Levies, charges, price rises - anything to avoid increasing income tax. That's the McCreevy way, writes Shane Hegarty
It is disconcerting to know that you live in a country with one of the lowest income tax rates in Europe but that your wallet seems to get lighter by the year. It feels a little like winning on a horse but being mugged several times before you get out the door.
Levies, charges, price rises - the Government refers to these as indirect taxes. Economists call them administrative price rises. But they are popularly - or perhaps not so popularly - known to most of us as stealth taxes; and there were €91 million worth of them buried in Thursday's Book of Estimates. This week alone, the costs of A&E consultation, hospital beds, passports, school exams, third-level registration and motor tax all went up. So did the threshold for the drug payment refund scheme.
Meanwhile, local authorities really couldn't have found a worse week in which to defend themselves against reports that they have increased development levies on new houses to as much as €28,000.
This, though, has been the year of the stealth tax. The drug refund threshold went up in the last Budget, as did motor tax. Third-level registration fees also increased last year. Since the beginning of 2003, you have also been paying more for health insurance, electricity, gas, bins, cars, public transport, hospitals, credit cards, ATM cards and new houses.
It has cost you more to write a cheque, park a car and take a train.
Extra charges are helping Government departments and semi-State bodies to pay their own way. There may have been no reintroduction of third-level fees, but the past year has seen third-level registration fees double to €780 per student. The latest increase in motor tax will go towards funding road-building. The passport fees are to be used towards developing a "high-tech" secure passport system.
The ESB, Bord Gáis, An Post and CIÉ have all sought increases in the past year. Electricity charges rose by almost 10 per cent in January and a further 5 per cent price hike will follow in 2004. CIÉ has been looking for another fare increase despite a 9 per cent jump already this year. This is all against a backdrop of a sharply falling inflation rate, now running at 2.3 per cent.
There are more taxes to come. From next year, not only PAYE but also PRSI will apply to most benefits in kind. Those company perks you enjoy now will be increasingly bad for your pay-slip. Luncheon vouchers will be hit, as will employer contributions towards crèche fees and private medical insurance. Company cars and mobile phones will also be liable. All this will inevitably have an impact on many workers' take-home pay.
Even staff suggestion schemes will be hit, so the next time your company employs someone on your recommendation, the Government will get a slice of your reward.
Ireland, it appears, is building a tax system based less on the notion of pay as you earn and more on pay as you go. Increasingly, the Government is being accused of using low income tax rates for political gain, and slipping in surreptitious taxes to raise the money it needs to pay for services and, most notably, the enormous cost of benchmarking.
Certainly, the Minister for Finance, Charlie McCreevy, seems to have an ideological drive to keep income tax low. Since his first Budget, for 1998, bottom and top rates of income tax have dropped from 26 per cent and 48 per cent to 20 per cent and 42 per cent.
"He has reduced income taxes," says economist Paul Sweeney, "but he has been able to increase the revenue, not by shoving it up, but through the enormous growth in employment. It used to be that the numbers at work hovered around the 1.1 million mark; now they are pushing 1.8 million. There's a lot of extra people at work and paying taxes, and that has allowed him to keep the rate low."
Yet recent figures show that only 30 per cent of the total tax take now comes from income tax, whereas the figure used to be 44 per cent. This proportion is one of the lowest in Europe.
"The change that Charlie McCreevy has brought about has been quite radical," says Sweeney, who has written on this subject for the Think Tank for Action on Social Change (TASC). "He has introduced a myriad of stealth taxes. It is part of his political philosophy to move from income tax to taxes you 'voluntarily' pay yourself."
On one hand, we are paying more service charges, levied by local authorities whose funding is being squeezed but who must keep services afloat while also paying extra wages. The bin tax may be the best-known example, but some local authorities have come up with novel ways to raise money. In North Tipperary, for instance, a levy of €630 has been placed on the erection of "For Sale" signs outside properties, a cost ultimately passed on to the house-buyer. Landfill charges, meanwhile, have leapt up in several local authority areas. Zealous car-clamping has proven a lucrative source of funding for the Dublin local authorities.
Every local authority, says Fingal County Manager, William Soffe, has been "waiting with bated breath" to see how much money will be allocated by the Government before deciding which extra charges they need to make.
"Next year will be particularly challenging in that we must keep our benchmarking responsibilities," he says. "It will be a challenge to meet that cost, and I believe we'll benefit from that extra pay, but it will also mean that we have to make important changes. There's no doubt that all local authorities will be forced to maximise revenue, but it's only fair that they are able to justify every euro. My expectation is that people will pay if they know that they are getting a good service in return."
Unlike other European countries, there is no separate local level of taxation in Ireland, so local authorities need to come up with ways to pay for services. Not everybody feels that it is fair to label local authority charges as stealth taxes alongside more general indirect national taxes.
Dr Niamh Hardiman, of UCD's Institute for the Study of Social Change, sees indirect taxes such as VAT and excise as the real stealth taxes.
"It could be seen as very inequitable because it hits the lower wage-earners," she says. "Because we might all pay the same, but they pay comparatively more. Also, it doesn't educate people. There is such a slack culture of fiscal responsibility in this country. It doesn't come clean on its taxes, which means that there is no public debate."
She also emphasises how much damage the policy has done to Ireland's competitiveness.
"The Government has been responsible for a huge rise of inflation because of this," she says. "There has been a rise in insurance taxes, VAT, excise duties, and they all undermine competitiveness. Indirect taxes are pushing up inflation and it's causing real problems for business."
Ironically, the Government may only be giving us what we want. An Irish Times/TNS mrbi poll carried out in September showed that a majority of us believe that the Government should either cut public spending or borrow more before it raises taxes. This despite polls showing deep public concern at the problems facing public transport, hospitals and education.
There may be collective memory at work. The Government, haunted by the tax marches of the early 1980s and the political costs of an unfair tax system, may not want to bring taxes back up once they are down.
Meanwhile, the public might not want a return to the days when high taxes went towards paying the national debt rather than developing services.
"People are aware of the awful problems faced by our public services on one hand, so why do they say they would rather cut spending than pay more taxes?" asks Hardiman. "I think it comes back to collective memory; that people don't trust the system, they don't believe that higher taxes means better services. They don't believe that it is an equitable system or that it is run efficiently."
Unless you are among the lucky few, it may not make you feel better to know that a 1999 survey by the Revenue Commissioners showed that, through perfectly legal forms of tax avoidance, 30 of the country's top 400 earners paid no tax whatsoever that year. Not a penny, thanks to their investments in such tax-friendly ventures as stud farms, nursing homes and multi-storey car-parks. A further 64 handed over less then 10 per cent of their earnings.
The Opposition parties may increasingly use stealth taxes as a battleground on which they feel they can do some damage to the Government, but ultimately, of course, the impact will only be fully gauged when the next election comes around.
"I wouldn't want to hazard a guess as to whether it will have a political cost," says Hardiman. "It's hard to mobilise people on such diffuse issues as that. There is a generalised discontent that waxes and wanes, but perhaps the Government will be hoping that it can raise these indirect taxes and that it will have been forgotten by the time of the next election."
Betting tax, as it happens, is one of the few indirect taxes Charlie McCreevy has reduced in recent Budgets. That's come down from 10 per cent to 2 per cent since 1999.
Why not have a punt on how much extra you'll be paying after the next Budget?