Eddie Hobbs: Flat tax regime a much better option

A much better system than the current corporate free-for-all is a flat tax regime, says Eddie Hobbs

Writing in the Industrial Age, French writer Voltaire advised “On résiste à l’invasion des armées; on ne résiste pas à l’invasion des idées,” a rough translation of which is that an invasion of armies can be resisted, but not an idea whose time has come.

It’s twilight in the bog for Ireland’s decades-old soft corporate tax policy as the struggle between concentrated corporate wealth and sovereigns moves up a gear, crushing Ireland’s undertaking with Apple underfoot.

Whether Ireland or Apple challenge the EU ruling and win or lose is a sideshow in a bigger game as the global community learns how to efficiently tax the wealth-gathering titans it has created.

In the absence of facts, perception is reality and the pendulum of opinion is swinging away from veneration of these behemoths to suspicion that the game is rigged. And it is, so long as countries play beggar-thy-neighbour while the ultra-wealthy and multi-nationals deploy vast resources in tax-avoidance savvy, exploiting the arbitrage between sovereign tax regimes to the fullest. The defence that nothing illegal is being done is beside the point, it simply isn’t working and is unjust.

Ireland needs to get on the right side of the sweeping changes underway as, in a repetition of the past, sovereigns are faced with having to redistribute a harmful concentration of excessive wealth and power to combat inequality. At the heart of the struggle is embedded sub-normal economic growth and tepid taxes as ageing populations in the developed world grapple in the faultline between the economic tendency to deflate and central bankers’ desperate gamble to inflate by printing money on a level not tried since banking records first began in 13th century Genoa.

And against this tepid economic backdrop, wage earners squeezed by the legacy of high tax on wages and carrying crippling personal debt burdens, have little sympathy for low taxes on vast corporate profits, many of them flush with cash and little debt. Ireland needs to come up with a new long-term tax strategy, one designed to act as a beacon in Europe for mobile entrepreneurial capital, while it mounts a defence of its crumbling old one. There is not much time.

On our flank, Britain is poised to position itself as a soft-tax and low red-tape, safe haven with Brexiteers rubbing their hands in glee at the EU assault on the US technology icon, while EU federalists plot a deeper union where corporate tax competition is diluted despite what treaties say about sovereign tax integrity.

So what can Ireland do? Park aside the cacophony from populist politicians playing to their local gallery and the sharp noise from ideologues in the hard left who despise wealth creation like a genital pox, and a large part of the answer is in introducing a carefully conceived and balanced flat tax, positioning Ireland as the only English-speaking EU member with an enterprise-faced tax model, one that is first to recognise that the next economic war, is a war for talent.

There’s enough smarts among Ireland’s business, tax, and academic experts to conceive a fair flat tax model, one that vastly simplifies the crazy current system that discourages work at modest wage levels, punishes productivity with ever higher taxes, chronically politicises the annual budget as TDs compete to garner plaudits from vested interests and constituency lobbies, and deals directly with flat tax’s Achilles heel, which is giving too much to very high earners.

Flat tax means replacing most of the social protection benefits with a solid basic income for all, which gradually declines as the flat tax is applied on the excess. A shift towards flat tax means releasing more consumer spending power to the economy, while recovering the lower intake in income tax, by a spike in consumption taxes.

There is lots of evidence to show how a pivot towards flat tax boosts overall GDP — an effect that cannot be gleaned from the outdated linear modelling used by Ireland’s Edwardian Department of Finance and fed to a squabbling political system where party positioning trumps the national interest time over time.

Well-paid executives decide where to position new ventures and expansions, central to which is how this impacts on their own pay, not just on income but on share options.

In the world now emerging, this is going to be more important than headline corporation tax as sovereigns challenge the current global free-for-all.

However, a flat tax model that affords a low tax on excessive incomes sows inequality, the answer to which is to cap the benefit by applying a levy, call it a solidarity tax, over an optimum multiple of the current average wage, probably five to 10 times and which will reveal itself in tax labs equipped with modern dynamic modeling.

Implementing a flat tax model for the Republic of Ireland, after a short process of careful design, consensus building and cross-party political debate, would send a powerful signal globally that Ireland is back in the game with a competitive advantage that large, ageing economies will find almost impossible to follow. Such a pivot would also afford us the opportunity to finally tackle retirement apartheid by funding a universal worker pension scheme supported by proper contribution rates from workers and employers that builds exponentially with economic growth.

There’s never a shortage of fight in the Irish but it’s now best deployed in a new strategy, one that leverages our strengths — a young, and well-educated population that looks out to the world, pivoting from being a safe haven for corporates to being one for workers and enterprise leaders at all levels of organisation and earnings. If we want to stick it to the EU, flat tax is the way.

Eddie Hobbs is a financial advisor www.eddiehobbs.com