Friday, August 21, 2009

Economics 21/08/2009: Commisions and Taxation

Per Irish Times report today:

"Despite the significant Exchequer deficit the (Commission for Taxation) report does not recommend a rise in income tax rates and says that the combination of taxes and levies mean that anyone earning €75,036 is paying 53 per cent in taxes and levies to the State." You can almost hear the tears dropping from the eyes of the Times staff as higher income tax would be a favourite pet project for the paper.

41 per cent is tax, 4 per cent is PRSI, a further 4 per cent is a health levy and an income levy of 4 per cent. Well, we almost forgot other taxes and rates. All meaning that less than about a 1/3 of Ireland's productive (private sector employed= population supports the entire economy, with some 400,000 overpaid and under-worked public sector employees... Now, Irish Times wouldn't have anything to say about that would it?

A property tax will be introduced which will eventually replace stamp duty and while a new carbon tax on energy has been proposed. Now, what does this mean? We can only speculate, but eventual replacement of stamp duty implies that the two new taxes will coexist. My sources tell me that
  • the new property tax will be based on self-assessment, which means it will yield huge rates of tax evasion, will retard even further property resale markets (as under-taxed properties will be held back from the market) and thus will lead to a renewed property crisis over time;
  • the new tax will be a double tax with no credit given for recent payments of stamp duty, so in effect, it will be a new additional tax.
You'd wonder if the Irish Times actually cares about these small details.

Well, obviously, another Times pet projects are artists’ exemptions. These should and will be scrapped, so Bono & Co can fully move out of the country. I wonder if that will make them preach less about doing good at the expense opf the ordinary taxpayers. I doubt.

Reliefs on union subscriptions and bin charges will be phased out. Hmmm - wonderful stuff. Union subscriptions relief was an honest admission by the state that it is so deeply in bed with the unions that even a tax amn can't separate the two. Now, let's pretend they no longer are... Does this change the reality of this state doing absolutely everything possible to appease the bearded men of the Liberty Hall? Not a chance.

Another rumoured proposal is a SSIA-type pension for those on lower wages with the State contributing €1 for every €2 saved by employees. Funny thing. Of course it raises two issues:

  1. Who will pay for it? You can imagine a family just above the margin threshold for such a subsidy that will have to provide tax payments for this pension scheme and at the same time pay for own pension. Fair?
  2. How will we pay for this? Assuming you have to save ca 40% of your income in order to afford a public sector-level of benefits at retirement, how can a country afford paying an additional premium of 40/3=13.3% on lower wages in taxes at the time when we can't afford to cover our current account deficit.
This Taxation Commission report is starting to look like a clock made of jello, as PMD like to say...


Unknown said...

Constantin - any views on using this as an opportunity to simplify and get away from income tax/PRSI/health levy/income levy model to a simple income tax? I know that others moot flat taxes etc but we don't necessarily need to move to that model - we could simplify the current mess by doing away with the PRSI, Income and Health levies and just operate a lower rate on incomes to a certain level, a higher rate on incomes above that and (as current) a tax credit system? PRSI benefits (limited as they are anyway) could be moved from the SIF to general govt spending.

On the property tax - I think the proposal is for fairly wide bands to apply - the self assessment element is only in determining if your property is valued within the bands. Therefore the issues you raise will only apply to properties valued at the lower end of a band (where people would be tempted to undervalue them and get them into the lower band.

On the pension issue - if they go for the SSIA relief model then they should just change the pension tax reliefs completely over to that model (on a cost neutral basis). The number 1 resistance to pensions in Ireland in all research is that they are hard to understand, too complicated, too complex etc. Adding another type of pension plan is just adding more confusion and more cost which ultimately will be bourne by the consumer. Amending the reliefs/incentives on pension plans to be simpler to understand and more equally distributed is no bad thing - adding a new pension structure and further complicating the existing reliefs is simply a waste of time and money.

Fungus the Photo! said...

The government does not fear tax evasion. They have lived with it and forgiven it with amnesty for decades.
Those who can sell will. And pay any back tax due gladly. They will be emigrating or else extracting what is left of their equity. The rest will be unable to sell or will be handing the keys back to their lender.

But I fear the government is even less in touch than this. There are going to be many conditioning reports, preparing the sheep to be shorn without too much bleating. All will stress the need for equity etc etc. All will say new taxes are needed and will affect various matters so that evasion will not be an issue.
And the depression which started 19 years ago in Japan and 9 years ago in USA will tighten on Ireland. At least they haven't wasted more than 5 Billion on dud banks so far. So far ....

Stephen D said...

im interested because i imagine adren and u would have agreed on mani tings pre-2007.

Whereas Adrem now accepts according to latest postings on irisheconomi that the internatl bond markets would b freaked if irish govt 'allows' 'Irish' banks to renege on its (ie. the banx') debts (which strikes me as a complete reversal of the pre-crisis orthodoxi of banks being private entities and govt has no role in banking. I suspect Adren mai well have subscribed to this orthodox pre-crisis and now the world has turned upseide down). Whereas ur opposition to Nama 4 reasons (e.g. our no crunching with er man from tcd - when will the give u a title u deserve 'adjunct lecturer' is an embarassment when ever tinpot 'professor' in the united states gets titles like 'emeritus professor': TCD modernise and title inflate like ever where else in the world: I digress) stated is completeli consistent with the perceived view pre-crisis that u were against interference bi the State in private entitites. \

On the ssiaesu pension scheme 4 the super poor: that sounds like a fab idea. Im sorri u baulk on the basis of the 'who pais for it' vibe. but sure if we cancel nama we can save 90b and what's the harm then of spending sa half of 90b 2 reward ourselves 4 not having nama? And use that monie 2 pai 4 ssia tpe pensions for the poor who are super?