Total tax take as a GDP percentage needs to be larger

Public discussion on Budget 2003 for the most part has concentrated on cuts in public expenditure and has failed to address the…

Public discussion on Budget 2003 for the most part has concentrated on cuts in public expenditure and has failed to address the much bigger issue of the vision of Ireland's future that will underpin its decisions, writes Seán Healy

Choices made by the Government in Wednesday's Budget will be guided by a vision of what shape Ireland should have in the years ahead. The Government's values and priorities will guide these choices. They have implications for every member of society. Consequently, it is very important that the vision underpinning the Budget be discussed.

There is a major paradox at the heart of Irish development. Despite the unprecedented economic growth of the economy in recent years and its accompanying prosperity, there has been a marked failure to address adequately the deficits in infrastructure and social provision that are still problematic throughout the country.

Ireland now has a per capita income well above the EU average - a marked improvement on the position even a decade ago. At the same time, as anyone visiting other EU countries will readily observe, Ireland's infrastructure and social provision are far below the EU level.

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European infrastructure in areas such as roads, housing and public transport systems is superior to those in Ireland. Likewise, social provision in areas such as healthcare, education and social welfare is far better in the EU than in Ireland.

I suspect that the Government and most people in Ireland would support a vision of Ireland having an EU average level of infrastructure and social provision. So the challenge is one of reaching this level of provision.

Ireland's total tax-take is far below the EU average and this is seen by some people as a virtue to be protected at all costs. This combination of circumstances raises the question: how can Ireland have an EU level of infrastructure and social provision if it is not prepared to pay EU levels of taxation? Or alternatively, is Ireland satisfied to continue with inadequate infrastructure and live with the lower quality of life that accompanies such lower levels of provision?

Listening to recent public discussion on the Budget, the implicit option for many seems to accept lower levels of provision. If this is the vision of Ireland's guiding policy, then the vast majority of people will lose out and those who are weakest and most excluded will suffer the most.

Those who implicitly support this approach argue trenchantly that Ireland must keep its total tax-take low if it is to remain competitive with, for example, the United Kingdom. Consequently, the unspoken position is that Ireland must wait for some further time before it can aspire to EU levels of infrastructure and social provision. How long that wait might be is never discussed.

I BELIEVE this approach to the forthcoming Budget and the vision underpinning it are deeply flawed. We do have alternatives. A recent publication by the Irish Society of New Economists contains an interesting paper by Micheal L. Collins putting Ireland's taxation system in an international perspective.

This study shows that, according to the most recent OECD figures, for 2001, Ireland's total tax revenue was 29.2 per cent of gross domestic product. By contrast, the UK took 37.4 per cent of GDP in taxation. In fact, of 30 OECD countries surveyed, only three had a lower total tax-take than Ireland, i.e. Korea, Japan and Mexico.

It is most unlikely that there would be any significant negative impact in the economy if the tax burden were slightly increased above its current level. Raising it by even one additional percentage point would provide Government with additional revenue in excess of €1 billion. Raising it to the UK level would provide in excess of €9 billion in additional revenue for Government.

A relatively small increase in the total tax-take could be achieved in a variety of ways. One of my own preferences would be to see a windfall tax placed on banks and financial institutions which have benefited enormously from the recent dramatic reductions in the corporation tax rate.

Other possibilities would include increasing the rates for capital gains and DIRT tax, maintaining the corporation tax rate at 16 per cent and tackling the substantial income tax allowances and reliefs available to the better off.

THE Government should honour its own commitments in areas such as the National Anti-Poverty Strategy. This would, for example, mean that the lowest social welfare rate should be raised by €14 a week for a single person in the coming year. The Budget should give priority to tackling the widening rich/poor gap and the deficits in Ireland's infrastructure and social provision. If this is to happen, then Ireland's total tax-take needs to rise as a percentage of GDP.

In this process, care should be taken to ensure that those who have benefited the least from the economic growth of recent years should not bear the brunt of the budgetary "adjustments" necessitated by this Government's imprudent management of resources in the years of plenty.

Many good things have happened in recent years. Ireland now has a per capita income well above the European average. The numbers employed have grown dramatically and the numbers unemployed have fallen. The reduction in long-term unemployment is especially welcome. However, Ireland has major infrastructure and social provision deficits which must be addressed.

The majority of Irish people want a fairer, more just society. If such a society is to be developed then adequate resources must be made available. A modest increase in the percentage of GDP being collected in tax is an essential component of making these necessary resources available.

Seán Healy is director of the CORI Justice Commission.