Bread & Circuses

The leaves are falling and the evenings are creeping in. The Dubs aren’t yet All Ireland Football Champions, but apart from that aberration, we have all the usual signs that we are entering that magical period: Budget Season.

Omnipotent Tax “Experts” are proselytising across the media. My timeline is an economist’s wet dream of Laffer Curves and Keynesian abdication. My world, usually governed by white papers and personal insolvency practitioners, is now ruled by the Sod’s Law of Diminishing Returns. It truly is the most wonderful time of the year.

Brian Hayes MEP tweeted me about how Ireland, was second only to Israel, in having the most progressive tax system in the OECD. The Irish Tax Institute Report told me that 29% of people pay no income tax and that someone earning €75,000 pays 44 times more tax than someone earning €18,000.Facts.

Brian then asked me – the financial adviser- to debate these facts. I pointed out the futility of debating facts, but that I would be more than happy to debate the ideology behind them. Brian, a hard working and very busy man, referred me on to the OECD.

So, not wanting to pick a fight, but wanting to explore the issue, I decided to write down my “qualified” opinion on the Facts and the 4 Questions that the Irish Tax Institute asks.

Question 1 regarding creating our taxation policy on the hoof is spot on.Agree 100%. We should not be planning such a crucial pillar to our countries financial stability in such a short term way. It is crucial that we have a medium and long term plan.

Question 2 about an “overly progressive” tax system is a play on words. If something stops being progressive, it follows that it becomes regressive. But rather than say this (because it would cause disharmony) they are implying that by being overly progressive, middle and (particularly) high earners pay too much tax. Overly progressive; it sounds like a slur that Hardcore Conservatives would throw at people who don’t believe the Earth is flat.

Back to the Facts.

Reading their example (above) of someone on €18,000 vs someone on €75,000, showing a tax burden disparity of 44 times, is quiet a smack in the face to those who say Ireland doesn’t have a progressive tax system. 44 times more tax on 4.16 times the salary is a whopper. But it’s what it doesn’t say, that is more important.

Someone on €18,000 is on a minimum wage and is more likely to live below the poverty line.

Someone on €75,000 can avail of tax breaks (pensions) at much higher rates than someone on €18,000

Someone earning €18,000 has a take home pay of €1,450 per month. The Insolvency Service of Ireland deems the amount needed for a “reasonable standard of living” for a single adult with no children to be €1,029 per month BEFORE rent/mortgage. Good luck finding decent rental accommodation for €421 per month.

Factually, the person the ITI are basing their Tax Disparity Example on is Insolvent within the eyes of this state. Harsh realities that counter the overly progressive Facts.

Question 3 around competitiveness and the incentive to work.

Firstly, the ITI’ s argument is flawed from the outset. They are basing their middle income level at €55,000 (see below)

The average salary in Ireland is €36,277.80, a long way off from €55,000.

They are asking a good question; is the high rates of tax above the average wage creating issues. But they are ignoring the reason why things are as they are. We didn’t get into this big tax disparity overnight. It has been a result of decades of taxation “planning”.

Rather than focus on the real impact to competitiveness and attracting talent, the ITI should be asking how to address it and build a more sustainable model. It’s like one of my former bosses liked to say; “Don’t bring me problems, unless you’ve got the solutions”.

In our current economy, most of the services the state should provide, from these higher (dare I say regressive?) taxes are, more often than not, provided from the Private Sector. Someone on €18,000 spends 100% of their income on essentials. If we had a Public Sector that provided efficient Public Services, (childcare, housing, health care etc.) then we could (and should) ask those who pay less to contribute more. But we don’t live in that Ireland today.

The argument shouldn’t be for a shrinking of the disparity to attract talent, not yet. Not while we don’t provide the support services that would make this feasible and sustainable.Fix this, stop the widening of inequality and the disparity will evaporate.

As for Question 4 and our social needs in an open economy:

In ancient Rome it was called the Cura Annonae (care for the grain) and the grain “dole” was paid (in theory) to all citizens, rich or poor. Used as a method of appeasing the plebeians, the “dole” was a constant source of political debate. Some Tribunes (Saturninus) gained their elected office by positioning themselves as protectors of the grain dole. While others (the Emperor Augustus) wanted to abolish it altogether. He, after warnings from his “tax experts”, reduced the eligibility to about 200,000 people.

Rome was perhaps the first free market open economy. Yet, even in Imperial Rome, in the era of the Caesars, the Cura Annonae was maintained. That was the biggest, non negotiable social need.

People on the modern day breadline don’t get free bread; they buy it in Aldi or Lidl. People on €18,000 per year are not well off. People in the squeezed middle are not well off. Even people on “high salaries” of €75,000 are not well off; Mortgages (or exorbitant rent),Home Insurance, Local Property Tax, Health Insurance, Life Insurance, Childcare, Cost of Education, Car Tax, Car Insurance, Bin Charges, Medical Costs and on and on and on.

I pay my “overly progressive” taxes, and I’m not blaming them on the person on the minimum wage. I am wondering why I pay them AND all of the other taxes and charges above. The Irish Tax Institute Pre-Budget Report is being used to pitch tax as Us vs Them. It is not that at all. It is a morality issue, not a taxation issue.

The argument should be for a shrinking of inequality that everyone benefits from. It’s not overly progressive taxation; it’s overly relied upon taxes, used to cover gaps in inefficient governance.It’s not about disincentives to work, it’s about incentives to care about the wider society.

So don’t listen to the convenient arguments taken from the ITI report, even if it gives you an easy target to vent on. Ask what are you getting for your taxes, ask why TD’s are getting pay rises of over €6,400 in January, while your wages have stagnated for nearly a decade. Don’t misdirect your anger to the girl on minimum wage. Don’t punch down, punch up!

 

Tony Groves September 2016

p.s that is not me in the navy suit, I have more hair and don’t wear glasses

 

8 thoughts on “Bread & Circuses

  1. Agree with almost all and definitely with the finale. One add on – the state services are not provided by the private sector in the general meaning – they are mainly provided by the NGOs, who are private in a way. The NGOs are paid for by the state and first to be cut in hard times (and then blamed for the consequences). This is an abdication of state responsibility for nearly a century and shames us as a country

    Worse, the plan now seems to be to move no activity to the for-profit private sector. Ask your TD about this as well. It’s an outrage.

    1. Thanks Mark, your NGO clarification is well made. We are in an era of a rapidly shrinking public sphere, where state responsibility seems to only extend to delivering new plans, that aim to deliver new plans, that will plan to tackle the problems, in future plans…

    1. True, some quick stats for comparison: Avg Salary of €36,300 equals 65% of the ITI’s mean of €55,000 BUT actually equates to 75% of Net Monthly Income, or €2,424 vs €3,211. Also problematic here is the fact that, given mortgage lending criteria bands stretch above €50k, the higher earner is much more likely to be paying a higher % of NDI on PDH.

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