Philanthropy cannot be a substitute for paying tax
Business Opinion: a proposal to ease tax residency requirements may be financially tempting but is morally objectionable
Fine Gael grandee Frank Flannery: tax equity arguments based on “ideological bullshit”. Photograph: Eric Luke
One of the many straws blowing around in the pre-budget wind is the notion that Minister for Finance Michael Noonan might announce some sort of measure aimed at encouraging philanthropy by the very wealthy and the very offshore.
The main proponent of this initiative is the Forum on Philanthropy, headed by Fine Gael grandee Frank Flannery. It has proposed that tax exiles be allowed spend an extra 43 days a year in Ireland in return for an up-front €5 million contribution and then €1 million a year thereafter for 10 years. At the moment they can’t spend more than 280 days in Ireland over a two-year period without being caught in the tax net.
The Department of Finance is not very keen on the idea and as long ago as last November the secretary general of the department, John Moran, put his concerns on record in a letter to the assistant secretary of the Department of the Taoiseach. The letter was released last week under the Freedom of Information Act to this paper’s Ronan McGreevy. Mr Moran – a former investment banker – argued it was unwise to do something that could be portrayed as allowing wealthy individuals to buy their way out of tax residency and also that the proposals would “involve a hollowing out of the residence rules for tax purposes”.
He concluded, in what is presumably formal civil servant speak: “Having considered the proposal in detail, I believe the issues raised in this letter permit [sic] my department from supporting its introduction.”
Moran’s objections seemed to have helped scotch any mention of the forum’s proposals in last year’s budget. We are not privy to subsequent correspondence in relation to this year’s budget but it is hard to see how Mr Moran’s position could have changed much.
However, if Mr Flannery’s comments in response to the release of the letter are anything to go by, the idea is far from dead. He said this weekend the idea had the support of Mr Noonan, whom he met earlier this month, but he did not know whether there would be anything in tomorrow’s budget or the subsequent Finance Bill.
Mr Flannery brushed aside Mr Moran’s concerns with a version of the “needs must” argument popular among proponents of the morally objectionable but financially lucrative. To quote Mr Flannery: “The alternative [to his proposal] is to close schemes in disadvantaged communities all over Ireland, putting charities out of business, all for what I would describe as ideological bullshit.”
At a stroke he has turned the issue of tax equity – a core value of any functioning society – into a pragmatic issue concerning unnamed schemes in unnamed communities. It is as good an example as you could want of the of the sort of moral shading that lies behind pretty much every unethical decision that was ever made.
Mr Flannery’s other stroke of genius is to suggest that the big-time, US-style philanthropy he seeks to foster is ideology-free. In truth it is profoundly ideological. The notion that the rich are above national law and can do with their money as they see fit is the flip side of the out-of-control libertarian credo that currently threatens to force the richest country in the world to default on its debts.
The nihilist elements of the US right are entirely comfortable with the notion that the wealthy get to pick and choose how they contribute to the society in which they make their money. The more extreme proponents of this viewpoint hold that threatening to wreck the global recovery in order to reverse measures aimed at redirecting some of their astronomical wealth towards healthcare for the poor upholds the principles of the US founding fathers.
US-style philanthropy has a profoundly ideological aspect to it, and any honest debate about whether we want it in Ireland really has to acknowledge this. It would have consequences, one of which will be to remove a useful check on the influence of rich people that want to live here, make their money here, have a very big say in how the country is run but not have to pay the same taxes as everyone else.
The implications of that are hard to predict but if you take a look across the Atlantic it is unlikely to be good news for those who believe in the European social democratic model. That, by the way, includes all of us who pay our taxes and will be asked to pay some more tomorrow.