Budget: No sense in going back to the well to widen tax base

It’s very obviously that time of the year again when Government is in the process of making its final adjustments to its budget for the coming year.

This year the budget is scheduled for October 11, which is just a few short weeks away.

From left, right and centre, pundits of one sort or another have been offering the Government their ten bob’s worth in an effort to have their particular agenda addressed.

This year the EU has been particular attentive to our budgetary processes, or perhaps that is just my impression. It’s seriously critical of many of the potential measures that are likely to be seen in the budget.

Some make sense, some not so much — at least for the ordinary middle-income taxpayer whose pockets are about to be raided yet again.

For instance, the minister for housing, Simon Coveney’s plan has been described as “costly and counter-productive”.

The EU claims it is likely to result in further upward pressure on prices. It would be hard to argue that they are wrong.

As we all well know, or should remember, in the past intervention by government, whether it was a first-time-buyer’s grant or other intervention, resulted in the builders and developers simply raising the price of the houses.

The net result is houses become no easier to buy but the builders’ and developers’ pockets are lined even further.

The EU has also criticised the suspension of water charges. It suggested, rather coyly it would seem, that “changes to the structure of Irish Water could be costly and might negatively affect the utility’s operation”.

That was an understatement if there ever was one. It has already and will into the future. It’s simple but until people are required to pay by usage they will have no interest in conservation or even in upgrading the system. That is, unless it directly affects themselves.

The problem in this ongoing ‘playing around the edges’ of our tax and service charge system is that everything is piecemeal and there is no plan.

It’s understandable why people might be annoyed and reluctant to pay for water based on usage when a previous government withdrew individual charges and incorporated water treatment, delivery and maintenance in the taxes that folk pay.

People have not forgotten this. It’s reasonable that they would want to know why when they are required to pay again.

Of course, the answer is relatively simple. That answer is that government — through benchmarking and other populist initiatives — has considerably increased its commitments to keep voters on side.

Worse still, the folk who have benefitted most from this approach are the very same people who assist the Government in preparing the budgets and allegedly managing the economy. Perhaps if our politicians’ salaries were not tied to the mandarins we might just get a more objective approach.

The EU is also against the reduction, never mind the elimination, of the hated Universal Social Charge as it will allegedly reduce the tax base.

The reality is that the USC is an iniquitous tax that is based on nothing other than garnering as much tax as possible. Indeed, it takes no cognisance of ability to pay.

It was brought in as an emergency tax with a commitment that it would be removed. It should be — and as soon as possible.

If it is to stay, it should be put to better use and that is as a ‘rainy day’ fund — one that politicians cannot access without some very serious hoops to be jumped through with meaningful oversight.

The Government has also been criticised for freezing the property tax until 2019 as it says it’s a lost opportunity to broaden the tax base.

Effectively, the price of a house can be artificially increased by government action but with no additional benefit to the occupant — yet, we would be required to pay more tax. To put it mildly, it’s not even close to fair.

In the last few days the Tax Institute highlighted a number of issues associated with personal taxation.

A worker on €25,000 earns almost 1.4 times the salary of a person on €18,000 but pays 5.6 times the tax.

Similarly, a worker on €35,000 earns more than 1.9 times but pays 10.9 times the tax, while someone earning €75,000 earns 4.2 times but pays 44.1 times the tax. Add in Vat on purchases, stamp duty and the rest, and there’s already far too much tax.

If the Government wants to broaden the tax base there are other ways. The Government and the EU’s hands are already dipping too deeply into our pockets. You just cannot keep going to the same well.

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