They slapped a tax on cooking oil.
Ever since then, governments have been taking their little slice off the top when people have been out purchasing their groceries and other consumables.
When the French state jacked up the tax on bread in the 1780s, the move helped to spark revolution and the bloody overthrow of the monarchy.
Fast-forward to Ireland of 2014 and, once again, we have a people who feel oppressed by their tax authorities: Happily, people, these days, prefer to sound off on The Joe Duffy Show rather than to drag their rulers off in carts to the guillotine.
However, the debates centred around our tax system, for all that, remain pretty vigorous, no more so than in the early autumn as Budget Day approaches.
In recent days, the National Economic Research Institute entered the debate by publishing a paper on the distributional effects of indirect taxes, principally Vat and excise duties.
The author of the paper, Michael Collins, has concluded that while our income tax system is progressive — in the sense that it targets the highest paid — the opposite is the case as far as indirect taxes are concerned. While Ireland’s wealthy pay more in indirect taxes than their poorer fellow citizens, primarily because they consume much more, they actually pay a lot less in Vat and excise and other indirect taxes as a proportion of their total income.
The institute’s paper contains a raft of interesting statistics along with an account of the impact of indirect taxation in neighbouring Britain and France.
Many similar ideas are contained in a 2011 ESRI paper by Eimear Leahy, Sean Lyons, and Richard Tol.
They, too, concluded that the current system in Ireland is regressive. The poorest 10% of households paid 16% of their disposable income in Vat, whereas the richest paid only 6%, Mr Tol and his colleagues concluded.
An earlier 2006 study, by economist Alan Barrett concluded that the poorest 10% of households spent 14.5% of their income on Vat, with the richest spending just under 7%.
The Collins paper contains some serious number crunching. His findings, based on CSO data for 2009 and 2010, are even more stark. He concludes that the average household with a gross income of €53,500 and a disposable income of just over €46,000 paid €3,360 in Vat and another €1,477 in excise duties (on booze, cigarettes, heating oil and fuel, for example). The poorest spent 16%, the richest just 4%, Collins concludes.
According to his figures, the poorest 10% had a household disposable income of just under €10,000 on average, with expenditure soaring ahead at almost €18,500.
The wealthiest 10% took home almost €120,000 each, managing to put aside €20,000 in savings.
Spending on food, alcohol and tobacco, and fuel form a particularly large part of the weekly bill of the poorest, most of whom are drawing welfare. Transport and housing form a much smaller part of their outgoings, though these days, rents are certainly on the rise.
The institute’s paper examined recent Government initiatives in the area. These include the introduction of a new reduced Vat rate of 9% for restaurants, catering services, hotels, holiday accommodation, and certain entertainment. This move is believed to have assisted the tourism recovery, while also boosting the restaurant business.
Collins gives the initiative the thumbs-up, describing it as “notably progressive, impacting positively on lower-income households”.
He is less positive about the decision, two years ago, to jack up the standard VAT rate from 21% to 23%, a move expected to yield €670m a year, with €342m of this coming from households. Collins estimates that this measure will have hit the poorest 10% of households to the tune of just over €80, or 1.07% of gross income, whereas the richest 10% will have forked out €172 extra a year, representing barely one two hundredth of their income.
So what are the implications of these findings ? What should be done?
Some forms of tax are indeed regressive, that is, they hit hardest the poor, the people who spend nearly all their income in their locality.
High rates of Vat, or sales tax, contribute in no small part to the cost of living and, despite the long recession and a period of exceptionally low inflation, Irish price levels remain near the top of the global league, hitting the country’s competitiveness. Clearly, moves to reduce such high levels are to be welcomed in general terms.
However, many doctors in particular would argue for higher, not lower, taxes on alcohol (particularly cans), cigarettes, and unhealthy sugary or processed foods. These are precisely the foods consumed the most by the poorest in society. In setting out to achieve the noble goal of containing obesity, our rulers may end up exacerbating the poverty that gives rise to the obesity in the first place.
There is no simple answer. A social housing programme along with better education on food preparation and consumption could help to promote healthy living.
Any health-related increases, such as a sugar and fat tax on processed foods, would have to be counterbalanced by increases in transfers for the poorest, who would be hit the hardest.
Greater social transfers appear to be a better solution than the simplistic one of slashing Vat rates; hardly an option, anyhow, given our prevailing fiscal position.
As it is, our Vat system is complex to say the least. It can hardly be made more convoluted. Vat rates across the EU are governed by an EU directive of 2006 which rules that member states must apply a standard rate of at least 15%, though governments have the option of applying two reduced rates.
Brussels is keen to ensure that member states do not protect home industries on the quiet through fiscal sleight of hand and it looks askance at anything that resembles market rigging. Yet our existing system in its complexity has allowed for something of an open season for the lobbyists.
Take food, for example. According to the ESRI, in 2011, subject to rates of 0%, 13.5% and 21% depending on the item. Croissants carry zero rates of Vat along with custard, whereas poppadoms and baklava attract a rate of 13.5% .
Richard Tol and his ESRI colleagues suggested that a flat rate of VAT be considered. A flat rate of 13.5% would result in an extra €1.2bn for the State, but it would hit the poorest the hardest.
A flat rate of 21%, according to Tol, would generate €4.3bn extra annual revenue, all things being equal — and it might spark widespread unrest.
Mr Collins has helped to spark an interesting debate on the issue of indirect taxation, but one suspects that, come October, Mr Noonan will be looking elsewhere as he attempts to pull some juicy rabbits out of his hat for the voters, without alarming the financial markets, and Brussels and Frankfurt, in the process.