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Government should review Ireland’s tax policy priorities and raise the overall tax take

As Ireland faces into a very new international reality on taxation it is essential that tax policy priorities be adjusted to ensure three outcomes: (i) that the overall tax-take is increased appropriately, (ii) that the tax-base is broadened and (iii) that a fairer taxation system is developed.  Government should raise the overall tax take by three percentage points by 2021.  Social Justice Ireland estimates that a three percentage point increase in the overall tax take would provide an average yield of €9 billion per annum in additional taxation revenue.

An increase in the overall tax take is more than feasible.  Raising the overall tax take by three percentage points would represent a small overall increase and one which is unlikely to have any significant negative impact on the economy in the long term.  Our recently published policy briefing on fairness and tax reform outlines how this can be done in a fair way by reforming the tax system and broadening the tax base.  Such a reform would see Ireland continue as a low-tax European economy but would provide the necessary additional resources required to address the all too common deficits in social provision, infrastructure and public services. 

Ireland’s overall tax take has remained notably below the EU average over recent years.  In light of this trend the question needs to be asked: if we expect our economic and social infrastructure to catch up to that of other advanced European countries, how can we achieve and sustain this while simultaneously gathering less taxation income than it takes to run the infrastructure already in place in most of those other European countries?. 

Corporate Tax Reform

Ireland has suffered clear reputation damage as a result of the Apple Tax Ruling by the European Commission and the 2015 National Income figures.   The 2015 national income figures for Ireland highlighted, in a very public international way, the fact that the Irish economy, and the Irish corporate tax system, has been, and is being, exploited by a number of companies who are strategically managing their international activities and tax affairs via Ireland.

These events are a clear demonstration of the way Ireland and its corporate tax system has been used in an unacceptable way by a number of companies to alter tax liabilities and undermine the revenue expectations of governments in other parts of the EU and beyond. 

Corporate taxation is an important public policy issue.  To a great degree, Ireland’s corporation tax policy has been one that has been let drift for some time, with limited strategic oversight and assessment of the overarching public policy interest. The future of the corporate tax system has shifted from being a national policy issue to an issue that sits in a very visible and scrutinised international tax and political context. 

Policy needs to be mature in its appreciation of the need for reform here. Ireland should play a core role in adopting and implementing the OECD BEPS and the European Commission CCCTB tax reforms. These reforms are likely to come at a short-term cost to Ireland, make sense in the medium to long term and are part of the development of a fairer and more transparent corporate tax system.

Report’s Recommendations

Reforming/Broadening the Tax Base 

  • Reforming Tax Breaks
  • Increasing Minimum Effective Tax Rates for Higher Earners
  • Increasing Corporate Taxes
  • Introducing a Site Value Tax
  • Taxing Second Homes, Empty Houses and Underdeveloped Land
  • Introducing a Windfall Gains Tax
  • Introducing a Financial Transactions Tax
  • Reforming Carbon Taxes 

Building a Fairer Taxation System

  • Standard Rating all Discretionary Tax Breaks
  • Favouring Fair Changes to Income Taxes
  • Keeping the Minimum Wage out of the Tax Net
  • Introducing Refundable Tax Credits
  • Reforming individualisation
  • Making the Taxation System Simpler

The full policy briefing is available here.