With less than two weeks to go to Budget 2017, the speculation about what it might contain is intensifying. Nothing terribly unusual in that, but some of the suggestions doing the rounds are somewhat bewildering.
Top of the pile has to be the suggestion that a special 30% personal tax rate should apply for a temporary period, as in five years, for Irish (and presumably non-Irish) abroad with certain skills who move into the Irish labour market.
The rationale is obvious, namely to incentivise people with certain scarce and valuable skills to come into the Irish workforce. Not surprisingly and very justifiably, the suggestion has attracted a high level of criticism.
It should come as no surprise that there is a level of annoyance amongst those who stayed in Ireland and worked through the awful conditions that prevailed after 2008 and who would now be placed at a significant tax disadvantage to those who are allegedly being targeted.
It makes perfect sense to encourage those with valuable skills to come into the Irish workplace, but it does not make a lot of sense to discriminate against those who are already here and who possess the skills that are being targeted by the alleged tax incentive.
One hopes that this proposal will never see the light of day.
There is always a lot of hype around the annual budget but the reality is that little can be achieved in a single budget, particularly Budget 2017 which will have around €1bn to dispense.
However, one would hope that any budget — but particularly the upcoming offering — would form part of a longer-term strategy to make Ireland as attractive as possible for labour and job creation.
The personal tax burden that workers face has to be a crucial consideration. Those on the left are, predictably, arguing that no tax cuts should be delivered in the upcoming budget and that the total focus should be on increasing expenditure.
This view of the world fails to appreciate the onerous tax burden that many taxpaying workers face in this country. The recent report from the Irish Taxation Institute showed the burden of taxation that many workers face and the extremely progressive nature of the Irish income tax system.
How often do we hear anti-water charge protesters argue that a progressive tax system should be used to pay for water? This might incline one to think we don’t have a progressive tax system. The fact is that we have a very progressive tax system.
Another way to look at the nature of the income tax burden is to consider the fact that in 2006 Ireland had just over two million people working in the economy and they paid €12.4bn in income tax and this accounted for just over 27% of the total tax burden.
In 2016, Ireland will again have just over two million people at work in the economy, but this year those amongst them who pay income tax will hand over €19bn, which will account for over 40% of the total tax take.
This demonstrates the extent to which those who work and pay income tax bore such a significant part of the savage fiscal adjustment that occurred after 2008.
It is essential that the personal income tax burden be used to make Ireland as attractive a place as possible in which to work, but the notion that the existing workforce be discriminated against does not stand up to scrutiny.
In Budget 2017, the process of easing the income tax burden on middle-income workers, in particular, has to begin.
However, it is also important that the minister for finance does not continue with the trend he established over the past couple of years of removing workers from the tax net altogether.
This was the strategy adopted by successive Fianna Fáil finance ministers, which had the result of decimating the tax base. The proper tax strategy would have as many people as possible in the tax net, but paying low marginal rates.
The view on the left is that the bulk of the burden should be placed on the shoulders of a small segment of the population that they clearly despise.
The incentive effects of taxation should not be forgotten and those who consistently argue that the solution to every problem is to increase the tax burden on those who pay tax, should be ignored and resisted.
Apart from the tax situation, obviously the quality of public services such as health, law and order, and education should also be focused on, but taxpayers should not be used as scapegoats.
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