The view from Fine Gael… September 15, 2012
Posted by WorldbyStorm in Economy, Irish Politics.trackback
Brian Hayes has opined once more on matters economic. Tax this time, and pensions. Others have dealt with his thoughts on pensions – not least to point out that the large tranche of pensioners who have indeed been affected by cuts, but the ones on tax are as interesting.
First up, what are his limits?
Mr Hayes said the Government’s taxation and social welfare policies must be based on making it beneficial for people to work. “It’s crucial that we do not increase tax on income further,” he said.
But…
People could not give any more on the taxation side but “much more” needed to be done on the expenditure side, where the scale and universality of social welfare benefits had to be considered. “Everything needs to be on the table if we’re really serious about not only hitting our targets but creating the culture where work actually pays,” he said.
So not quite everything on the table then.
Problem is that the last time FG were in power income taxes were considerably higher, and yet the economy was growing fast. Even at the turn of the century and for some years after taxes remained considerably higher. And yet still it grew. To return to that status quo ante though is now regarded as anathema.
There’s also a rather depressing subtext that enters into his thoughts.
“We’ve got to make it clear to people that if they move from benefit back to work that it pays for them and their families. Not just on the issue of income tax but also on secondary benefits like medical cards.”
And:
“The priority for the Government is not to have further tax increases on work because you create this dreadful disincentive that encourages people to stay on benefit.
To be honest I’m not sure what he means by that last sentence. I’d have thought the most significant factor ‘encouraging people to stay on benefit’ is lack of employment opportunities, and it is hard to understand given how low tax the economy has been (with still relatively low tax rises over the past four years – albeit some hugely distorting ones like the USC) how there have been any disincentive involved. Ah, except for the fact that we’re also talking about extremely low paying jobs. But then those sorts of jobs are unlikely to offer the sort of long term solution (or even short term) that is needed for those who are unemployed.
Fairly telling. What though about his partners in Government. What do they make of this?
“Fairly telling. What though about his partners in Government. What do they make of this?”
Censored!
“Problem is that the last time FG were in power income taxes were considerably higher, and yet the economy was growing fast”.
Agreed, but it’s worth noting that they weren’t uniformly considerably higher.
The top rate of income tax in 1997 was 48%. It’s now 41%, but there’s also the 7% USC (I don’t think there were equivalent levies in 1997, though there had been smaller ones in some previous years) and the ceiling on employee PRSI contributions is gone, so the top all-in income tax rate appears slightly higher now than it was back then.
The big differences in the income tax system relative to 1997 are some very progressive changes in the lower deciles.
USC is certainly not a progressive change in the lower deciles.
I’m actually in favour of a broadening of the tax base, increased taxation at all levels (and taxation of those on low wages). I don’t believe it is possible to have sustainable social provision without significant taxation – again at all levels. I’m also in favour of a further stratification of taxation with greater progressivity (in the technical sense) although if needs be a new mid range and a higher higher rate in order to reduce higher marginal rates at too low a starting point. But the point still stands that in 1997 income tax as income tax was considerably higher than it is today and that through the period of greatest growth in the economy they remained considerably higher. I also think that we have to pay more in on the social insurance side and this must be supplemented by greater inputs from employers.
Hayes explicitly references income tax above and that’s my starting point there.
Interestingly, there’s considerable scholarship on this which suggests personal tax rate reductions were not a key element of the 1990s period of growth – see Brendan Walsh “The Role of Tax Policy in Ireland’s Economic Renaissance” (which written during the boom is entertaining for arguing about the ‘virtuous circle’ of low taxation fuelling growth. Karl Whelan has written on how even with high marginal rates income tax rates for ‘average families in Ireland are still very low by international standards’ (Policy Lessons from Ireland’s Latest Depression).
Hayes explicitly references income tax above and that’s my starting point there.
The USC is a tax on income, so while not branded as PAYE, it certainly is an income tax. The disincentive effects are the same regardless the acronyms used to describe the tax.
Anonymous Coward above certainly has a point … given the removal of PRSI caps, and the USC replacing the much lower levies, current total rates of taxation on income are very comparable to the level they were at at the turn of century, and are not significantly below those rates.
I assume from his remarks that Mr Hayes, who clearly thinks it is a better option, is himself on benefits?
Anytime I hear media commentators say something like ‘The Government are really constraining themselves by refusing to deal with Croke Park’, I replace Croke Park with Income Tax for myself. I think its a really great example of the influence of the media. There is no one in the media highlighting the refusal to do something about tax
Well. the “media” tend to be well-paid members of the Dublin middle classes with very high opinions of how natural talent has gotten them so far (and many have lucrative PR sidelines cashing in on their privileged access).
So, taxing “success” and “employment creators” wouldn’t be high on their preferred option I’d think.
Brian Hayes justifies his opinion that pensioners should be subject to cuts by saying they’re the only section of society whose incomes have not been hit over the last five years. I was in the company, last night, of four people whose incomes have increased over the last five years – even allowing for USC etc – and none is a pensioner. They work for multinationals. If you’re Brian Hayes, those are the real untouchables.
Hayes is simply lying on pensioners, but is allowed to get away with it unchallenged because it’s been allowed to become part of the conventional wisdom.
And the universality thing is a trojan horse (probably to get up a head of steam in attacking pensioners on other issues) that should have been dealt with as soon as it reared its head. i) those who have greater means already *have* contributed to in the form of greater taxes (one would hope) and ii) is the overhead in time, money and grief to pensioners really worth it for the miniscule “savings” that would be obtained?
I would be very interested to know where Mr. Hayes sourced the figure of circa 50% mentioned in the Irish Times article (in relation to the number of college students receiving grants). I’d be very surprised if this was true. Anyone know where this figure was sourced from? Tried the HEA, Department of Education and Department of Finance websites but haven’t managed to find this particular stat. Maybe it’s just not publicly available..