Business needs to start paying its fair share of taxes

Our tax rates cannot be seen as sacrosanct - investment in our social infrastructure, including the requirement for a highly-…

Our tax rates cannot be seen as sacrosanct - investment in our social infrastructure, including the requirement for a highly-skilled workforce, is as important as that in roads, writes David Begg.

In his article in this newspaper on Tuesday, Turlough O'Sullivan put the IBEC case for a budget focused on infrastructural development. I agree that we need to invest in infrastructure, but not just on roads.

We also need to see investment in "soft" infrastructure - health, education, skills, childcare, the elderly, people with disabilities - as being equally important.

The ICTU has put this case to the Minister for Finance, including the need to preserve the value of wages by indexing tax credits and bands and by taking earnings at the minimum wage out of the tax net.

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I have no problem with IBEC presenting its own shopping list. That is the stuff of democracy. But superficial analysis and an attempt to misrepresent congress as proposing a "high-tax policy" is no substitute for rational debate.

In economic terms, Ireland has made enormous progress in the last decade.

Unfortunately, we have not matched this with progress on the social front. Daily, news reports deliver grim confirmation of this social deficit and its impact on the taxpaying citizen.

The health service is a source of major concern. While investment in health has increased significantly in recent years, the fact remains that 6,000 beds were taken out of the system in the 1980s and 1990s.

When the Government met in Ballymascanlon two years ago to discuss health, Micheál Martin proposed to provide 5,000 new beds. Charlie McCreevy beat him down to 3,000, but fewer than 500 have materialised. Until this deficit, and the parallel need for proper "step-down" care for elderly people, is addressed, the health crisis is likely to continue.

And this deficit is evident in other sectors such as education. Despite our record growth, we are one of the most unequal countries in the developed world, in terms of income distribution. Are we happy for this to continue? If not, we need to start thinking clearly about corrective action and how we intend to pay for it.

In his article, Mr O'Sullivan attacked the tax strategy congress proposed to undo this social deficit, mainly on the grounds that policy since the late 1980s has proven successful and should not be abandoned.

Congress believes that what worked during the "catch-up" phase of our development is no longer appropriate.

What we propose is a broadening of the tax base and for business and wealthy individuals to pay their fair share.

In the late 1980s, Ireland had a tax regime in which revenue raised amounted to 49 per cent of GDP and public spending equated to 56 per cent of GDP. This was clearly unsustainable and the unwinding of this system over the years to 2000 facilitated economic growth and employment.

What congress argues is that we abandoned this gradualist approach in 2001 with massive business tax reductions at a time when the economy was growing at 9 per cent and unemployment was down to 3.9 per cent. The reductions went too far.

It was wrong to move corporation tax to just 12.5 per cent - especially for the non-trading sector such as banks - there was no employment dividend from doing so.

It appears that some judge the interests of multinational corporations and investors to be synonymous with the interests of the nation - hence the attacks on whoever dares suggest our 12.5 per cent rate is too low.

Why then is the UK the biggest recipient of foreign direct investment in Europe, when it levies a rate of 30 per cent? Why has it seen a 14.7 per cent increase in revenue from this source, while we have seen a 12.4 per cent fall in the first nine months of the year?

And why should sectors, such as banks, hotels, newspapers and construction continue to enjoy a low rate of corporation tax? They are hardly likely to decamp to China or North Africa.

Tax competition is ultimately self defeating. The low business tax regime is fragile and beyond our control. The recent US decision to reduce corporation tax on repatriated profits - from 35 per cent to 5.25 per cent - has huge implications for Ireland.

Meanwhile, some new EU member-states are already undercutting our minimalist 12.5 per cent rate. Would it not be more prudent to support some limited tax co-ordination at EU level?

This would require EU members to stay within an agreed range of corporation tax levels. And each country's level - determined nationally - would be based on factors such as peripherality, level of infrastructural development etc.

Ultimately, long-term growth cannot be built on shifting sands. It might be wiser to reorientate our industrial strategy to one focused on building human capital through a highly-skilled workforce.

Congress believes our tax regime is biased towards economic activity and is unfair in its pro-business, pro-wealth manifestation. How can it be fair for people on less than the minimum wage to be denied a medical card, while 11 millionaires pay no tax? How can it be fair for people on average earnings to pay more tax than the top 117 income earners? The answer lies in the myriad tax shelters available to the rich.

In the future, an ageing population will impose increasing demands on our caring infrastructure. Increased female participation in the workforce will require decent childcare. The necessity to invest in education and training to upskill the workforce will place additional demands on the public finances. The inadequacy of occupational pensions' coverage will do likewise.

None of these challenges is insurmountable. Transforming Ireland into a just and equitable society is possible.

We need to decide now if we are going to plan the future properly and how we intend to pay for it.

Economic efficiency and social cohesion are not mutually exclusive, as the Scandinavian experience will attest. The economy is doing well and the business community is the major beneficiary.

If IBEC is capable of taking a longer-term view it would realise that fairness and enlightened self interest should motivate business to start paying its fair share of taxes.

David Begg is secretary general of the Irish Congress of Trade Unions