A flat tax would see everyone play by the same rules

Renua Ireland’s tax proposals would boost livelihoods of working families

Our proposal would abolish USC and employee’s PRSI and introduce a flat tax rate of 23 per cent.

Our proposal would abolish USC and employee’s PRSI and introduce a flat tax rate of 23 per cent.

 

Renua Ireland’s Flat Tax policy represents a radical reform of our tax system that would directly benefit working families, households and small businesses. It would transform our indigenous economy and reduce our overdependence on foreign direct investment and property.

Ireland’s current tax system discriminates against the self-employed and discourages working families and individuals from earning more for their household. This is bad for the economy and bad for society.

Ireland needs to be bold if it is to sustain our economic recovery, and ensure the spoils are more fairly distributed throughout the country.

When taking account of Universal Social Charge, PRSI and income tax, a single person in Ireland earning just over €33,800 a year pays a marginal tax rate of 51 per cent.

Our proposal would abolish USC and employee’s PRSI and introduce a flat tax rate of 23 per cent. Our research shows that such a tax system – when the abolition of all reliefs is factored in – would result in a tax take of €12.33 billion, versus the current take of €15.84 billion. Though this equates to a difference of 22 per cent in tax take, this is within the proposed broad and dynamic effect our external advisers recommended for such a scheme. By this we mean that the impact on the black economy, on spending – and the cash flow and VAT take which accompanies such spending – would balance out the reduction in tax revenue.

For example, the average household income in Ireland is just over €56,000. Our flat tax proposal would boost such a family’s disposable income by €2,700. A household with a combined income of €80,000 would see their disposable income rise by €4,500 a year.

The lessons of our recent economic past have not been learnt. The pre-election budget debate continues to be a bun fight between electoral and vested interests, rather than being about the best interests of the Irish people.

Renua Ireland wants to offer real solutions to improve the long-term livelihoods of working households. For those out of work, the introduction of a flat tax system would generate an enormous economic stimulus, boosting sustainable job creation and wage growth.

A flat tax is a simple system of taxation that applies to all taxable income. Everyone plays by the same rules in our system. This means no one of privilege, wealth or special status can seek to pay a lower rate of tax than the average working family. The business sphere has been transformed by the flat rate of 12.5 per cent corporate tax that applies to all companies. It is a genuinely progressive system, and we believe people, as well as corporations should benefit from it. If you earn more money, you pay more tax, but you don’t pay a progressively penal rate of tax.

Many people are willing to work an extra hour or move beyond part-time employment, but often the tax system actively discourages this. The State should not impose economic barriers to those who want to work more. Under the flat tax system, working that extra hour, or moving from part-time to full-time employment, will always be beneficial.

When the Government appointed an expert group in 2013 to promote entrepreneurship, one of its key job creation proposals was a flat tax on all income – three decades after the 1980 Commission for Taxation recommended the same. In 1980 the government ignored the advice and chose 70 per cent marginal tax rates, and the result was a litany of tribunals, tax amnesties and Ansbacher accounts.

In dismissing the proposal of the group he had commissioned, Richard Bruton was reported as saying it was “too radical”. The current system has 20 tax credit scenarios, eight USC categories, nine rates of PRSI and two income tax bands. It also has a vast range of reliefs (property and others) that benefit only people on higher incomes. These would be abolished under a flat tax system.

It was dismissed not because an analysis had been undertaken as to its potential benefits for working families. It was ignored simply because it was new and unfamiliar. In the 1950s when TK Whitaker proposed transforming our closed economy into to an open one, imagine if a minister had dismissed his proposal because it was “too radical”.

A flat tax would radically boost household budgets, communities and small businesses across the country. Combined with Renua Ireland’s policies on childcare, parental leave and productive small enterprise, our flat tax would reward working households for their struggle over the past seven years and incentivise productive wage inflation in the small business economy that represents 70 per cent of employment.

This policy is a game changer for Ireland. Ireland will become the most attractive location in the EU to live, work and grow a small business. Lucinda Creighton is leader of Renua Ireland and TD for Dublin South East