Charlie McCreevy will announce the Budget Estimates next week, but it's unlikely they will include €11 million for hot meals for children, writes Fintan O'Toole
Ask any teacher working with poorer Irish children for a simple idea that would make a big difference and many of them would say "a decent meal". Kids going to school without a breakfast, or trying to stay at school without the prospect of a hot meal until late in the day find it hard to concentrate. Breakfast clubs of the type operated by Barnardos and other agencies in some areas don't of themselves obliterate the consequences of poverty, but they help.
According to Combat Poverty, an expanded breakfast and hot meal programme for 100,000 children, combined with an initiative to keep vulnerable kids at school, would cost €11 million next year. It's not a lot of money in the context of State expenditure, but there is very little chance that it will be included in next week's Budget Estimates, or in next month's Budget.
Why? Because we can't afford it. Times are tough, the good times are no longer rolling, and we don't want to put up taxes. And it's a fair bet that many people who found themselves nodding in agreement at the suggestion that feeding hungry kids would be a good thing to do, also find themselves agreeing with this latter statement, especially the bit about tax.
It's not just that nobody, anywhere, likes paying tax. It's also that many decent, socially-conscious Irish people are fed up with the bill always arriving at the door of the modest, hard-working, ordinary family. Paying your fair share is still a source of pride, but what about an unfair share? Such people feel that they already bear enough of a burden and that others with broader shoulders could take a much heavier load.
And the problem is that, by and large, they are right. Even though the tax burden on a household receiving the average manufacturing wage has halved over the last decade, the very basis of a taxation system in a democratic society - that citizens contribute according to their means - has been disastrously discredited. Until it's put right, the simplistic rhetoric of low taxes will still have a wide appeal and schoolchildren will still go hungry.
The reality is that Ireland already is a very low tax economy: the lowest, indeed, among all the OECD countries. Last year, tax revenue represented just 28 per cent of Gross Domestic Product, well below the EU average of 40.5 per cent, and a fall of 2 per cent from 2001 and of 7 per cent since 1985. Even taking into account the oddities of Irish GDP (which exaggerates national wealth because it includes the profits multinational companies send back to their home bases), Irish tax revenue is around 34 per cent of actual national output - still remarkably low by the standards of the developed world.
In terms of the competitiveness of the Irish economy, there is plenty of room for higher overall levels of tax.
For those who pay the vast bulk of personal taxes - PAYE workers - however, the idea of paying any kind of tax increase is particularly unattractive while people with much more money seem to regard them as mugs, and the State effectively endorses that view. The tax amnesties of the 1980s and 1990s suggested that the wise policy was to withhold tax until the State offered you a knock-down deal. Why pay all your taxes, when you could get away with paying just 15 per cent? And, indeed, why pay tax at all when the banks were offering bogus non-resident accounts for middle-of-the-range clients and classier models such as the Ansbacher Cayman scam were available to the captains of industry and leaders of society?
In some respects, however, it is surprising that wealthy individuals in Ireland resort to outright tax evasion at all. The yield from wealth taxes is not only very low, it is falling. The amount of Capital Acquisitions Tax paid in 2002 was €151 million, more than 10 per cent below the 2001 yield of €168 million. The yield of €619 million from Capital Gains Tax in 2002 was €139 million below the Budget Estimate and €257 million less than the 2001 yield - a drop of almost 30 per cent. From a total tax yield of almost €40 billion, these two areas thus contributed just €770 million: less than a fiftieth of the total.
There is, moreover, ample scope for legal tax avoidance as opposed to illegal tax evasion. A study, compiled by the Revenue Commissioners' statistics division and published with the 2003 Budget, found that 18 per cent of the 400 top earners in 1999/2000 were paying tax at less than 15 per cent. Of the 117 wealthy individuals studied by the Revenue who had effective tax rates of less than 30 per cent, 29 paid no tax at all and 22 paid at a rate of less than 5 per cent. This was at a time when the lower rate of tax for most PAYE workers was 26 per cent, rising to 44 per cent as soon as a single worker earned more than £17,000. So we had a situation in which a very modestly paid worker was paying tax at 44 per cent, while a very wealthy individual could be paying as little as 5 per cent.
These rich people were not breaking the law. They were able to almost eliminate their taxes by availing of perfectly legal tax reliefs and loopholes. The total annual cost of tax allowances and reliefs to the Exchequer is in the region of €8.5 billion. The significance of this figure is obvious when compared with total tax and excise revenue of around €40 billion. Much of this is made up of reliefs to industry and business, which arguably have social and economic advantages that make them worthwhile, but significant amounts are lost through schemes whose worth to society is highly dubious.
Take the €11 million that would provide breakfasts and hot meals for 100,000 of the poorest children in the land. It could be raised quite simply by dropping one tax relief - the capital allowance for the builders of hotels. Since there's no obvious shortage of hotels in the country, it's not at all obvious why this relief is necessary, but it costs more than €12 million a year. Between them, tax breaks for multi-storey car parks and heritage homes cost over €13 million a year. Some reliefs - like those on the massively lucrative stud fees generated in the horse breeding industry - cost a literally unknown amount of money because only in the last Finance Act was a requirement to declare the income finally inserted.
Scrapping many of these tax shelters and ring-fencing the money saved for measures to alleviate poverty would go a long way towards restoring the credibility of the tax system. So would the allocation of more resources to the Revenue and the prosecution of more tax evaders.
In 2002, Revenue audited 16,186 cases and the audits yielded €286.83 million. Over the same period, the Department of Social and Family Affairs carried out a total of 341,000 reviews of social welfare claims and realised savings of €282.7million. In other words, for roughly the same amount of money saved or earned for the Exchequer, social welfare claimants were subjected to more than 20 times more scrutiny than taxpayers. Giving the Revenue more staff to do audits wouldn't just pay for itself many times over, but by convincing a sceptical public that tax evaders don't get away with it, it would help to transform the broader climate.
But there is also a need to establish once and for all that tax evasion really is a crime. For all the hard rhetoric about clampdowns and zero tolerance, a grand total of three convictions for tax evasion or fraud were secured in the courts last year, and even in these cases the punishments imposed were puny.
A cattle dealer/haulier was convicted of failure to make Returns of Income for five years, giving rise to "substantial" evasion of tax. He received a fine of €3,000. A company director was convicted of making fraudulent VAT repayment claims. He was given custodial sentences of three months on each of two charges, both of which were suspended on condition that he repaid to Revenue the tax defrauded. And a builder was convictedfor making a false Income Tax and VAT return. He was fined €2,540. In all, then, tax fraud in 2002 was punished with a grand total of €5,540 in fines and no prison sentences were served.
Closing the loopholes, broadening the tax base and taking tax evasion seriously would all help to convince compliant tax payers that they are not idiots. That might not be enough to convince them that paying a little more tax to end social squalor would be worthwhile, but it would at least leave them open to persuasion.