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  • irishtimes.com - Posted: September 8, 2009 @ 11:13 am

    Tax Commission report

    Harry McGee

    There are 230 plus recommendations in the Commission for Taxation Report. Many of them are the kind you would find nested in the Minister for Finance’s speech at Budget time.

    A few examples:

    Recommendation: Thre rent-a-room relief should be discontinued.

    Recommendation: Income tax relief for expenditure on heritage buildings and gardens should be discontinued.

    Recommendation: The capital allowance for childcare facilities should be discontinued.

    Some of them will be greeted with groans whenever they find themselves into a Budget and a few, including cutbacks in incentives for childcare, will generate political heat.

    Some others will be warmly welcomed. Who is against a crackdown on super-rich tax exiles? Nobody except super-rich tax exiles and those who aspire to that station.

    A dozen, perhaps 20, of the recommendations have the potential to be deal-breakers.

    Many of them have already been identified in the media this morning. Property tax. Carbon tax. Tax on child benefit. Water charges.

    But there may be others, the impact of which will not become fully obvious until the ink is just drying in a recently-delivered Budget speech.

    There is only one example to cite in that respect: the abolition of medical cards for over 70s.

    The Government will have to draw up a savage Budget this December and it will involve pain for all. They can’t afford to include measures that seem patently unfair to a vulnerable or vocal group or which will give the opportunity to opponents to mobilise a populist campaign quickly.

    The two big measures that will see early implementation are carbon tax (people will whinge about it but accept it) and a means-test or tax on childcare (this is a potentially explosive issue).

    A property tax at this stage of the game would be political hari kari, even though the move from a transactional tax to recurrent  tax makes sense. Whenever it’s introduced it’s going to be a nightmare and there are going to be anomalies and injustices everywhere (a widow living in a house for 50 year in an area that has become very expensive; people being charged more by dint of the fact that they live in Dublin rather than in a less expensive area in rural Ireland).

    Water charges make sense. The campaign against water charges led by Joe Higgins, the Socialist Party, and others makes no sense. Water charges will punish those who waste a precious resources, once meters are installed. They will also provide a valuable source of income to local authorities.

    If water charges wereimplemented, the Government will have to show (in a very clear and transparent way) that taxpayers will make commensurate savings elsewhere. Nobody likes new taxes and charges. But waste charges have been introduced by most local authorities based on usage and there is no logical reason that the same should not be done for water.

    But what makes sense logically sometimes makes no sense politically. And any government introducing it will have to tread carefully.

    The Government doesn’t want to repeat last year’s medical card fiasco.

    But the atmosphere has changed since then. I think a mass protest would still reverse the change if it were introduced in next December’s Budget (because of the emotive nature of the issue)  but I don’t think it would have the same mass (almost unanimous)  support.

    Brian Lenihan has to implement €4 billion or more in cuts for 2010.

    It’s going to mean a lot of pain and will take a huge degree of nerve. The solidity of the Government increasingly looks like that of a chair with a doddery leg. Not from the Greens. But from windy Fianna Fail backbenchers and from independent TDs on whom continuing reliance cannot be placed.

    More of the same will be needed next year, if the Government survives. That’s why I think we will see water charges making an early appearance.

    AR AN LÁIMH EILE: Robert Reich, the former US secretary of Labour, wrote a very interesting column in the Guardian last week arguing for EVEN MORE borrowing and EVEN LARGER deficits as a means of recovery.  Read it HERE

    We have gone down the hairshirt route? Government says we are hampered when it comes to borrowing. But if we were to greatly increase the debt to GDP ratio and spend the money on big capital projects like school and public transport etc., would it be a better solution that the current parsimony?

    That kind of consideration is above my pay level. But are there possibilities beyond the current orthodoxies?

    • Dan Sullivan says:

      Harry, the problem with expenditure would be how we spend it. We tried that approach in the late 70s but FF went down the route of hiring people into the civil service to do not very much over the notion of ramping up the road and rail network.

      Spending money on the Metro say would involve a lot of money being given to overseas specialist companies. Extending and renovating schools would be a more sensible option provided that the contracts were open and transparent and not just to ensure the brother of the local cllr is kept ticking over while his competitor goes under.

    • robespierre says:

      I would disagree Harry. I know what Reich is saying but this plays into the patronage system which we have but on nowhere near the scale you might see with Italy or the USA. Large capital programs keep congressmen and women on Capitol Hill. Think Governor Palin and the famous bridge to nowhere.

      Italy is a good example. Generations of corrupt politicians have refused to stand up to vested interests and reform the economy. Resultantly, Italian debt is junk. The United States from a realist perspective in the political theory sense is well advised to make its debt effectively junk as by doing so it actually weakens the sovereign power and control that China and the Middle East have over its economy. They did this effectively with South Korea in 1985 when they halved the value of the dollar, doubling debt, in order to prevent the emergence of a second Japan.

      As we do not really produce anything the world wants to buy from us (i.e. Irish consumer goods companies selling overseas) increasing debt would be a risky and a foolhardy plan. We should be looking to highly entrepreneurial economies like Poland and the legendary Leslek Balcerovicz to get national entrepreneurism going.

      Fine Gael are right on one thing however. Yesterday’s Tax Commission report needs serious reflection and many of the recommendations need to be implemented BUT the first step should be public sector efficiency. I sincerely hope that Fine Gael DO NOT go into power with the political wing of the public sector, the Labour party. They have no interest but the vested interests of their union members and pals.

    • Michael O'Brien says:

      Harry, the anti water charges campaign of the 90s might have made no sense to you but it did to the thousands who participated in the campaign of mass non payment. Mary Hanafin in the Dail stated in 2007 that had the charges not been abolished in 1996 householders would be facing a bill of €700 to €800 per annum.

      This government could have forced the building industry to apply water conservation measures such as dual flush toilets and rain retention during the course of the construction boom.

      Taxpayers should not be made to pay for government and construction industry negligence.

    • barratree says:

      Michael,

      To be frank, the idea that taxpayers are being victimised by paying for their waste is obscene. No one has a right to use as much of a precious resource as they want without incurring a cost. It’s a behavioural problem. Dual flush and rain retention are all well and good but until water is metered and charged above a certain free allowance people will not change their habits. Perfect example is recycling – biggest factor has been pay per weight or lift for black bin. If you waste, you have to cover the full social cost.

    • Ray D says:

      This report is truly awful and did not do the job it was supposed to do – bring out proposals that were revenue neutral. It also reflects the composition and philosophy of the review group (as did the Bord Snip rubbishy report.

      A group of left-wingers – trade unionists, politicians and economists – should be asked to do a report on taxation and public expenditure. This report might bring some balance to the issues and widen the options for consideration – although there are far too many options on the table already.

    • Dan Sullivan says:

      Ray D, you’ve a point there. I’d like to see a similar report from left wingers outlining taxes they would like to see introduced and also how much they would raise and why they believe it would raise that much. Actual hard numbers.

      And also areas of expenditure or tax loopholes that should be closed. Again I want proper numbers of how much raised or saved.


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