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Commission on Taxation and Welfare Established
The Government announced yesterday (19th April 2021) the establishment of the Commission on Taxation and Welfare to look at "how best to support economic activity while ensuring sufficient resources available to meet costs of public services". While Social Justice Ireland welcomes the establishment of a Commission to consider how best to structure Ireland's taxation system to support the provision of Decent Services and Infrastructure, we are concerned that too much focus will be placed on employment activation, rather than delivering Just Taxation and functioning welfare system to support the eradication of poverty.
In our Socioeconomic Review, a 2021 guide to a fairer Irish society, Social Justice Ireland set out a series of proposals on Taxation and Welfare.
On Taxation we believe the Government's policy priorities should be:
Increase the overall tax-take
- Move towards increasing the total tax-take so that sufficient revenue is collected to provide redistribution and public services at average-European levels.
Broaden the tax base
- Continue to reform the area of tax expenditures and further enhance procedures within the Department of Finance and the Revenue Commissioners to monitor on an on-going basis the cost and benefits of all current and new tax expenditures;
- Continue to increase the minimum effective tax rates on very high earners (those with incomes in excess of €125,000) so that these rates are consistent with the levels faced by PAYE workers;
- Move to negotiate an EU wide agreement on minimum corporate taxation rates (a rate of 17.5 per cent would seem fair in this situation);
- Adopt policies to ensure that corporations based in Ireland pay a minimum effective corporate tax rate of 10 per cent. As an interim measure introduce a 6 per cent rate in the next Budget;
- Impose charges so that those who construct or purchase second homes pay the full infrastructural costs of these dwellings;
- Restore the 80 per cent windfall tax on the profits generated from all land re-zonings;
- Join with other EU member states to adopt a financial transactions tax (FTT) and discourage needless and unwelcome financial market speculation;
- Adopt policies which further shift the burden of taxation from income tax to eco-taxes on the consumption of fuel and fertilisers, waste taxes and a land rent tax. In doing this, government should minimise any negative impact on people with low incomes.
Develop a fairer taxation system
- Apply only the standard rate of tax to all discretionary tax expenditures;
- Make tax credits refundable;
- Accept that where reductions in income taxes are being implemented, they should favour fair options which do not skew the benefits towards higher earners;
- Ensure that individualisation in the income tax system is done in a fair and equitable manner;
- Integrate the taxation and social welfare systems;
- Begin to monitor and report tax levels (personal and corporate) in terms of effective tax rates;
- Develop policies which allow taxation on wealth to be increased;
- Ensure that the distribution of all changes in indirect taxes discriminate positively in favour of those with lower incomes;
- Adopt policies to simplify the taxation system;
- Poverty-proof all budget tax packages to ensure that tax changes do not further widen the gap between those with low income and the better off.
On Welfare, the Government should:
- Acknowledge that Ireland has an on-going poverty problem.
- Adopt targets aimed at reducing poverty among particular vulnerable groups such as children, lone parents, jobless households, and those in social rented housing.
- Examine and support viable alternative policy options aimed at giving priority to protecting vulnerable sectors of society.
- Carry out in-depth social impact assessments prior to implementing proposed policy initiatives that impact on the income and public services that many low income households depend on. This should include the poverty-proofing of all public policy initiatives.
- Recognise the problem of the ‘working poor’. Make tax credits refundable to help address the situation of households in poverty which are headed by a person with a job.
- Support the widespread adoption of the Living Wage so that low paid workers receive an adequate income and can afford a minimum, but decent, standard of living.
- Introduce a cost of disability allowance to address the poverty and social exclusion of people with a disability.
- Recognise the reality of poverty among migrants and adopt policies to assist this group. In addressing this issue also replace direct provision with a fairer system that ensures adequate allowances are paid to asylum seekers.
- Accept that persistent poverty should be used as the primary indicator of poverty measurement and assist the CSO in allocating sufficient resources to collect this data.
- Move towards introducing a Basic Income system. No other approach has the capacity to ensure all members of society have sufficient income to live life with dignity.
Social Justice Ireland also recently published our proposals in respect of the need to benchmark welfare rates to 27.5 per cent of Average Weekly Earnings, as a move towards the Minimum Essential Standard of Living, over the next two Budgets.
These are critical issues for the collection and redistribution of resources in the years to come. Social Justice Ireland looks forward to engaging with the Commission in the furtherance of these proposals.
The Terms of Reference for the new Commission, chaired by Professor Niamh Maloney, Professor of Financial Markets Law and Head of the Department of Law at the London School of Economics and Political Science, were published as part of the announcement. These include to :
- Review how best the taxation and welfare system can support economic activity and income redistribution, whilst promoting increased employment and prosperity in a resilient inclusive and sustainable way and ensuring that there are sufficient resources available to meet the costs of public services and supports in the medium and longer term.
- Examine what changes, if any, should be made to the social insurance system, including structure and benefits coverage, while ensuring sustainability. This will include consideration of the NESC report no 151 (November 2020) on the future of the Irish social welfare system and of output from the Pensions Commission regarding sustainability and eligibility issues in respect of State Pension arrangements. It will also include examination of how welfare policy can work in tandem with the taxation system to support economic activity, and while continuing to support those most vulnerable in our society in a fair and equitable way, having regard in particular to experience gained during the Covid-19 Emergency.
- Examine how the taxation system can be used to help Ireland move to a low carbon economy as part of the process of meeting its climate change commitments as set out in the Climate Action and Low Carbon Development (Amendment) Bill 2021. This will include ensuring the sustainability of environmental tax revenue resulting from decarbonisation of the economy.
- Consider the appropriate role for the taxation and welfare system, to include an examination of the merits of a Site Value Tax, in achieving housing policy objectives. This consideration should include reviewing the sustainability of such a role. It should also have regard to the experience of previous interventions in the housing and construction market and the current significant State supports for housing provision.
- Consider how Ireland can maintain a clear, sustainable, and stable taxation policy as regards Ireland’s attractiveness to Foreign Direct Investment in a changing global taxation environment, including retention of the 12.5% corporation tax rate.
- Review how best the taxation environment for SMEs and entrepreneurs can ensure that Ireland remains an attractive place to sustain and grow an existing business or to start and scale up a new business.
- Review the adaptability of the taxation and welfare systems to the rise of digital disruption and automation and other technological changes.
- Examine the process for reviewing taxation measures and expenditures in order to ensure it is aligned with best practice and where appropriate make recommendations as to how it can be improved.
- Examine how effectively good public health is promoted in Ireland, and present relevant reforms to advance and incentivise this goal.
- Consider taxation practices in other similar sized open economies in the OECD to see what lessons Ireland can learn from such counties. This will include consideration of how the tax administration system should be modernised, building on real time payroll reporting which underpinned the existing modernisation of the PAYE system, and ensuring that the tax administration system meets best international standards. This will also include consideration of the potential for improvements in simplicity and administrative efficiency from integrating the taxation and welfare systems, as well as options for reform on the balance between the taxation of earned income, consumption, and wealth.
- Submit its report to the Minister for Finance by no later than 1 July 2022.