THE REPORT of the Commission on Taxation is a comprehensive and measured view of the tax system’s fitness for purpose. It has at its heart the same principle that has underpinned economic policy since the mid 1980s: namely, for a small open economy, low taxation is the best way to encourage enterprise and jobs.
But, why the Coalition Government decided to publish a €3 billion taxation plan now, in the middle of the referendum campaign on the Lisbon Treaty, defies all political logic. Was there any compelling reason to have Lisbon dragged into proposed tax increases in the December budget?
The main recommendations of the commission – an annual property tax, water charges, carbon tax and a simplification of the income tax system and associated reliefs – are measures that could and should have been implemented over the last decade or so as part of the management of the economy in line with the low-tax philosophy.
Instead, successive Fianna Fáil-led governments cut taxes and dodged the issue of tax reform to sustain them and stabilise the system. The report is testament to the failure of successive governments to face up to their responsibilities in this regard. The reason for this onesided approach was obvious yesterday. All of the significant proposals contained in the report attracted public criticism.
The pity is that all the issues raised by the commission could have been addressed more easily when the economy was growing strongly. And if that had been done, the likelihood is that the crisis in the public finances – brought about in part by over-dependence on volatile stamp and consumption taxes – would be less acute now.
The issues raised by the commission still have to be addressed. The need for reform is arguably more pressing than ever given the imperative to harness all the apparatus of the State – including the tax system – to revive the economy. Taken as a package the recommendations of the commission would bring about a significant shift in the tax burden away from employment and into areas which exert the smallest drag on economic growth.
The Government showed little appetite for the recommendations yesterday. The Taoiseach and Minister for Finance have moved quickly to play down the significance of the commission report. A property tax – the single largest element of the integrated package – was ruled out by the Government before the report was even published.
Policy-making is the prerogative of the Government and Ministers are within their rights to ignore or pick selectively from the report in framing the coming budget. But, we should not lose sight of the fact that the Government chose on many occasions to hide behind the commission over the past 12 months when questioned about sensitive issues such as the taxation of social welfare payments and child benefit. The publication of the report should force the Government out into the open .