This is a slightly longer piece published as an oped in the Irish examiner.
In the next few weeks a large number of organizations will be announcing they have produced their “prebudget submissions”. Indeed, some have already done so – see for example the chartered accountants, the disability federation, the national women’s federation etc. Submissions are usually a discussion of what the government should do, from the perspective of particular vested interest. This does not mean they are mad, bad, or evil; it simply means that these submissions are what they are. There are also pretty much too late. The comprehensive spending review of the departments has been done, and the government does not make its decisions on the broad scope of policy in the last couple of weeks before the budget. In any case the government is no longer in charge of anything other than the tactical implementation of an overall strategy dictated to us by the troika. At most what these prebudget submissions can do is provide an impression to members of organizations and to the public at large that the organization in question has a concern not just for their own members before the broader economic and social perspective in which the budget will be framed. They provide a useful window ingot he thinking of lobby and pressure groups in that regard and should be welcomed and encouraged. However, any lobby group worth it’s salt will have made the proper back room deals with government and bureaucrats well out of the gaze of the public. Note that I haven’t bothered… I fervently believe in open, honest, clear dialog. Plus, I’m allergic to smoke filled rooms.
In that spirit would like to make my own prebudget submission. I like to make a submission on the basis of three proposed changes to the tax system. These would radically simplify and I think expand tax system, and would provide an impression of a greater sense of fairness.
My proposed changes will of course also not be taken on board. But as it is the season for these, here goes…
Firstly I would urge government to do a top to bottom reform of the income tax system. Income tax here I take to include not just the actual PAYE system, but all the various barnacle like encrustaceans that have latched onto it… we have a universal social charge we have pay related social insurance charge we will no doubt have other forms of charges over the years as the government scrambles to find extra money. My proposal is to replace all of this with a flat tax. A number of countries already have a flat tax, where after a certain minimum tax-free allowance all income, regardless of source, is taxed as a single rate. Of course this would have to be introduced along with the radical reduction in the amount and extent of tax-free allowances. The most comprehensive study on tax-free allowances, by members of the commission taxation, suggested that approximately €11 billion per annum in tax shelters was made available. the three greatest amounts of tax foregone arise from the PAYE tax credit, and subsidies to residential homeowners in the form of mortgage interest relief and the exemption of the principal private residence from capital gains taxes . These latter two would be eliminated under my flat tax proposal.
One issue with flat taxes they can increase income inequality. This can be overcome by having a higher personal tax credit. This credit could be as much as €20,000 or more, allowing people to earn that much money before paying a single penny in tax.
Opponents of flat taxes critique that they’re not progressive. This is incorrect, or perhaps incomplete, for of course they are progressive. If you earn more money you pay more tax, which is progressive. What critics, it seems to me, actually mean is that taxes are not progressive in rates, in that higher earners are not paying a higher proportion of their marginal earnings. Why this would be a desirable thing to have in principle has never been explained to me. There is enormous evidence that high marginal tax rates on relatively low incomes, such as we are now beginning to experience, acts as a very serious disincentive to work. Such evidence as there is from countries that have introduced flat taxes are that overall tax take increases. This is often due to an increase in voluntary tax compliance due to increased perception of fairness. There can also be beneficial labour market effects, bidding to increased labour market participation, and is some evidence that flat taxes can stimulate entrepreneurship. While not a panacea, they are therefore not self evidently a bad idea.
Flat taxes come in a variety of measures. One approach is a straight flat tax, where all income is taxed at a rate, without any deductions. The most commonly considered method is the one proposed above, which is progressive over the deduction. Flat taxes are also usually seen as the preference of “the right”, whoever they are, perhaps due to the perception of non-progressivity. However, in places where it has been implemented it is instructive that it has survived changes of government.
My second proposal is that we extend liability for tax to all persons who hold an Irish citizenship. Citizenship is not a one-way street. It contains both benefits and costs. I’m sure not the only person who finds it faintly nauseating when billionaire tax exiles, Irish citizens, descend upon us (but don’t stay too long as that would render them liable for tax) and tell us how we should run the country. As jn so many ways michael o’leary sets a tone here. Im not huge fan of the (relative lack of ) customer service one experiences with ryanair, and if possible tend to choose other carriers unless they are usurious. But, due to o’leary, we CAN choose, and nobody can deny that he runs, out of Ireland, a world leading operation. Plus, he lives, raises his family in , and pays taxes in this state. He has every right, indeed as a leading public figure perhaps even a duty, to opine on issues. This is his country. It’s quite different if people want all the benefits of Irish nationality without bothering to incur any of the costs. Time to call a halt I say.
In principle citizens of the United States are required to make a return to the Internal Revenue Service when their income, worldwide, exceeds a relatively modest amount. Like the United States Ireland has a very extensive series of dual tax treaties. Therefore tax paid in one jurisdiction, let’s say to pick one interesting example Portugal, can be written off against any Irish tax liability. If people don’t want to incurred costs of citizenship then they should and they can of course surrender their Irish passport. It is rumoured that in the last while a proposal to extend taxation this way was vetoed at government level precisely due to the fear that passports would be handed in. Why that should be seen as a problem is beyond me. If billionaire x chooses to forfeit his Irish citizenship then we as a nation should choose to forfeit anything other than raucous laughter when he (and, it’s always he) flies in and lectures us. An Irish army officer and rugby captain , Ciaran Fitzgerald, once famously on on camera rallied his (then amateur) players/troops by simply facing them and asking,,,”where’s your f*****g pride?” We need to ask the same of some of our multimillionaire tax exiles, most of whom “got their start” from and off the Irish taxpayer. If they don’t want to pay the price now of being Irish, then let them go. Too often the concept of “pulling on the green jersey” is invoked to ask commentators and analysts to elide, soft soap and bl ur the bad news. Here we can redeem it, and pulpit on with pride. Or , forfeit it. Let’s ask the tax exiles if they want to be Paul McGrath or Stephen Ireland.
The third proposal would be to adopt an open tax return policy. During the course of the presidential election we have seen competitive disclosure, where candidates have placed on the record their P 60 forms. While this is laudable, it is in my view being done simply to provide an impression, and perhaps the actuality, of openness and transparency, in the hope of attracting additional votes. By contrast in Norway while the details tax returns of individuals are not made available the information made public is the bottom line income tax paid (crucially this is limited to income tax paid in Norway) for each taxpayer. The idea is that this fosters a sense that everybody is in the system, and the system is for everybody. It also, one imagines, makes it that much more difficult for persons to plead the poor mouth. Combined with the second approach, which would result in the reporting of worldwide tax liabilities, this would in my view provide a much greater sense of the true nature and distribution of Irish incomes and taxes. Democracy thrives best in openness, and sunlight is the best disinfectant. As we move back to the 80s we see a growth in the black economy (incidentally, is it not time to have decent economic analysis of the probable size of same?) we will see the old habits, which we broke ourselves if, of tax evasion, black and grey economic activity and cash in hand returning in force. Any sense of rottenness in the tax system, which will grow as incomes become strained and the black economy makes a welcome return, will be best eliminated by an open and transparent approach.