We need an extra €2.5bn - €3bn in tax if we are serious about addressing the deficits in our society

Ireland needs to have a real debate about the level of public services and social infrastructure it wishes to have in the coming decades and how these are to be financed, writes Eamon Murphy.

GOVERNMENT policy at the moment is to reduce total revenue – of which tax is by far the largest component – as a percentage of national income. With that will come a corresponding real reduction in expenditure.

However, Ireland already experiences significant deficits in services and infrastructure when compared to the EU-15 norm, and this gap cannot be closed by continuing to invest less than our European peers.

By any realistic measure, Ireland is a low-tax economy.

As a policy objective it can remain so, but should not be incapable of providing the economic, social and infrastructural requirements necessary to support employment, underpin living standards, and complete our convergence with the rest of Europe.

Impressive economic growth should be seen as an opportunity to increase expenditure on our depleted social infrastructure, not to reduce taxes.

Consequently, Social Justice Ireland believes that Ireland should aim to collect an additional €2.5bn to €3bn per annum in taxation.

This calculation is based on an estimation of Ireland’s actual economic growth figures – factoring out so-called “leprechaun economics” – as well as on per capita taxation numbers and predicted population growth.

It also takes into account the estimated gap between Ireland’s actual tax-take and the tax-take needed to provide a level of public services consistent with the expectations of a developed European country.

The need for a broader more stable tax base is a lesson painfully learned by Ireland during the financial crisis. The overreliance on a small handful of revenue sources resulted in almost 25% of tax revenues disappearing in the space of a few months, plunging the exchequer and the country into a series of fiscal policy crises.

This broader base and increased take must be achieved in a fair, equitable and sustainable manner. Those who benefit the most from Ireland’s economic system must contribute their fair share.

Social Justice Ireland advocates:

a minimum effective corporation tax rate of 6 per cent; the introduction of a Financial Transactions Tax in line with proposals outlined by the European Commission and accepted by leading EU member states; a Site Value Tax, rather than the current Property Tax, which would perform the dual role of raising revenue and discouraging land-hoarding; a restoration of the 80% windfall gains tax on the profits generated from land re-zoning; and a reform of tax-based reliefs and incentives, particularly those accruing to high income individuals.

Pension-related tax incentives are in particular need of reform as in their current format they redistribute income towards the better off in society.

Well-structured efficient tax systems help reallocate capital to productive investment and away from speculative finance, rent-seeking activity, and actions that cause environmental damage, whilst also incentivising employment and other productive activity. Making income tax credits refundable would help make low-paid work more rewarding, thereby encouraging employment.

There may be scope for reductions in income tax if these are done in an equitable manner and the foregone revenue can be raised elsewhere.

It has long been a key part of Ireland’s industrial strategy to use a low headline corporation tax rate to attract foreign direct investment.

The Apple ruling of 2016 is by far the best example of how this policy has led to reputational damage due to the utilisation of the Irish tax regime by transnational corporations to avoid paying tax.

A crucial medium-term priority must be the re-conceptualisation of the role of the Irish corporation tax regime.

There has been a growing international focus on the way transnationals manage their tax affairs and the OECD’s Base Erosion and Profits Shifting (BEPS) examination has established the manner by which transnationals exploit international tax structures to minimise their tax liability.

Reform is inevitable and Ireland should change its stance towards the corporation tax debate in Europe by taking the lead in negotiating Europe-wide minimum headline and effective corporation tax rates.

When a country is setting social and economic goals, it is important that these goals are supported by taxation policy.

It is simply not possible to provide the high-quality public services Irish people aspire to having while failing to collect adequate revenue to pay for them.

Irish people and Irish policymakers need to recognise that European-average levels of services and infrastructure cannot be delivered without European-average levels of taxation.

Eamon Murphy is the Economic & Social Analyst, Social Justice Ireland.

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