Lower earners should be required to pay some income tax to widen the tax base in Ireland that currently sees 20 per cent of all taxpayers paying 80 per cent of all taxes, a number of economists have declared.
“We have a particularly narrow tax base in Ireland, and it’s a very heavy lift to deliver what we’re hoping to deliver,” said Dr Emma Howard, a Technological University Dublin economist and the chair of the Irish Society for Women in Economics. “If we think about protecting the worst off in society, some social welfare measures are not well targeted. So should we also be looking at broadening that tax base and targeting measures better?” she said at the opening day of the Patrick MacGill summer school in Glenties, Co Donegal.
Economics lecturer Seamus Coffey and the former chair of the Irish Fiscal Advisory Council between 2016 and 2020 said successive governments have chosen “over decades” to take people out of the tax net. That means “very low, or no tax rates on low income, but that is a policy choice and that would be very difficult to reverse,” Mr Coffey said, though it has improved income equality in the State. Change would be fiercely opposed.
However, that leaves the State with unstable finances, too reliant on growing corporation figures – though, unlike some economists, he said that such receipts could just as easily grow over coming years rather than fall, as many fear.
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A broader tax base would be more stable. “We saw income taxes collapse post-2008 because incomes fell at the top the most and that’s where most of the tax was collected,” he said.
However, he accepted that any government would face major opposition if they tried to make changes now because the State has had a policy “for 20-30 years of taking people out of the tax net”.
Mr Coffey said the Commission on Taxation and Welfare has produced a 500-page document on how taxes could be spread more broadly, but action is “going to be challenging” for any Minister for Finance willing to touch the subject.
In 2008 households owed €200 billion, mostly in mortgages, along with €100 billion in deposits. Today household debt has dropped to €120 billion: “They have paid off an awful lot of it,” he said. Meanwhile, deposits have jumped to €180 billion even though most savers are earning tiny sums in interests, and even though the banks are now earning 4 per cent when they lodge those same deposits with the Central Bank.
Acknowledging that economics is “the dismal science”, Dr Enda Hargaden of University College Dublin school of economics said the State should prepare for major crises in coming years. “We should be prepared for the next pandemic, whatever form it takes. We should invest in that possibility. We should be prepared for military action on this island, whoever the belligerent, and we should invest in that possibility.”
Meanwhile, the Minister for the Environment Eamon Ryan warned that the next round of global climate negotiations could suffer from growing political instability, especially given developments in US politics.
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