Tax rises would have been better than an attack on the less well off

HOW did the Government manage to bring in a budget of such fundamental unfairness? How was it possible to get it so badly wrong that the authority of government itself has been perhaps fatally undermined?

They forgot one simple rule. There are three things finance ministers can do in a crisis. It’s always been true, and it applies to finance ministers everywhere. Their three weapons to deal with an emergency and protect the economy are: cut spending, increase borrowing, raise taxes.

Usually, the solution to an economic crisis — or at least the best way to manage one — will be found through a combination of those three measures.

By juggling and balancing the three, it is nearly always possible to arrive at a point where the population at large is willing to accept that no matter how tough it is, it’s probably fair.

In fact, if all three weapons aren’t used, it’s almost impossible to arrive at a point of fairness — a point where people are contributing according to their ability to contribute.

But when you decide that it simply isn’t possible to talk about taxes, and you have to rely so heavily on the other two weapons, you are building a recipe for unfairness.

The income levy — which no minister will refer to as a tax and is outside the tax system anyway — is a blunt and temporary instrument that will itself have to be further amended before it can even approach a test of fairness.

The refusal to address the issue of taxation in any real sense was the single policy decision that led us to a staggeringly unfair budget — a budget where vulnerable people ended up carrying the lion’s share of the burden.

Why did that happen? It happened for one reason, and one reason only. All our politics is conducted on the basis of the myth that Ireland is an overtaxed economy. And it has been for years. Anyone daring to argue the opposite is labelled “tax and spend”.

Low tax produces economic growth. Low tax is the miracle behind the Celtic tiger. Low tax rewards enterprise and hard work. Higher taxes are nothing but the politics of envy and begrudgery. It’s all twaddle.

But it’s the most powerful myth in Irish politics. And if you don’t believe me, just consider this for a minute: Estonia... Greece... Latvia... Lithuania... Romania... Slovakia. What would you think they have in common? Well, without wishing to be unkind to any of them, I’d venture to suggest they’re probably among the least well-developed economies in Europe. They’re all no doubt beautiful countries in their own ways.

But in terms of infrastructure, social provision, economic growth, and all the other measures we use to compare countries, they’re not what you might call leaders.

But here’s one other thing they have in common. They are the only countries in the EU 27 where the tax burden is smaller than it is in Ireland.

Isn’t that remarkable? It’s a fundamental part of our national psychology at this stage that we’re overtaxed. Our media, and all our leading politicians, tell us constantly that we pay far more than most.

Eurostat tells a different story. Eurostat is the statistical office of the EU — the European equivalent of our Central Statistics Office. It has no axe to grind — its only function is to gather and publish data so that the different countries in Europe can be compared to each other under a variety of headings.

Within the list of 27 countries from which Eurostat gathers data, the only countries that pay less tax than us are the really poor countries. Of the 15 eurozone countries, only Greece carries a lower tax burden than us.

The tax burden is the total amount of taxes and social security contributions, expressed as a percentage of national wealth. According to the most recent Eurostat report, published at the end of June, ours is 32.6%. The EU 27 average is 39.9%, and the average in the eurozone is 40.5%.

This is something we really need to get into our heads. We’re a low-taxed country, not a high-taxed one. In fact we carry a smaller tax burden than most.

What really happened over the years of the Celtic tiger was that we used the fruits of growth to buy elections by cutting rates to the point where our tax burden is among the lowest in Europe. Side by side with that, we’ve created tax shelter on top of tax shelter in Ireland.

And we finally arrived at a point where the Revenue Commissioners are able to publish reports that show the very highest earners in Ireland pay only the most nominal taxes because they can avail of so many different ways of avoiding them.

And now, when we need to acknowledge that our economic crisis is of such a magnitude that everyone has to make a contribution, we become a prisoner of the high tax myth. That’s why the Government decided (or someone did — the more you think about it, the harder it is to believe that politicians were even involved) that elderly people and children should bear the burden. Suppose Brian Lenihan had stood up on budget day and said “in the good times, we can cut taxes. But right now, our elderly people and our children, in the interests of justice, need us all to contribute some more, and so taxes have to go up”. How would we have reacted to that? We’d have groaned, and paid up. Some of the commentators would have trotted out their mantras about how higher taxes are the death of enterprise, and no doubt the Government’s popularity would have taken a hit in the polls — a hit from which it could recover as the economy recovers.

BUT if he had, say, put up the standard rate by two cents in the euro, and the top rate by three or four cents, with a promise to reduce them again as the recovering economy allowed, would people have marched on the Dáil in their thousands?

If he had dismantled some of the tax shelters that have enabled the highest earners to pay so little, would there be such a palpable sense of injustice throughout the country?

I don’t think so. I think instead it’s time we were told the truth. Taxes can come down when there’s plenty of money in the kitty. They have to go up when times are tough — as well as cuts in public spending when it’s necessary. That is the only way we can balance the books and do so in ways that are fair.

Nobody wants to go back to the days of 60% top tax rates — just as nobody wants to go back to a time when tax evasion was the norm throughout our country.

Somewhere between high tax and low tax there is the concept of fair tax.

Everybody paying what they can, nobody being unfairly screwed and nobody screwing the system.

If our Government, instead of attacking those who can least afford it, had faced up to the need for fair tax in a time of emergency, it wouldn’t be in the deep trouble it is in now.