Union think tank slays taxation ‘myths’

A trade union economic think-tank is seeking to “slay” four myths around the current tax system — concluding that we are a low-tax country in which high earners do not pay more tax than average by international comparison.

Tom Healy, director of the Nevin Economic Research Institute, said “consensus” thinking is that tax increases are only for recessions while tax cuts are natural once the economy gets going again — and we all pay far too much tax anyway.

“The highly-contrived and arcane measure of ‘fiscal space’ is used to concentrate discussion on the equivalent of just a little more than 1% of total public spending in any one year,” he said.

“In other words, for every €100 of spending on schools, hospitals, roads, teachers, gardaí, pensions, child benefit etc, the public debate is concentrated on the one euro of spending at the margin. Even then, the public are led down a little pathway of ‘tax cuts’ versus ‘spending increases’.”

“That there is a connection between what we spend and what we, as a society, collect through taxation seems to have largely escaped attention.

“The view universally shared is that ‘I’ pay too much tax, or ‘we’ pay too much tax, and ‘they’ ought to pay more, or, ‘we’ should all pay less tax and stop throwing money at people on bloated public sector pensions or living off the dole — as the assumed truth goes.”

Mr Healy then sought to address four ‘myths’ around taxation.

• We all pay too much tax:

To address this, he pointed to data from the OECD’s tax-benefit modeller for 2014. It found that for, example, a single person with no children earning the average wage in Ireland had the second-lowest rate of taxation on income among EU member states for which the OECD provided information.

• Ireland is not competitive when it comes to income tax especially on average to above-average incomes:

The highest level of pay used by the OECD modeller was 200% of the average wage, which in Ireland equated to €68,356. “True, the average effective tax rate moves up sharply from just over 20% for a single person in the Republic of Ireland earning €34,178 per annum, to just over 36% at an income of €68,356,” he said. “At 36%, the Republic of Ireland is about mid-ways on the OECD comparison.”

• The way to win the hearts of lower-paid workers is to give them tax cuts:

Mr Healy found Ireland is “way off the chart” when one considered the low amount of tax being paid by those below the average wage — 3.7% for a single person earning 50% of the average wage. That compared to 35% for someone in the same income bracket in Denmark.

• Ireland has the most progressive tax system in the world:

Mr Healy points to what he terms as the “fairly steep” rise in average tax rates here from a very low 4% for those at €17,000 per annum to 14% for those at €23,000. The rate climbs to 20% for those at €34,000 and 36% for those at €68,000.

Overall, the conclusion he draws is that: Ireland is a low-tax country no matter what way it is measured; relatively high-income earners do not pay more in income tax than is the average across the OECD; relatively low-income earners pay much less income tax than is the case elsewhere, “but this is undoubtedly linked to the fact that the Republic of Ireland has a much more unequal distribution of income and a relatively poor social wage”.