Eight likely ways for Government to further hit you in the pocket

SO, how much extra tax are you willing to pay next year?

The answer to that, in almost all cases, is probably none, but in reality everybody will be caught for extra taxes whether they like it or not or, more pertinently, can afford it.

So with the Government required to come up with an additional €1.25bn in taxes, where can it raise the money, fairly, equitably and effectively?

As I’m not an economist with access to the statistics I’m not going to speculate as to how much money could be raised by various tax increases, but it is possible to speculate as to the political likelihood of certain tax increases and also as to their impact on the lifestyles of the Irish public. Here are just some of the options available:

1. HIKE INCOME TAX RATES:

This was ruled this out in the programme for government and Fine Gael, in particular, has reiterated this promise many times. There may still be a temptation to introduce a third rate of tax for so-called “super earners”, although that ignores the fact they are caught by a higher rate on income levy. Remember the top 5% of income earners already pay 41% of the income taxes. Given worries about job creation, and the political impact of breaking promises in this regard, it seems the most that will be done will be to leave credits and bands untouched (which means people are not compensated for the impact of inflation).

2. PRSI INCREASES:

This investment for State pensions in the future or provision against unemployment (unless you are self-employed) feels like a tax. Increases would impact directly on the monthly pay packet but remain possible, especially for the self-employed who seem to be regarded as a soft touch. Annually they already pay the same as the PRSI sector employees for fewer benefits. Employers have reason to worry that they too might be asked to pay more, something struggling firms can ill-afford.

3. MOTOR TAXES TO BE RECALIBRATED:

Here’s where I suspect the Government will cut loose, notwithstanding the massive slump in new car sales and the difficulties many people are having in financing the on-going costs of keeping a car on the road. It is likely there will be massive increases in annual motor tax, dressed up under the banner of a new measurement system. The last government, under the Green influence, introduced a new system of motor tax bands that rewarded those who own so-called environmentally friendly cars. Reversing this will provide plenty of revenue raising opportunities, even if it is deeply unfair to those who bought such cars in good faith, attracted by the lower annual motor taxes.

4. EXCISE DUTIES TO BE HIKED:

The Government will be loathe to increase Value Added Tax beyond its presently onerous 23% level, especially with so many retailers struggling to survive and many having gone of business already. Excise duties are an easier touch. They will be increased sharply on alcohol (dressed up as a health measure) but perhaps not on cigarettes (because of the fear of driving more consumers into the clutches of excise free smugglers). It is petrol and diesel that might get the biggest hit though, notwithstanding the unfairness to those who have to drive often for work or family reasons or for long distances. As prices fluctuate so much, and as the Government take is largely hidden, it is a less stressful way for the State to extract more tax indirectly.

5. FAT TAX INTRODUCTION:

This is an interesting idea that has been promoted recently, the idea being that the purchasers of certain processed foods, especially with added salt and sugar, and transfats, could be levied with a penalty of an extra few cents per item, potentially giving €180m in new taxes annually, according to one study.

It would be the food equivalent of the plastic bag tax, charging people for harmful behaviour and encouraging them to buy more healthily to avoid the charges. However, with one-in-10 people apparently suffering from “food poverty”, because of a shortage of money already, such an introduction would be hugely controversial. Purchasers of these food products may not be in a position to switch to more expensive, healthier products. And the food industry, one of the few remaining success stories, is furious about the idea too, believing it would be punished unfairly.

6. TEXT TAX INTRODUCTION:

This was proposed first from the Green Party backbenches when the party was in government, the idea of a levy of a cent on every text sent. The idea got short shrift, largely because it might be difficult to enforce: many providers offer free texts across bundles for example, so how do you tax something for which there is no charge? There would also be all sorts of billing problems. But there are ways around this. A simple levy on each purchase of pre-paid credit (which already includes VAT) could be applied and the same on each bill received by post-paid customers. Indeed this would be a wider tax than just on texts, taking in calls and data transfers as well, raising more money. It would create a storm of protest from the tech savvy, especially being seen as regressive as the country tries to move strongly into the use of digital technology, but it must be a real possibility.

7. CORPORATION TAX LEFT UNTOUCHED:

This is not going to change from its 12.5% rate, no matter what. This Government and the previous one, fought hard with the troika to retain it at this low level, so to risk raising it, even by just a couple of percent, would be dangerous. Once changed the EU could then insist that it must be raised to standard European levels, removing what is the single greatest reason why high employing foreign multi-nationals come to locate in Ireland. Low corporation tax is useful only to companies that make profits — and many Irish companies might prefer lower PRSI rates and local government rates that would allow them to make profits on which they would then pay tax — but it is an article of Irish economic faith that without 12.5% tax we’d be left with no hope of recovery at all.

8. PROPERTY TAX PROMISE HAS BEEN MADE:

There will be hell to pay when details of this are announced in the December budget, which means that other harsh measures may well be overlooked. There is an almost visceral reaction among many in the public to the idea that property should be taxed. Why be punished for spending your after-tax or borrowed money to provide your own home, while others merely expect the State to provide housing for them? And haven’t most people paid plenty of tax in buying or building their own home already? There will be hell to pay, almost irrespective of how the charge is to be calculated or even if the money is deducted monthly, rather than in one lump sum. Even though the last government committed the State formally to its introduction — which makes Fianna Fáil’s campaign against its introduction breathtakingly cynical — the current administration will pay a big political cost for its introduction.

The Government has other options available to it. It may increase the onerous levies on private health insurance and it may seek to cut tax incentives related to pensions.

Can the economy bear this?

Never mind the economy, can most people, no matter what they are paid? Not really must be the answer.

There has been so much austerity that more will be self-defeating if the objective is to return the economy to growth. But it is being forced upon us. That is the price of losing our economic sovereignty.

* The Last Word with Matt Cooper is broadcast on 100-102 Today FM, Monday to Friday, 4.30pm to 7pm.