Taxing Wages – OECD 2015

Just released today. So, lets see how Ireland groans under a uniquely high burden of wage taxation shall we. Lets look, for illustrative purposes, at a single income average wage earner.

Health Care Spending Ireland v OECD

Theres perennial talk on how we do, or do not, allocate more , or less, money to health care than the OECD.

Lets take a look, via the OECD Stat Bank. Im looking at constant prices constant purchasing power parity data – adjusting for inflation and for the fact that a dollar buys less in one country, more in another. In other words, its as close to a universal scaling across countries and time as can be gotten.  Im looking at current spend, in other words the running of the system. All data from http://www.oecd.org/els/health-systems/health-expenditure.htm

First, it is the case that we are, overall, spending more than the OECD average.

 

Like all things however the devil is in the detail. When we look at the breakdown of this spend into public and private sources we see quite an interesting picture.

We can see the precipitate decline in public spend post 2008. This is starkly illustrated if we rebase.

The shift is very clear with private sources taking up the fall. Public spending on a per capita basis on current health spending has taken a mauling.

Health spending overruns from the Dept of Health vote has been the source of much angst. We can no longer, under EU rules, have as we have had supplementary budgets to top up the (low) spend. So we will either have to

a) make significant increases in public current health spending , unlikely in the fiscal space we are in but something which FF and the various independents would like to see  and which would cut into other putative spending plans OR

b) allow the mix to continue to move as it has towards increased reliance on private sources, something which would please FG but which will be at the cost of increased chaos in the public health system.

Either way, its going to be interesting.

Financial Illiteracy – A Problem we are ignoring.

Ten years on and we still don’t know what a tracker mortgage is, despite all the financial water under the bridge, the collapse of the banking system, and the taking into receivership of the state. We are financially illiterate in large part. And nobody seems to be doing much about it.

If Ireland was Greece…in tax terms anyhow

Ireland has a tax problem.. If we were to collect tax at Greek levels, we would take in €8b extra. Greece,…Think about that for a little while and wonder how we could spend that on investment, debt paydown, and increased social services. The chart shows how much more we could raise in taxation if we were to levy tax at the rate of our compeers.

We don’t, really, as an economy pay as much as we should for the services we want. There, I said it. In 2012 we collected 28.7% of GDP in tax. The EU average is closer to 40%. Taxing at the EU average we could have nearly €18b more pa to deploy, taxing at Danish levels nearly €32b. The next time a politician says we dont have resources to prosecute white collar crime, to treat sick children decently, show them the graph here. 

Ireland – Not really a high tax economy, just a badly designed tax economy

We as a polity are not big on evidence based policy. We rather form an opinion, then seek evidence for it, or better yet stay silent. This leads to suboptimal decision making, to put it mildly. The emergent debate on tax shows this in spades.

joined up government thinking would be nice…

We aren’t good at joined up socio-economic thinking in this state. As we move from the depression to the recovery, now would be the time to put in place some of the elements to solve longstanding issues. All the evidence is that the state wont, as it seems to be immune to evidence based policy .

Should we benchmark taxes to lure back immigrants?

The government seems to think so.  Apparently its the income tax that is holding us back.

Reform of the income tax system to encourage emigrants to return home is being considered by the Government in the run-up to publication of the spring economic statement.
Under the plans, the tax system would be benchmarked against countries such as the UK, Australia, US and Canada.
The initiative, which would focus on the marginal tax rates and middle-income earners, is aimed at encouraging emigrants to come home as the economy improves. Ireland’s tax competitiveness, especially on personal tax, has been identified as an issue to be addressed.

Right. And if the government say it so and say it in the Irish Times, it must be so.

Lets see. The OECD are a mine of information. Amongst them is a wonderful subsite called “taxing wages” Its a lovely tool and gives a quick snapshot of the tax wedge. It looks at the incidence of income tax, employee and employer PRSI. It is a hard stark fact that the latter, the employer contribution to social security, which lowers Irish tax incidence. Unpalatable, unpleasant, but a fact…

Here is what it says for Ireland as of 2013 (remember things have gotten better since then…). Ireland is in RED, OECD average in BLUE.  No, this doesn’t take account of the cost of living, the water charges, the state of the roads or any other issue which gets conflated. Its about tax.  Still think we should lower tax on labour?

This trend, for Ireland to take a lower tax wedge than the OECD average, is a persistent feature of Irish tax policy.