We are now one of the better-off countries of the European Union. Our gross national income per head has been estimated by Eurostat - the EU Statistical Office - to have been last year just 10 per cent above the average of what are now the 25 EU states, writes Garret FitzGerald.
Per head of population, we now have fractionally more current resources than Germany, Italy or Finland - and a good deal more than Spain, Greece, or Portugal.
However, in 2002, (the last year for which complete data is available for the EU), the proportion - 35 per cent - of our gross national income taken in PRSI and taxation, to be used to pay for public services or for redistribution, was less than in any of the other 14 member-States that then comprised the EU. By contrast, the three large countries which have a national income per head around the same level as ours - namely France (slightly better off), and Germany and Italy (a few percentage points less well-off) - raised in social insurance and taxation between 40 per cent and 44 per cent of their gross national income.
This helps to explain why our public and social services are worse than those of Continental countries with a level of national income per head similar to ours. Moreover, in addition to this difference in the level of taxation, the structure of our tax system is also very different from theirs - in a way that goes a long way to explaining why we have the most inequitable society in Western Europe.
Although our overall tax level is the lowest in Western Europe, some of our taxes yield more than elsewhere. Thus, although our rate of corporation tax is very much lower than elsewhere; the scale of the profits of multinational profits that are taxable in Ireland is so disproportionate that the proceeds of this tax are equivalent to 4.5 per cent of our gross national income. In 2002 that was half as much again as in the rest of the EU, where corporate taxes are levied at rates that are twice or three times higher than ours.
VAT and excise duties also yielded far more in Ireland than anywhere else in the EU, except heavily-taxed Sweden and Denmark. Despite the exemption of food from VAT in Ireland, these taxes bear much more heavily upon our overall spending than is the case in the three large countries which have similar levels of national income to ours - and the same is true of excise duties.
Between them, these two taxes add over 20 per cent to the cost of the goods and services that we buy - whereas in France and Germany these taxes boost prices by less than 14 per cent, and in Italy by less than 12 per cent. I do not think that this fact is generally realised - and, of course, it helps to explain why many Irish prices are much higher than elsewhere, although other factors further aggravate this price differential, as we are currently learning from a Dáil committee investigation.
One does not have to be an expert in arithmetic to realise that, if the total tax yield of Irish taxes is much lower than elsewhere, while our VAT, excise duties and corporation tax yield more than in other parts of the EU, we must be raising a lot less revenue from some other taxes! Those in respect of which we are paying much less than the rest of the EU are, of course, taxes on income: both social insurance and income tax itself.
Once again, comparing Ireland with the three largest EU countries that have national income levels similar to ours, it emerges that in this country these important taxes yield about two-fifths less than is the case with these continental neighbours - a huge difference in personal tax burdens.
Now, VAT, excise duties, income tax and social insurance between them account for almost four-fifths of all revenue raised, and in our case the proportion of this total raised by expenditure taxes is five-sixths higher than in the case of the three directly comparable continental countries! Even in the neighbouring UK, from which we inherited our taxation system 80 years ago, the proportion of these four taxes represented by taxation on expenditure is less than one-third higher than in these three Continental countries.
Taxes on expenditure hit the poor even more than the better-off, because the better-off can afford to save - and by definition there is no expenditure tax on savings!
By contrast, whatever may be weaknesses in our income tax code that unhappily enables some millionaires to avoid paying any income tax at all, the fact remains that taxes on income are broadly progressive.
Thus, on an income of €15,000 the tax liability ranges from 2 per cent to 4 per cent depending on family circumstances - whereas on an income of €120,000 the tax liability will range from 30 per cent up towards 40 per cent.
Thus, a country like Ireland that relies on expenditure taxes for almost twice as large a share of its revenue as other countries with a similar income level has a huge built-in element of inequity in its social structure.
Moreover in the Irish case this basic inequity of our tax system is greatly reinforced by the fact that the exceptionally low level of Irish taxation makes it difficult for our state to provide adequately for public and social services, and this problem has been greatly aggravated by virtue of the fact that almost the whole of the impact of this shortfall has been concentrated on the social protection sector.
From the available OECD data it appears that we may spend less than other EU states on public administration, and we certainly spend less on defence. But on all the other main headings of public expenditure, except one, we spend at least as high a proportion of our national income as other EU countries - and on some of them we spend more than others do.
As a consequence, all of our under-spending relative to other EU states is concentrated on one expenditure area, social protection, which is accorded a 45 per cent lower share of our national income than is the case with the three EU states that are closest to us in their national income per head, and a 40 per cent lower share than in neighbouring Britain. Only about one tenth of this difference is accounted for by our lower unemployment rate.
Hands up those who are proud to be citizens of a state whose taxation and public spending systems are uniquely inequitable.