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Taxing times… June 4, 2015

Posted by WorldbyStorm in British Politics, Economy, Irish Politics.
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William Keegan in the Observer at the weekend noted that it was in 1970 that Tony Barber, Tory Chancellor of the Exchequer, introduced VAT.

As Keegan also notes;

When Geoffrey Howe became chancellor in 1979, his abolition of exchange controls had a lasting effect; and, when he ran into trouble financing his promised income tax cuts, the main rate of VAT was hoisted from 8% to 15% in one fell swoop.

The corresponding cuts in income tax saw the top rate drop from 83% to 60%.

1988 saw Nigel Lawson reduce the top rate of income tax to 40% and as Keegan notes ‘since he reduced the rate… there has been panic in the ranks at the very thought of raising it. You can see what an outcry there was when Labour, in the wake of the banking crisis, dared to raise it to 50%. it matters not that the British economy grew for many years at a respectable pace when tax rates were much higher; the mantra these days is that low tax rates promote economic growth – although there has not been much evidence of that in recent years’.

I spoke to someone close to the government and the minor party in the government some while back who was adamant that it was impossible to raise income tax rates, that any left project that had that at its heart was destined to failure. I think that that is contestable. And it seems to be expedient too, for in the immediate it allows Labour off the hook on many issues, but in the broader context it masks a reality, as Keegan notes implicitly above, that revenue will be found one way or another, whether through VAT, charges or similar. In a sense there’s a sleight of hand, one which is engaged in, indeed promoted, all too willingly.

Comments»

1. EWI - June 4, 2015

I hope that no-one reading the above needs convincing that VAT is highly regressive.

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WorldbyStorm - June 4, 2015

Yep, exactly.

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2. CL - June 4, 2015

“I am frankly shocked that we are having any discussion about raising VAT in these circumstances. We have just seen a premature rise in VAT knock the wind out of a country as strong as Japan,”-Ashoka Mody
http://www.telegraph.co.uk/finance/economics/11652893/Greece-misses-IMF-payment-in-warning-shot-as-showdown-with-Europe-escalates.html

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3. richotto - June 5, 2015

The abolition of the progressive property tax in 1978 which was the main FF election bribe in 1977 was supposed to be compensated by a raise of VAT from around 8-15%. Arguably many of the well heeled on the anti austerity left today would be quite happy with the thinking behind that tradeoff in the wake of all the outrage at the reintroduction of progressive property tax.

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dublinstreams - June 6, 2015

are you forgetting that it was first introduce as a flat household charge

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4. fergal - June 5, 2015

richotto- how is the property tax progressive?? it is a residential property tax and not one on speculation-no speculation property tax has been introduced…now that could be really progressive

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richotto - June 5, 2015

In general the ultimate progressive tax is property tax related to the value of the house. The Irish debate lives in a pretty unique bubble in thinking that advocacy of no property tax is anything but a far right economic position. That is logically understood around the western world and especially on the left. Mrs Thatcher understood it perfectly when she wanted to move from the rates property tax to the Poll Tax completely unrelated to property (called the poll tax because the only qualification was if you were on the electoral register). It was willfully misrepresented here in the anti campaign as akin to our struggle. The British objected to the unfairness of Poll Tax but had no real objections to going back to property based taxation when it was got rid of. Why? Ability to pay and related to the size and value of the house and hence standard of living meant that progressive fairness is served given that the money has to be raised somehow.

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fergal - June 5, 2015

Richotto, here are two examples of what you claim to be a progressive tax(the more you have the more you pay) btw i am all in favour of property taxes but two kinds a very progressive residential one and one that taxes speculation in property.
Daft have a house in Balbriggan valued at 213,333 and liable for 405 euros in LPT for 2014- % wise that is 0.19%http://www.conroyp.com/2013/03/23/the-daft-property-tax-calculator-how-does-it-work/
The revenue commissioners have a table explaining LPT liabilities- for a house valued at 1 million euors the LPT is 1,755 euros which works out at 0.17% which is a smaller % than the much more humble abode in balbriggan.
Can you explain to me how this is a progressive tax? I would probably quadruple the 1 million house and keep the current rate for cheaper houses to make the LPT progressive, but this isn’t going to happen
The second property tax would go after the speculators, landlords and those with large numbers of houses etc at very high rates- this hasn’t happend and won’t- instead the taxpayer- including those of no property subsidise landlords through rent allowances to the tune of hundrreds of millions of ureo every year.

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richotto - June 5, 2015

The site value tax as mentioned below is the most progressive but that still includes all properties in principle which is the way it should be in my opinion. I believe the rural and business lobby was responsible for no serious consideration of site value tax by the way. People make an investment in property in order to get rent free accomodation mainly and the annual return on that investment (not including possible profit or loss on resale) is called Imputed Rent, ie what would have had to be paid in rent for that type of accomodation. Therefore property is a form of income which should be made liable for tax like any other benefit in kind income. Who has’nt heard the Irish expression, “rent is dead money”? Those stuck with paying rent, mainly poorer people were getting screwed under the tax system with personal property exempted which is what was going on uniquely in Ireland from 1978 to 2010.
By all means yes, put a tax on speculation but in addition and not as a substitute for the middle classes exempting their standard properties from tax by subverting the political system uniquely in the western world. This is of course what happened in 1977 when FF bought them off with rates abolotion contributing hugely to a terrible budgetary situation during the 1980s. As said previously only on the extreme economic right of the political spectrum in Europe would private property tax be considered something to be not regarded as just as normal as income tax.

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Ciaran - June 5, 2015

A property tax based on the site value, rather than the house itself, would be best. In fact I believe this was in Labour’s 2011 election manifesto (possibly other parties as well?). For some reason, this was shyed away from when the time finally came for the tax to be set.

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5. Pasionario - June 5, 2015

Cutting the top rate of income tax while raising VAT amounts to a massive upward redistribution of wealth from the poor to the rich.

Ironically, VAT is an essentially European phenomenon whereas the US relies more heavily on federal income and corporate taxes.

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6. kling-on - June 5, 2015

I lost c.2000 last year in a mining company stock.
I did not expect the Govt. to prop up the mining company.
Why do property investors here expect the Govt. to deliver unto them, humans, who will conduit from the Govt., money – to prop up investor investments.
investments is gambling? and the Govt. should not underwrite these investments using the poor? …. for, votes.
i.e. housing investors – gambled.
housing investors….. lose.
they should not expect the Govt. to be ‘nanny’ to their investments.
that is ‘capitalism’?

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kling-on- - June 6, 2015

an advertisement on the m.finucane programme at 11.30a.m.:
saying to housing property investors to let the Local Authority completely look after their housing investment for 20 years.
the telephone number given was: 1800 855 920.
It is: Dublin City Council.

At this stage I refuse to use the words ‘Local Authority’:- they are in fact now – Social Welfare for Housing Investors’ workers,
and their salaries paid by the State.

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WorldbyStorm - June 6, 2015

That’s something else…

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7. kling-on- - June 6, 2015

what I mean, wbs, is – that if in some covert way of thinking people may imagine that after the 20years that they then might be able to make a case to stay on for the duration of their life-time; I think that people would be kidding themselves.

These investors grip on to these freehold investments and even if, for them, it means a longer-term duration to maximise their private investment – they will take that.
And they would have not a qualm then of appropriating back their house investment – and selling it to …. the highest bidder.

The investors themselves probably have kids, that they want to provide as much as possible for. The kids of tenants – turfed out.
Investors – not to be trusted.
this Govt. should buy housing, and then let it out, (with the E1.5bn they have allocated to 2017).
Or, will they buy investor votes.

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