Key to election success: Reduce taxes on income

Next month’s UK election will usher in a period of unusual political instability. The campaign itself has already been quite extraordinary. All parties have been working their way through a laundry list of promises, most made up on the hoof in response to the latest gimmick promised by the competition. All extremely unedifying and incoherent.

Opinion polls are to blame: they indicate no overall majority for anyone and a diminishing but equal share of the vote for the Tories and Labour.

In response, politicians from all sides are promising to do all sorts of unlikely things. And are tying any future administration in knots, assuming that these myriad promises will be kept. Many of these commitments relate to spending and taxation. Voters can be forgiven for being confused and switched off.

Almost a quarter a century ago it was quite different. Then prime minister John Major was forecast by pollsters to be trounced by the Labour leader, Neil Kinnock.

Major’s response to the doom-laden opinion polls was simple and consistent. He kept pounding away at a single message: vote for anyone but me and your taxes will go up. He proceeded to win more votes than any other British prime minister in history.

The strange thing is how few lessons have been learned from this, at least by the current generation of British politicians. On this side of the Irish Sea, I humbly suggest that if Fine Gael adopts the John Major strategy it will have two (at least) linked virtues: the claim that a vote for anyone other than Enda Kenny will involve higher taxes looks to be true and, therefore, is likely to be an effective electoral strategy. People tell opinion pollsters one thing but often behave differently in the polling booth.

Our debate about tax is as incoherent as is the one in the UK. Claims are made that often violate the basic principles of arithmetic. The complexity of the current system permits all sorts of things to be said that inevitably go unchallenged: it is hard to find anyone that really understands how it all works. We often hear, for example, that the answer to our problems lies with the introduction of a progressive income tax system. Such a claim ignores the fact that we already have such a system.

The debate has been conducted on an infantile level for a while but complexity has increased massively as a result of the changes introduced in successive budgets throughout the post-2007 period. Enlightenment is possible, however, and can be found in an unlikely source.

Quality research

The Nevin Economic Research Institute is a think tank supported by the trades union movement. It produces interesting research that is never less than thoughtful and is often high quality. But there are few economic problems that it thinks can't be solved via higher taxation and spending – unsurprising conclusions given its remit.

It is worth getting beyond this single transferable answer: some of its research provides genuinely original insight into important policy issues. The most recent example should be read by anyone interested in Ireland’s taxation debate. A paper published by the institute’s Micheál Collins provides a brilliant summary description of our tax system, in all its complicated and idiosyncratic glory.

Some snapshots worth highlighting: between 2007 and 2013, total government tax revenues fell by €10 billion. Thanks to successive tax rises, total income taxes, including universal social charge, rose; total taxes nevertheless collapsed because of, mostly, lower VAT, corporation tax and stamp duties.

It takes Dr Collins two pages of his paper to summarise just the direct tax changes that have been introduced in the 10 budgets we have had since 2007. The significant changes to our tax system over a longer time frame, since 1997, are described with exemplary clarity. The crucial issue of progressivity is dealt with in a couple of charts: we have a progressive income tax system but USC leaves a bit to be desired.

Dr Collins suggests any further changes to this very complicated system should be gradual. I would argue they should aim to simplify and, in a very uninstitute-like conclusion, should reduce taxes on personal incomes.

The experiment of John Major, at least, suggests this would be an election winning strategy.