Fintan O’Toole: Here’s a hard choice for politicians with backbone

How about free primary education instead of a cut in inheritance tax?

Question of the Week: Should the Government cut inheritance tax? Fintan O'Toole gives his view.

 

I’m sure I’m not the only one who is sick of hearing about “hard choices” from people with great salaries, ample expenses and luxurious pensions. So let’s pose a genuinely hard choice. The Government, along with the Opposition parties, in the run-up to an election, has clear options. It can buy off vocal, active, well-connected middle-class voters.

Or it can use public money to make a huge long-term difference to the welfare of Irish families. The hard thing would be to say “no” to the lobbying and “yes” to serious investment in our society. On current form, the political establishment will be hard as jelly.

Consider the issue that is stirring the leaves of our more verdant suburbs – capital acquisition tax on inheritances. Inheritance tax has become more onerous. In 2009, an adult could inherit up to €542,544 from a deceased parent tax-free and anything more than that was taxed at just 22 per cent. This was severely reduced in the austerity programme: now, a person can inherit only €225,000 tax-free and the balance is taxed at 33 per cent.

Lobbying

Michael NoonanFine GaelFianna FáilMary White

The lobbying has, apparently, worked. Government sources have been briefing heavily to the effect that Noonan will drastically raise the threshold for tax-free inheritance, perhaps to as much as €400,000. He has form in this regard: in May 1999, when he was opposition spokesman on finance, he called on Charlie McCreevy to exempt family homes worth up to €1 million from capital acquisition tax.

But what’s wrong with taxing inherited wealth? It’s about the most progressive and least economically damaging kind of taxation there is. Fine Gael MEP Brian Hayes last month described €225,000 as a “relatively small” estate – but “relatively” is surely the operative word. It’s a very big lump of money to get tax-free – especially in a country where very modestly paid workers can pay income tax at 40 per cent.

Why should tax on unearned income be so much lower than the tax on ordinary people’s wages? We’re not, after all, talking about people being thrown out of their homes because they can’t pay the inheritance tax – if the family home is the principal residence of the adult child, it can be inherited tax-free. We’re also not talking about vast numbers of people – last year, 5,133 estates were subject to the tax.

Besides, right-wingers are forever telling us that people rise to positions of wealth entirely through their own talents and efforts – the “self-made man” is their imagined hero. So to be consistent they must surely be in favour of limiting the amount that people can inherit – money that is, after all, unearned and emphatically not self-made. And taxing inheritance is also effective: last year, it raised €328 million.

Without doing anything, the State could easily increase this – because of rising property prices, the take would increase automatically. All that’s needed is something the political system is often so good at – masterly inactivity.

Let’s take an extremely conservative view and assume that the successful lobbying will reduce the State’s income from the tax by €100 million a year. What could the State do with €100 million? A lot, of course, but let’s just take one outlandish suggestion. It could do what it’s constitutionally obliged to do and what almost every civilised country manages to do. It could provide for free primary education for all children.

One of the greatest disgraces in Ireland is that “free education” is very expensive – painfully so for middle- and lower-income families. We know that almost a third of parents have to borrow money just to get their kids back to school every year: books, uniforms, travel, “voluntary contributions”. In a recent study, Barnardo’s figured out exactly how much it would cost to make primary education genuinely free.

Doing this would have a hugely positive impact on the poorest families and children but it would also be a boost to families at every income level and in every part of Ireland. What’s the bill? €103 million a year.

So here’s a suggestion for Michael Noonan and Fianna Fáil and Renua and everyone else who aspires to govern us. Put your hands behind you and feel around for some vertebrae. When you’ve found your backbone, stand up straight and talk to the Irish public as if they are intelligent grown-ups. And offer them a real choice.

Tell them that you’re going to let the take from inheritance tax rise from €328 million to €431 million. And you’re going to use that extra money to fund genuinely free primary education for every child in the country. It would do wonders for Irish families, and it might even do wonders for your own self- respect. You might even find, to your great surprise, that the public would respect you too.

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