THE GOVERNMENT’S stated aim in the coming budget is to reduce the deficit in ways that will have the least negative impact on economic growth and ensure fairness. That makes sense. But the austerity plans likely to be in the budget have been proven to accentuate the economic recession here, and, internationally.
Many economists, like Paul Krugman (Europe Clings Uselessly to Policies of Austerity, September 27th) argue that such policies – increased taxes and charges for the poor and middle-income earners, along with the neo-liberal reduction of expenditure on essential public services and privatisation – will not bring recovery.
Taking money away from lower and middle-income populations who spend in small businesses – from corner shops, garden centres to local hotels – reduces domestic consumption, the very thing that can provide growth and jobs.
So if the current austerity policies are failing, what are the alternatives? There are two possibilities: first, the taxing of wealth as part of introducing a progressive taxation system; and, second, achieving a reduction in debt repayments. Both are urgently needed. However, the budget offers an immediate opportunity to raise significant finance from wealth in this State.
The Coalition could introduce a series of “solidarity” taxation measures on wealth. These could include requiring high net-worth citizens to pay their dues here so that the number of tax exiles reduces, eliminating tax breaks for those on high incomes, applying a levy on assets and property worth over €1 million, a levy on financial transactions (Tobin Tax), and a higher tax rate on incomes of more than €100,000.
At the heart of this proposal is the need to ensure a progressive taxation system, where taxes are increased in line with income and wealth, rather than discriminating in favour of the top earners.
So, if a property tax was introduced on this basis those with higher value property would pay more rather than a regressive flat charge. The same applies with income taxes, the USC and VAT increases. If your income is a €1,000 a week, €20 a week in increased taxes makes little difference. If you earn €100 a week, €20 is huge.
The purpose in taxing the wealthy is not to fulfil a crude desire to penalise those who have wealth, but rather to ensure that the wealth that has been produced by those working in the Irish economy is invested in productive use in this State to avoid further economic contraction. It is also to ensure that those who can afford to pay more do so.
Taxation measures such as these are pro-business. They would ensure that investment is continued in the public infrastructure and services needed by companies to thrive. The finance raised could also provide a subsidy for small, labour-intensive businesses, such as environmental, and more through public sector provision.
Internationally, proposals to tax wealth have been implemented in France, Norway, Hungary and Switzerland, and the idea is attracting support, particularly taxes such as the Tobin Tax. Its rationale is simply to ensure that markets and speculators contribute something to the society they are damaging. And it would curb the number of transactions, reducing speculative fluctuations.
Moreover, many wealthy people want to contribute more. Businessman Barry Maloney, whose company Balderton Capital has invested $200 million (€148 million) in Ireland, told this newspaper recently he would have no problem paying some form of wealth tax to aid a recovery.
Taxing wealth also has the potential to raise significant funding. Minister for Finance Michael Noonan in the Dáil on July 19th stated that the Revenue Commissioners advised that introducing a 48 per cent tax on incomes of more than €100,000 would yield €410 million a year. Standardising deductions and tax reliefs (including tax relief on rented residential relief, capital allowances, investment in corporate trades etc) would yield €1.1 billion.
This newspaper also reported that the net financial wealth of Irish households increased by 70 per cent between 2009 and 2010, with the value of shares owned directly by households comprising €46 billion. This State still has the second highest proportion of millionaire households in the European Union, while the 300 richest people here are reported to be worth close to €50 billion.
So if taxing wealth makes economic and social sense why is the Government not amenable? It is not prevented by the framework of the bailout agreement. And it is not that the wealthy and higher earners are already contributing their fair share, as the economic think tank Tasc’s analysis of recent budgets has shown. It is the Coalition’s reluctance to place a burden on the wealthy.
In taking on those with the greatest wealth and power the Government will face challenges. It also means tackling the long held anti-State view that entrepreneurs and businesses should not have to worry about taxes and contributing to the public system. Is there too much reverence and deference to the moneyed within the Civil Service and political system? Such values are no longer excusable. Those with significant wealth should be taxed adequately as an expression of genuine solidarity with the suffering majority.
This Government was elected on the basis of delivering radical change in the values and priorities of the Republic’s economy and society and of an acknowledgment that solving this crisis requires a fundamental reshaping of our economic model.
This was reflected in the programme for government’s explicit commitment to equality. Wilkinson and Picket’s seminal research has proved that more equal societies do better. Implementing significant taxation on wealth would be a good start in that process of achieving real progressive reform.
Dr Rory Hearne and Siobhan O’Donoghue are on the co-ordinating group of Claiming Our Future