Nothing should be sacred as budget set to bite

So we will see Wednesday how nasty the budget bite is to be.

We know the broad parameters, and it has been clear over the last few weeks that the reality is beginning to hit home that the pain is not just not over but will be more intense.

A lot of the low hanging fruit is gone and we have heard time and again “nothing is off the table”. But of course, that is not the case. Whole ranges of things are, explicitly or implicitly, off the table and will not be touched in the budget.

Ringfencing anything while the State haemorrhages money is not a good idea. So, what might be put on the table? We have dodged for decades without hard debate, and it’s a sign of immaturity.

The simplest way of saving cash flow is of course to kill the IBRC, the unholy mess that is Anglo and INBS. More specifically, the minister should announce that we are not going to pay the €3.1bn due on the wretched promissory note in March. There is neither moral, economic nor political sense or justice in asking people to, in effect, take significant cuts in social provision simply to enable the State to collude in the assuaging of unjustified and unrealistic German fears of hyperinflation. This is not the 1920s and trying to avoid the mistakes there is replicating the mistakes of the 1930s

An increase in the higher marginal rate of tax has been ruled out ex ante, and while it is true that we let a situation grow where many on lower or average income were effectively exempt, remedying that should not rule out a higher tax rate for those on high earnings.

The super rich might flee, if they haven’t already, but there are many earning over €75k who are in effect trapped and able to bear a third higher rate. A radical government might decide that in the same way as a minimum wage is a good idea so too is a maximum one — a marginal rate of 100% on earnings over say €185k (five times average industrial wage) would ensure that bankers’ wages were capped.

An increase in corporate tax is also ruled out ex ante, but in an environment where “every sector must bear pain” as we are told, should corporate profits be exempt? Akin to the high PAYE earners there is a lot of scare mongering about flight if this is touched. We cannot indefinitely shelter behind a low tax as our only attractor to foreign direct investment.

The aggregate public sector wage bill will have to come down, and at present this is being achieved by head count reduction. At €14bn, most of whom are paying higher tax, a major cut would have to be implemented to save significant amounts, and of course the knock-on effects in terms of industrial peace and economic impact would be massive. But a proper economic and industrial analysis would be useful to the debate

We pay over as foreign aid several hundred million each year. While there is a moral case to be made for richer nations to aid poorer, at the very least we need to rethink the targeting and see what more can be done with less.

Of course, if we really want a tax on the value of property, we could remove the exemption from capital gains of the principal private residence. Research in 2010 suggested that this could yield over €2bn. Admittedly this was based on 2006 data but even in these property crash times with house prices heading back to the early years of the millennium at least a billion should be realisable.

We might go further in two ways, but won’t. First, there is no rationale for treating monies different as to their source. If one person gets €20k from private income, another the same from social welfare, then why would we not tax both equally?

More specifically, we need to impute a monetary value for each social welfare benefit, which can then be included in the tax net. The same approach would also allow for proper tapering of social welfare benefits to eliminate poverty and welfare traps.

A further change in tax might be to make tax returns public. There is a general and genuine suspicion that “they” are paying less than us. We might follow the Norwegian route and make all tax returns public. While this would not save any money it would, like the much welcomed property price register, make for transparency and clarity.

Making it clear who is an who is not taking the pain and reaping the gain cannot be but good for the maturity of the state.

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