Promoting value for money in the taxes we pay

Promoting value for money in the taxes we pay

We should strive for a fairer system of taxation, writes Brian Keegan.

High-income taxes are a serious problem in attracting talent into the country, Taoiseach Leo Varadkar has said.

Discussing taxes here is a national pastime. The lot of the company in our tax system receives much attention, whereas the lot of the individual strangely, is less discussed. One reason perhaps is while personal tax rates are quite high — up to 55% for the highest earning self-employed when PRSI and USC are added in — few enough people pay tax at those kinds of rates.

We operate a type of 80-20 rule in Ireland. Roughly 80% of the tax is paid by 20% of taxpayers. People earning below the average industrial wage do pay tax, but their contribution is fairly modest compared to that of higher earners. Those who are hardest hit are relatively few in number — an important statistic in a democracy.

The de facto abolition of water charges may have resulted in many people having a sense of control over what they pay for in terms of services.

This is more a perception than a reality, but nevertheless, had water charges been made stick in the same way as local property tax, there would possibly be wider discontent expressed about income tax.

In some cases, perception may be a more important factor than discussions about tax rates when it comes to attracting talent. I recently had a discussion on the income tax rates point with an American executive recently arrived in Ireland.

Far from being concerned about how much income tax he was paying, he was delighted at no longer being caught for crippling property taxes due in New York. These run at somewhere around 1% of market value which is about five times the local property tax rate here.

South Africans will tell you while tax rates in their country are low by international standards, the real cost of public services has to be paid directly through personal security measures and transport arrangements. It’s their only way to make up for a shortfall in the management of violent crime and a local transport infrastructure which is non-existent for most practical purposes. Therefore their real tax burden is far higher than the income tax rates would suggest.

Maybe, instead of only looking to reduce income tax rates, we should also get better at framing them as the quid pro quo for our quality of life. If you are in a demographic which is particularly reliant on public services, taxes in this country can begin to look like good value.

People with children in school or college should be more aware of the quality of education the State provides through taxation. The health service has its challenges but most people who have been injured or fallen ill abroad end up as advocates for Irish standards of healthcare.

The social safety nets we take for granted — pensions, unemployment benefit, disability benefit — have their limitations but are negligible or non-existent in many other countries.

The members of the foreign talent pool we target probably don’t have pressing or chronic health and ageing issues. It’s far easier to ‘sell’ a low tax rate to such people as a reason to live in Ireland than to highlight what taxes pay for here. And as there are obvious gaps in those benefits — hospital waiting lists, housing shortages and traffic congestion — the job gets even harder. But that doesn’t mean we shouldn’t try.

Brian Keegan is director of public policy and taxation at Chartered Accountants Ireland.

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