for the services we want. There, I said it.

In 2012, we collected 28.7% of GDP in tax. The EU average is closer to 40%. Taxing at the EU average the exchequer could have almost €18 billion more each year; taxing at Danish levels would suggest almost €32bn more.

Think about that for a little while and wonder how the country could spend that bounty on investment, debt pay downs, and increased social services.

The last few weeks have been interesting from a tax front. We have seen the emergence of a new political party, the Social Democrats.

The TDs involved are talented, sensible people, who profess an admiration for the Nordic model of socio-economic management.

We have seen the Central Bank outline its forecasts for the economy. Significant economic growth is now beginning to put the country into a danger zone – of spending too much in an upswing.

We have seen business group Ibec fulminate against the notion of a significant increase in the minimum wage rate.

Such responses show that immaturity continues to drive ideas of economic management. Take the Central bank. Its forecast for 2016 is rosy: GNP to grow by 3.8%, GDP by 4.2%, unemployment to drop, exports to rise. It all looks good.

However, peering beneath reveals a couple of issues.

Fixed capital formation – investment – will rise but at a slower rate than 2015, which itself was at a slower pace than 2014.

Our old friend, the construction sector is increasing, while investment in machinery and equipment is rising at a slower and slower pace.

We are in other words creeping back to the construction-led growth approach that has ruined the State.

Effective tax policy is missing. A sensible land value tax that allows for windfall provisions would be a great start. Instead, the Government is moving to cap property taxes.

Brownfield sites are meanwhile underused.

Then there are water charges. Regardless of how we pay for water, we will have to pay. There are good reasons for a sensible water metering approach. And yet, Ireland is still paying the lowest water charges in Europe.

There is a critical need to invest in the infrastructure. We either continue to do this from general taxation and charges, or we increase general taxation, or we cut spending on other areas to meet the required investments. There are – despite the wishes of the Social Democrats and others – no easy solutions.

Then we have Ibec. It is a trade union, a lobby group, for employers.

Like most lobby groups it relies more on polemic than analysis. The lobby group should be shown the spread sheets on tax takes, such as those produced annually by the OECD or the EU.

We are fairly close to EU averages on the proportion of GDP collected in direct and indirect taxes. Where we fall woefully short is in social insurance – PRSI and collect a fraction of what our European peers collect.

Employees’ PRSI accounts for 1.1% of GDP in Ireland compared with an EU average of 4%. The self-employed pay 0.2% of GDP compared with 1.5% in the EU. Employers here pay 3.1% of GDP compared with the EU average of 7%.

We cannot have Nordic style social provisions, in the broadest sense, unless we are willing to have Nordic or even EU levels of taxation.

We are facing into an election where we will be told that ‘black’ (we pay low taxes by EU standards) is ‘white’ (we are overtaxed) and that we can have our infrastructural and social cake too.

And we will believe the lies from our political classes, elect them and then blame them, not ourselves, when it all goes wrong.