2012 Finance Bill manipulates the tax system to benefit the better off - unjust and unfair

Proposals in the 2012 Finance Bill to provide tax incentives aimed at luring senior multinational executives to Ireland mark a return to the worst practices of manipulating the tax system to benefit the better off while increasing costs and cutting services for the country’s poorest

Social Justice Ireland believes that the financial services industry is responsible for much of the present mess in which Ireland finds itself. It is preposterous that Government proposes to reduce the tax paid by top-earning executives in the financial services sector when the huge gambling losses incurred by this sector are already being paid by Ireland’s tax-payers, particularly Ireland’s poorest and most vulnerable people.

State loses €11bn annually due to tax-breaks - full text of Collins/Walsh paper presented at Kenmare conference

TAX BREAKS result in the Irish exchequer forgoing €11 billion in income annually, according to a research paper presented at the Dublin Economics Workshop in Kenmare. The paper was written by two members of the Commission on Taxation: Dr Micheál L Collins, an economist at TCD, and Mary Walsh, a chartered accountant. The full paper is available here.

Ireland's total tax-take is among the lowest in the EU

Ireland’s total tax-take is far below the EU average according to statistics published June 28, 2010 by Eurostat, the EU’s statistical agency. This publication shows that across the EU the total tax-take averaged 39.3% of GDP in 2008. For Ireland the comparable figure is 29.3%. This raises two major questions for Ireland:

• Why the Irish government insisted in Budget 2010 that the total €4bn in adjustments had to be done by cuts in expenditure rather than making part of the adjustment by increasing the total tax-take as recommended by Social Justice Ireland.  
• Why the Department of Finance continues to over-state Ireland’s total tax-take; the Department claims that Ireland’s total tax-take for 2008 was 30.8% of GDP while the correct figure is now seen to be 29.3%. These new EU statistics vindicate Social Justice Ireland which has consistently maintained that the Department has over-stated the total tax-take in Ireland.

Bill Gates proposes a Financial Transaction Tax to G20 to Fund Development

Bill Gates has given his support to a campaign to put a small tax on financial trades (known as a Financial Transaction Tax - FTT). In a note presented to the G20 he proposes to generate up to $48billion in revenue on a G20-wide basis which can be then used to fund spending on development. 

Even if the FTT were to be confined to larger European economies $9bn would be generated. Social Justice Ireland has advocated for years for such a tax and proposed the income should be used to tackle poverty and climate change across the world with particular focus on achieving the Millennium Development Goals.

The FTT is a credible mechanism by which to generate substantial amounts of money to help fill the climate fund and finance other global challenges, without requiring additional sacrifices from the taxpayer.

In practice, the FTT would mainly impact short-term trading which has no added value for the real economy and contribute to the stabilisation of financial markets by reducing speculation. While it is widely acknowledged that the tax can be put in practice (including 2010 studies by the International Monetary Fund and the European Commission confirming its feasibility), the necessary political will is lacking. Countries like Germany, France, Belgium and Luxemburg are supportive, many others including the United Kingdom, the United States and the Netherlands are still unwilling to consider taxing financial transactions.

Those who oppose this proposal should realise that if the well-being of people and the planet are at risk, the future of the financial sector is too. The right thing to do now is to put people first, supporting the introduction of a Financial Transaction Tax for a better future.

Presentation to Oireachtas Committee on Finance and Public Services on Review of Tax Reliefs and High Earners

October 19, 2005: Text of presentation by Sean Healy and Brigid Reynolds at meeting with Joint Oireachtas Committee on Finance and the Public Service concerning the Review of Tax Reliefs and High Earner

Banks should pay their fair share - Social Justice Ireland welcomes EU proposal for a financial transaction tax -

Social Justice Ireland strongly welcomes the progress made towards introducing a Financial Transaction Tax in the EU.  This would be a very efficient mechanism to ensure banks and financial institutions made a contribution towards resolving the current series of crises which were, in great part, caused by these very institutions.  It is time financial institutions paid their fair share. 

Bankers bonuses should be replaced by billions to help poor people. It would mark a welcome change from the current process of dispossessing poor and vulnerable people to pay back 100% of the money gambled recklessly by banks and financial institutions.
The European Commission presented the proposal for a financial transaction tax in the 27 member States of the European Union as part of its overall budget strategy.  The tax would be levied on all transactions on financial instruments between financial institutions when at least one party to the transaction is located in the EU.
The exchange of shares and bonds would be taxed at a rate of 0.1% and derivative contracts, at a rate of 0.01%. This could approximately raise €57 billion every year. The Commission has proposed that the tax should come into effect from 1st January 2014.
Introducing the proposal, the President of the European Commission, José Manuel Barroso said “in the last three years, Member States - I should say taxpayers - have granted aid and provided guarantees of € 4.6 trillion to the financial sector. It is time for the financial sector to make a contribution back to society. That is why I am very proud to say that today; the Commission adopted a proposal for the Financial Transaction Tax”.
Mr Barroso went on to justify the Financial Transactions Tax by saying “It is a question of fairness. If our farmers, if our workers, if all the sectors of the economy from industry to agriculture to services, if they all pay a contribution to the society also the banking sector should make a contribution to the society”. 
Mr. Barroso also pointed out out that at present the financial sector is not making the proportionate contribution to society in many EU Member States.
Social Justice Ireland has advocated for years for such a tax and proposed the income should be used to tackle poverty and climate change across the world with particular focus on achieving the Millennium Development Goals. We welcome Mr. Barroso’s proposal and his recognition that the financial sector is not making a proportionate contribution to economic recovery, given that banks and the financial sector caused the current crisis. 
Those who oppose this proposal should realise that if the well-being of people and the planet are at risk, the future of the financial sector is too. The right thing to do now is to put people first, supporting the introduction of a Financial Transaction Tax for a better future.
To access full details for the financial transactions tax click here.
To access Mr. Barroso’s speech to the European Parliament click here.
 
 

Cost of making tax credits refundable would be less than 5% of Department of Finance’s estimate.

Making tax credits refundable would benefit 113,000 low-income individuals in an efficient and cost-effective manner according to a new study published by Social Justice Ireland on July 5, 2010. When children and other adults in the household are taken into account the total number of beneficiaries would be 240,000. The cost of making this change would be €140m which is in stark contrast to the estimate provided by the Department of Finance to the Oireachtas Committee on Social and Family Affairs which claimed the cost would be €3,000m (i.e. €3bn).

The full text of the new study may be accessed here.
The Social Justice Ireland proposal to make tax credits refundable would make Ireland’s tax system fairer, address part of the working poor problem and improve the living standards of a substantial number of people in Ireland.
 
Entitled ‘Building a Fairer Tax System: The Working Poor and the Cost of Refundable Tax Credits’, the study also raises serious concerns regarding the Department of Finance’s wrong calculations. Evidence based policy making should be based on solid evidence. The costings supplied by the Department of Finance were wrong by more than 95% so the proposal has been very badly served by poor ‘evidence’ from a source on whom we should be able to rely.
 
Mr David Begg, General Secretary of the Irish Congress of Trade Unions responded to the study at its launch in Buswell’s Hotel.
 
Details of Study
 
Issues addressed in this study

• The need to reform and develop Ireland’s taxation system so that it becomes fairer.
• The need to address the issue of the ‘working poor’ as so many people with jobs receive an income that is below the poverty line – one in every three households at risk of poverty is headed by a person with a job.

What is a refundable tax credit?

• When an individual’s income is insufficient to use up all of his or her tax credits, the remaining credit is paid to the individual by means of a cash transfer.
• In the present system low paid employees i.e. the working poor, lose out as they do not benefit from increased tax credits after any budget.

Making tax credits refundable: the benefits

• Would address the problem identified already in a straightforward and cost-effective manner.
• No administrative cost to the employer.
• Would incentivise employment over welfare as it would widen the gap between pay and welfare rates.
• Would be more appropriate for a 21st century system of tax and welfare.

Details of Social Justice Ireland proposal

• Unused portion of the Personal and PAYE tax credit (and only these) would be refunded.
• Eligibility criteria in the relevant year:
• Individuals must have unused personal and/or PAYE tax credits (by definition).
• Individuals must have been in paid employment.
• Individuals must be at least 23 years of age.
• Individuals must have earned a minimum annual income from employment of €4,000.
• Individuals must have accrued a minimum of 40 PRSI weeks.
• Individuals must not have earned an annual total income greater than €15,600.
• Married couples must not haveearned a combined annual total income greater than €31,200.
• Payments would be made at the end of the tax year.

Data used in study

• This study uses the EU Survey on Income and Living Conditions (EU-SILC), provided by the CSO.
• This survey collects information on individuals’ direct incomes, social transfers, tax and social insurance contributions in extensive detail.
• This study uses household income data from a representative sample of 14,634 individuals across 5,386 households in order to estimate the costs and impact of the refundable tax credits proposal.
• 2006 data

Cost of implementing the proposal

• The total cost of refunding unused tax credits to individuals satisfying all of the criteria mentioned in this proposal is estimated at €140,051,823.
•  Previous estimates: In a presentation to the Oireachtas Committee on Social and Family Affairs in February 2009, the Department of Finance estimated that the cost of implementing the proposal outlined here would be €3bn

Major findings

• Almost 113,300 low income individuals would directly benefit from a refund and would see their disposable income increase as a result of the proposal.
• The majority of the refunds are valued at under €2,400 per annum (or €46 per week) with the most common value being individuals receiving a refund of between €800 to €1,000 per annum (or €15 to €19 per week).
• Considering that the individuals receiving these payments have incomes of less than €15,600 (or €299 per week), such payments are significant to them.
• Almost 40 per cent of refunds flow to low-income working poor households who live below the poverty line. 
• A total of 91,056 individuals (men, women and children) below the poverty threshold benefit either directly (through a payment to themselves) or indirectly (through a payment to their household) from a refundable tax credit.
• Of the 91,056 individuals living below the poverty line that benefit from refunds, most (over 71 per cent) receive refunds of more than €10 per week with 32 per cent receiving in excess of €20 per week.
• A total of 148,863 individuals (men, women and children) above the poverty line benefit from refundable tax credits either directly (through a payment to themselves) or indirectly (through a payment to their household). Most of these beneficiaries have income less than €120 per week above the poverty line.
• Overall, almost 240,000 individuals (91,056 + 148,863) living in low-income households would experience an increase in income as a result of the introduction of refundable tax credits, either directly (through a refund to themselves) or indirectly (through a payment to their household).
• Once adopted, a system of refundable tax credits as proposed in this study would result in all future changes in tax credits being equally experienced by all employees in Irish society. Such a reform would mark a significant step in the direction of building a fairer taxation system and represent a fairer way for Irish society to allocate its resources.

Conclusions

• The Social Justice Ireland refundable tax credits proposal has been costed at just over €140 million. While the costs of the proposal will change in line with variations in the structure of the taxation system and the labour market, the costs are unlikely to significantly vary from this study’s findings.
• The costing identified in this study, contrasts with the previously published figures for refundable tax credit systems for Ireland. The difference between these costings is significant and should raise some concern regarding the occasional updates to the costing of this proposal presented, with limited accompanying empirical detail and analysis, by the Department of Finance. Simply, evidence based policy making should be based on solid evidence and, as this analysis shows, to date the consideration of this proposal has been badly served by poor ‘evidence’.
• The study demonstrates that although the costs of this proposal are small in the context of the overall taxation system, its impact is significant for low income employees and their dependents.
• A further important implication of the proposal is that its implementation would mark a significant step in the direction of building a fairer taxation system where resources are more equally distributed.

Social Justice Ireland wishes to thank:

• Robert Ryan and Dr Micheál Collins, Department of Economics, Trinity College, Dublin, who researched and produced the study.
• The members of the Supervisory Committee who oversaw the study.
• A number of independent, academic peer reviewers.
• Dr James McBride, Irish Social Science Data Archive (ISSDA) at UCD who provided access to the data.
• The Cental Statistsics Ofice (CSO) for collecting and allowing access to the data.
• The Marist Sisters whose financial contribution made this study possible.

Tax wedge rises in Ireland but still far below the OECD average

The tax wedge in Ireland remained one of the lowest in the OECD in 2009 with 24 countries out of 30 taking a higher percentage from single people on the average wage and 27 countries taking more from a family on an average wage according to the OECD’s annual publication ‘Taxing Wages’ published on May 11, 2010. This is the case despite the fact that Ireland increased the tax wedge in 2009 on single people with average wages by 1.5 percentage points and on families with average wages (two adults, one-earner, with two children) by two percentage points.

Ireland helps multinationals rob billions of euro in tax revenue from world's poor countries

Some multinational corporations are diverting profits made in developing countries to Ireland to avail of the low corporation tax rate here. By so doing they are robbing the countries in which they made their money of billions of euros in tax revenue.

Written by Dr Sheila Killian of the University of Limerick, the report details how companies use the technique of "transfer pricing" to allow subsidaries of a multinational company to artificially transfer profits made in one jurisdiction to be taxed in another country which has a lower tax rate.
The result is that companies registered in Ireland as having a small office and one or two staff are recording huge profits, which are subject to our low tax rate while the related company in a developing country where the money was actually made reports little to be taxed. 

Author of the newly published book, Dr Sheila Killian, highlighted the fact that “Ireland’s tax model clearly does not do enough to protect vulnerable countries from tax revenue losses. Specifically, Ireland should adjust its transfer pricing regime to properly protect impoverished countries from losing tax revenue, and close domestic tax loopholes that may facilitate capital flight from impoverished countries“.

The Debt and Development Coalition Ireland was among a group of development organisations who launched this report. The others were.Afri, Christian Aid, Comhlámh, Oxfam Ireland, Trócaire
Social Justice Ireland supports these organisations' call for action by Government to end this practice.

The full text of the report may be uploaded here.

European Parliament passes resolution on taxing speculative financial transactions.

The European Parliament has passed a resolution calling on the European Commission to analyse the possibility of introducing a tax on financial transactions such as a Tobin Tax or a Robin Hood Tax.  The motion was passed by 536 votes to 80. The full text of the resolution is available here.  Social Justice Ireland welcomes this vote and urges the European Commission and the European Council to give priority to addressing this particular proposal which has huge potential for substantially reducing financial speculation and for ensuring that financial institutions pay a fair share of tax which they do not do at present.

Submission to Department of Finance on Review of tax reliefs and High Earners 2005

Submission to the Department of Finance on the review of tax reliefs and high earners 2005 by Sean Healy and Brigid Reynolds, Directors of Social Justice Ireland

Submission to the Commission on Taxation, June 2008

Submission to Commission on Taxation by Sean Healy and Brigid Reynolds, Directors of Social Justice Ireland
 
 

Financial Transaction Tax (FTT) would raise €465bn - to tackle climate change and poverty across the world

A Financial Transaction Tax (FTT) could have a major positive impact on people's well-being and that of the planet, according to a new report by CIDDSE the international alliance of Catholic development agences. The report estimates that a FTT at 0.05% on financial transactions would raise €465bn. CIDSE advocates this money be used to tackle climate change issues. Social Justice Ireland has advocated for years for such a tax and proposed the income should be used to tackle poverty and climate change across the world with particular focus on achieving the Millennium Development Goals.

This report from CIDSE was issued ahead of meetings of EU Finance Ministers and an upcoming EU Impact Assessment of the FTT.

The fight against climate change is one of the global challenges governments continue to fail to stump up the money for. In decades of international climate negotiations money has proven an important stumbling block. Last December in Cancun, governments agreed to create a Green Climate Fund in the United Nations, which is to receive and distribute up to €70 billion (US$ 100 billion) a year from 2020, but nobody knows yet where this money is going to come from. In times of austerity, governments are reluctant about climate action weighing on their national budgets

There is no excuse for procrastination. The FTT is a credible mechanism by which to generate substantial amounts of money to help fill the climate fund and finance other global challenges, without requiring additional sacrifices from the taxpayer. 

In practice, the FTT would mainly impact short-term trading which has no added value for the real economy and contribute to the stabilisation of financial markets by reducing speculation. While it is widely acknowledged that the tax can be put in practice (including 2010 studies by the International Monetary Fund and the European Commission confirming its feasibility), the necessary political will is lacking. Countries like Germany, France, Belgium and Luxemburg are supportive, many others including the United Kingdom, the United States and the Netherlands are still unwilling to consider taxing financial transactions.

Those who oppose this proposal should realise that if the well-being of people and the planet are at risk, the future of the financial sector is too. The right thing to do now is to put people first, supporting the introduction of a Financial Transaction Tax for a better future.

Raising sufficient money is not enough, it will have to be administered and spent well to make a positive and lasting impact. Decades-long experience working with partners in the global south to bring about change has made this clear. Based on this experience CIDSE makes two recommendations:

• Cross-sector coordination must be an essential function of the mechanism allocating climate finance,because the fight against climate change covers several sectors of government activity including finance, agriculture, food security, water management, health, safety, and infrastructure.
• All climate funding must respect people's social and environmental rights, guaranteeing meaningful and effective consultation of local communities so that climate action does not take place at their expense.

German Finance Minister includes Tobin-type tax in Budget planning 2012-2015

The German finance minister, Wolfgang Schäuble, has included a tax on financial transactions as part of his budget plan covering the period 2012-2015. This is a very welcome development. Social Justice Ireland has constantly argued for the introduction of a tax on financial transactions along the lines of the proposal originally presented by Nobel Economics Prize winner James Tobin and known since then as the Tobin Tax.

Leaders of the eurozone countries ended their recent summit by calling for a financial transactions tax – ideally across the EU but only in the single-currency zone if wider consensus was not possible.

Further information available on the Tobin Tax amd on the European Parliament's recent support for such a move may be accessed here.

Irish Times coverage of Social Justice Ireland's comments on Eurostat taxation figures - June 30, 2010

June 30, 2010 - The Irish Times published comments by Social Justice Ireland on the implications for Ireland of the latest Eurostat taxation figures

Social Justice Ireland welcomes European Parliament resolution urging a transaction tax on banks

Social Justice Ireland welcomes the decision of the European Parliament to urge the EU to promote the introduction of a financial transaction tax such as the Tobin Tax which could raise around €200 billion per year in the EU and would also discourage speculative trading by making it more costly. A tax along these lines has been proposed constantly by Social Justice Ireland.

The resolution argues that a tax of this kind can yield a "double dividend" by not only generating more funds, but also making the financial sector safer and society greener. 
The EU should promote the introduction of such a tax, even if it is alone in doing so, "as a first step", according to the resolution which was agreed by a vote of 529 to 127 on Tuesday March 8, 2011.
As the international economic chaos of the past few years has shown the world is now increasingly linked via millions of legitimate, speculative and opportunistic financial transactions. Similarly, global currency trading has been increasing dramatically throughout the last few decades. It is estimated that a very high proportion of all financial transactions traded are speculative currency transactions - these speculative transactions are completely free of taxation.
There is growing support worldwide for the introduction of a tax on such speculative exchange transactions. The Tobin tax, proposed by American James Tobin the Nobel Prize winner in economics in 1981, provides a potential solution. It is a progressive tax, designed to target only those profiting from currency speculation. Therefore, it is neither a tax on citizens, nor on business. Given the recent world economic experience, the tax also has merit in assisting Governments and regulators to continually monitor the risk that financial institutions are taking.
The majority of foreign exchange dealings are done by one hundred of the world's largest commercial and investment banks. The scale of their dealings is estimated at US$1.5 trillion worth of currency every day; all this in essentially unregulated financial markets. In 1998 the financial institution with the largest share of this market, Citibank, engaged in foreign exchange transactions worth US$8.5 trillion, a value in excess of the corresponding US GDP for that same year. The scope of the Tobin tax varies. Initially, James Tobin suggested a tax on all purchases of financial instruments denominated in another currency. Since then, Canadian economist Rodney Schmidt has broadened the tax to include all foreign exchange transactions. These would include simple exchanges of one currency for another (spot transactions) as well as complex derivative financial instruments including forwards, swaps, futures and options if they involve two currencies. The recent proposals in the UK for a ‘Robin-Hood Tax’ represent a further development of these proposals.
The rate would be determined by each country enacting the tax, but the tax range recommended to produce moderate market calming and revenue-raising outcomes is between 0.1 and 0.25 per cent. While this may seem very small to consumers, relative to VAT rates and income taxes, the impact on the margins of currency speculators would be enough to curb their activities.
The revenue from the tax would be considerable - somewhere in the region of €50 -100 billion per year. Though the effect of the tax over time would be to reduce the volume of currency speculation and thus the potential revenue from the tax, nevertheless the intake will remain high. It is proposed that the revenue generated by this tax be used for national social development and international development co-operation purposes. According to the United Nations, the amount of annual income raised from the tax would be enough to guarantee to every citizen of the world basic access to water, food, shelter, health and education. Therefore, this tax has the potential to wipe out the worst forms of material poverty throughout the world.
When James Tobin first put forward his idea he envisaged the tax being adopted by every country in the world simultaneously. Otherwise, he argued, speculators would “flock” to those countries without Tobin tax laws. Since such international agreement seemed improbable, the tax was seen by many as a worthy but impracticable proposal. However, over recent years the work of economists and financial experts has demonstrated that universal simultaneous adoption is not vital for a successful implementation. Essentially, foreign currency markets are concentrated on a global scale and if the principal countries implement the tax, this would suffice to cover the planet as a whole. Eight major countries account for more than 80 per cent of world exchange transactions, the foremost four for 65 per cent. In the City of London, the largest financial centre with 33 per cent of the world total, the 10 biggest banks account for 50 per cent of transactions. What is needed is for one major region of the world to implement the tax. Consequently, Social Justice Ireland welcomes the increasing attention this proposal has been receiving at European Inter-Governmental Level. We believe that the time has come for such a tax, It would simultaneously facilitate, and perhaps fund, the required regulation of financial speculation while providing substantial funds to adequately address the world development issues highlighted in the Millennium Development Goals.
The plenary session of the parliament in Strasbourg , which approved this resolution, heard that the next step should see the European Commission produce a feasibility study and concrete legislative proposals. Social Justice Ireland urges the Commission to act swiftly on this issue which has so many positive aspects if it were introduced.
 

2010 - Update on taxation policy

A full update on taxation in Ireland is available here. It appeared as a chapter in An agenda for a New Ireland published by Social Justice Ireland in April 2010.

2004 - Book on Taxation edited by Brigid Reynolds and Sean Healy

October 2004: Social Policy book on Taxation Policy edited by Brigid Reynolds and Sean Healy, Directors of Social Justice Ireland

2004 - Policy Briefing on Taxation

2004 July: Policy Briefing on Taxation