THE Commission on Taxation report and Colm McCarthy’s An Bord Snip Nua report are expected to be the predominant influences on the December budget.
Both have been published and it is almost possible to join the dots and predict – theoretically at least – what may be included in a daunting budget.
There is an expectation that these reports and the December budget might be the catalyst for the beginning of modest economic retrenchment if not a modest recovery.
However, neither report had to consider festering backbenchers, powerful lobbyists, the Green party’s demands for a carbon tax or a government unwilling to confront obvious inequities and indulgences.
Neither did they have to placate an increasingly angry and disillusioned electorate, sections of which still imagine themselves beyond the carnage brought by this recession.
As with McCarthy, the commission will make suggestions but the Government will decide policy – whether it likes it or not.
It is certain that these decisions will be influenced by the latest opinion poll ratings, the worst in the history of Fianna Fáil. It is hard to see how a party on 17% would have any stomach for a property tax.
The fact that any property tax is tied to ending stamp duty on family homes but not on investment properties has the unfortunate consequence of casting a shadow over the market. Earlier suggestions about a change in stamp duty had a very negative impact on the market and it is possible that the publication of the report may do so again. After all why would anyone buy a property today if they could avoid stamp duty by waiting until the measure is introduced? It is necessary for government to clarify this in the immediate future but it might be a good bet to suggest that a property tax will be deferred for a year at least.
Indeed, it is hard to see our battered economy being able to absorb too much extra taxation of any kind but it seems certain that December will bring a carbon tax. It seems that the Greens’ support depends on such a measure, one that was promised in the programme for government in any event.
New water charges and a tax on child benefits are also expected and undoubtedly these measures, especially taxing child benefits, will provoke passionate protests. However, it has been obvious for some considerable time too that a good proportion of welfare payments were going to people who do not need them. If this report contributes to ending that then it will have achieved something worthwhile.
A water tax is inevitable too as in a world of ever scarcer resources it is not possible to continue to waste as much water as we do. If this levy encourages a culture of conservation that will be a good thing too.
It is important that we remind ourselves of one of the primary objectives of the commission. It was asked “to keep the overall tax burden low and implement further changes to enhance the rewards of work while increasing the fairness of the tax system”.
In the coming weeks government must convince us that these measures do observe those objectives and explain how property and water taxes, changes in pension arrangements and carbon taxes, a fuel tax rather than VRT on cars, will not increase our tax burden significantly. It must, at a time of glaring inequities, explain how social equity will be enhanced. If it is not then it’s back to the drawing board.
Taxation can be only one part of the mosaic that might begin to restore sanity to our affairs. Over the weekend we were reminded of this in the starkest terms when Health Service Executive chief executive Prof Brendan Drumm warned of massive cuts to health services unless the public sector is reformed.
These tax proposals might go some way towards restoring some sort of fairness to our systems but still more needs to be done. This year we will spend around €20 billion more than we generate in tax revenues. It is not possible to bridge that gap by further taxes so expenditure will have to be cut. That is the unfortunate but undeniable reality and by far the greater challenge.
There is the very real prospect that this government may not survive long enough to implement this package. There is the very real prospect that this report, and Colm McCarthy’s report too, will be diluted to the point of ineffectiveness. None of us can afford that.
Is it too much to hope that these publications will mark the end of the prevarication and dodging that has done so much to get us into this mess?
We have been shown the options, now let us decide what kind of a future we can afford.
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