Ireland's taxation policy should support our social, economic and environmental goals

Posted on Monday, 2 March 2020

Ireland faces several significant challenges in the coming decades. Among the biggest are those posed by demographic changes, social inequality – in housing and healthcare in particular – and climate change.  It should not need stating that such deficits cannot be closed without gradually increasing Ireland’s tax-take towards the European average.

This is one of the key findings from ‘Social Justice Matters: 2020 guide to a fairer Ireland’ published by Social Justice Ireland.  The report analyses ‘Just Taxation’ as one of five key priority areas required to build a fairer Ireland in an integrated and sustainable manner.  The five priority areas are: (a) a vibrant economy; (b) decent services and infrastructure; (c) just taxation; (d) real participation and (e) sustainability.

Main findings – Just Taxation

Social Justice Ireland proposes a new tax take target* that would see Government collecting an additional €2.5bn to €3bn per annum in taxation. This calculation is based on a more realistic estimation of Ireland’s actual economic growth figures, as well as on per capita taxation numbers, population growth, and the estimated gap between Ireland’s actual tax-take and the tax-take needed if Ireland is to provide a level of public services consistent with the expectations of a developed Western European democracy

Increasing the overall tax take to this level would require a number of changes to the tax base and reforms to the current structure of the Irish taxation system. Increasing the overall taxation revenue to meet this new target would represent a small overall increase in taxation levels and one which is unlikely to have any significant negative impact on the economy.

Regardless of how it is measured, Ireland is a low-tax economy. Social Justice Ireland is of the view that a broadening of Ireland’s tax-base will be required, together with an increase in the total tax-take towards the European average. The need for a broader more stable tax base is a lesson painfully learned. If the late-2000s taught us nothing else, it is that our small open economy is prone to shocks that can cause large swathes of revenue to disappear very quickly.

If Ireland is to increase its total tax-take, it must do so in a fair and equitable manner. Social Justice Ireland believes that the necessary extra revenue should be partly raised by increasing income taxes for those on the highest incomes, and partly by reforming the tax code. This should also involve shifting taxation towards wealth and higher incomes, ensuring that those who benefit the most from Ireland’s economic system contribute the most, and limiting the extent to which wealthy people can avail of tax breaks.

Ireland’s next government should:

  1. implement a minimum effective corporation tax rate of 6 per cent;
  2. reform tax breaks, particularly those accruing to individuals with the highest income;
  3. ensure all tax reliefs - particularly the most costly ones - undergo proper administrative scrutiny and parliamentary debate to ensure they remain fit for purpose and cost effective; and
  4. make the two main income tax credits refundable to help make low-paid work more rewarding.

There must be an acknowledgement from the next Government, and from people generally, that Ireland’s current model of revenue generation does not provide the resources necessary to match the far more comprehensive programme of public services and social infrastructure provided by our peer countries of Western Europe. It is the job of taxation policy to provide the resources to close Ireland’s deficits in housing, healthcare, childcare and public transport.

As a policy objective, Ireland can remain a relatively low-tax economy, and still collect enough revenue to meet the economic, social and infrastructural requirements necessary to support our society and complete our convergence with the rest of Europe.

The next government should also consider replacing the current Local Property Tax with a Site Value Tax.  A Site Value Tax would perform the dual role of raising revenue for Government and encouraging the flow of capital towards productive social and economic enterprise. A well-structured taxation system would help reallocate capital to productive investment and away from speculative finance. Under such a system, any speculation that takes place would be taxed in such a way as to discourage such practices, whilst generating revenue for social infrastructure.

Social Justice Ireland also advocates the implementation of the recommendations of the Kenny Report, something which is long overdue. Following a recovery in land values and the commercial property market, and with shortages of land for housing, now is the perfect opportunity for the application of a windfall tax. This and the aforementioned policies would increase the fairness of the Irish taxation system, as well as broadening its base.

The most important thing for the next Government to remember is this: European-average levels of public services and social infrastructure are not possible without European-average levels of taxation. To close Ireland’s deficits in housing, healthcare, childcare and public transport, Ireland’s tax-take must increase gradually towards the European average.

*Social Justice Ireland’s proposed new tax take target:

Social Justice Ireland proposes a new tax take target set on a per-capita basis; an approach which minimises some of the distortionary effects that have emerged in recent years. Our target is calculated using CSO population data, ESRI population projections, and CSO and Department of Finance data on recent and future nominal overall taxation levels. The target is as follows:

Ireland’s overall level of taxation should reach a level equivalent to €15,000 per capita in 2017 terms. This target should increase each year in line with growth in GNI*.

Previous benchmarks, set relative to the overall proportion of national income collected in taxation, have become redundant following recent revisions to Ireland’s GDP and GNP levels as a result of the tax-minimising operations of a small number of large multinational firms.  Consequently, an alternative benchmark is required.

To read 'Social Justice Matters: 2020 guide to a fairer Irish society' click here.