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Policy issues concerning Taxation

The Government’s Stability Programme Update raises major challenges for Ireland on debt, infrastructure, taxation and services.  Social Justice Ireland believes a new approach is required if these challenges are to be addressed effectively.

The need for a wider tax base is a lesson painfully learnt by Ireland during the last economic crisis. A disastrous combination of a naïve housing policy, a failed regulatory system, and foolish fiscal policy and economic planning caused a collapse in exchequer revenues. It is only through a strategic and determined effort to reform Ireland’s taxation system that these mistakes can avoided in the future.

The recent debacle surrounding the Covid-19 vaccine has highlighted the capacity of corporate transactions to undermine Governments and put critical services such as public health at risk. When things go wrong, as they invariably will when dealing with new drug processes, a new virus variant and a new political system, both nationally and internationally, the disparities in the public / private relationships are laid bare, where corporate profit is prioritised over public health. But health is not the only area at risk. 

The past fifty years has been a period of falling taxes on the rich in developed economies.  A report by the London School of Economics and Political Science has found that reducing taxes on the rich leads to higher income inequality and has little or no impact on economic growth or unemployment.  The report finds major tax cuts for the rich since the 1980s have increased income inequality without any offsetting gains in economic performance.   It concludes that governments seeking to restore public finances following the COVID-19 crisis should therefore not be concerned about the economic consequences of higher taxes on the rich.

According to the latest data published by the CSO, €2.4 billion was not collected by the Exchequer due to direct subsidies and revenue foregone due to preferential tax treatment supported fossil fuel activities in Ireland in 2018. This represents an increase of 8 per cent on the previous year. 

The Department of Finance recently published an update to Ireland’s Corporation Tax Roadmap.  The update reaffirms Ireland’s commitment to a multilateral approach via the OECD/G20 Inclusive Framework to address the tax challenges posed by the digitalisation of the economy.  It also contains a welcome recognition that a multilateral approach will require compromises and trade-offs.  A minimum effective corporate tax rate must be a policy instrument for consideration in light of the ever-changing global context and our commitment to the OECD/G20 Inclusive Framework. 

While Corporation Tax has provided a buffer for the Irish economy for some years now, a significant decrease in October 2020 once again underscores the need to rethink our taxation sytem, particularly in the context of Ireland's recovery from the fall-out of the Covid-19 pandemic.

In today's article, we examine effective income tax rates for different household-types in Ireland after Budget 2021, and compare them with rates in previous years.

For the years 2020-2022, or until Ireland reaches full employment (if earlier than 2022), the fiscal stance adopted by Ireland should be determined by an unemployment target, rather than a deficit target, in recognition of the role domestic demand plays in sustaining domestic employment. The State should begin to plan now for the additional tax measures necessary, over the long-term, to finance the Government expenditure required to finance universal services and income supports for our citizens.

Budget 2021 follows a series of budgets over recent years that have frequently given emphasis to providing reductions in income taxation. Here we compare the total annual value of these reductions between 2014 and 2020.