Tomás Ó Flatharta

Looking at Things from the Left

Pay Restoration: ‘Where Would the Money Come from? Some places to look’ – Eddie Conlon

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From TUI Grassroots 28.11.2016

https://www.facebook.com/groups/1717839115137763/?hc_ref=NEWSFEED

The main issue the media are focusing on is where would the money come from to pay public servants. Here are some suggestions taken from various sources and going from the modest to the more radical. I have incorporated some of P. Healy’s suggestions below.

To start, some myths we should challenge.

  1. There is no money in the country! Not true. Ireland is one of the richest countries in the world (8th) but has high levels of income and wealth inequality.
  2. There is no scope for tax increases! In it pre-budget submission ICTU make the point clearly that tax revenues (as a percentage of GDP) are far below EU levels (31% v. 46% in 2016). As a result, social spending is also low (32% v. 48%). In an analysis of tax levels in 2012 Michael Taft of UNITE has shown that personal tax rates are on a par with the EU (23% v. 26% of GDP) as are household consumption taxes (10% v. 12%). But when it comes to things like taxes on employers we are way out of line.

So where would you start to look.

  1. The last budget. There are a few hundred million floating around here. The Vat relief to the hotels industry was continued despite a recovery in the sector and its record of low pay and bad conditions. The government could save itself €600m there.

True to form FG wanted to look after its rich friends and continued with a policy of granting USC relief to everybody. Some people think the relief only applies to those under €70,000. It’s not true.  It applies to all earnings up to €70,000 so everybody who pays USC benefits, even those earning over €70,000. In some cases, far above €70,000. The top 5% of tax units (that’s revenue jargon for those who pay tax either a couple or singly), that’s 110,000 units, have an average income of €186,000. Yes €186,000.  The top 10,000 units earn an average of €595,000, and none of them are in the public sector. The gains for top 5% from the last two budgets amounts to €172m incorporating USC relief and a new tax credit allowance for the self-employed.

 

There was a lot of talk before the budget about a countervailing measure to recoup some of this money from the most well paid. But there was none.  Interestingly there were a number of proposals published by ICTU and opposition parties which would have seen these people pay more:

  • Withdrawing the personal tax credit from those over €100,000 would raise €120m
  • A new tax rate for income over €100,000 would raise €464m.

 

In all ICTU has identified an additional billion that could be raised from a variety of not very radical tax reforms including a very, very, very modest wealth tax on those with assets in excess of €1 m.

 

  1. But in fact there is a lot more that could be got out of the wealthy. As Paddy Healy rightly points out the Net Financial Assets of Irish Households (shares, bank accounts etc. based on CSO sources) have risen by €71b since 2006, which was the peak of the boom. Assuming, based on data which attempts to profile Irish wealth, that the top 10% own 54% of assets, we can see that these people have increased their financial assets by €35 billion.

 

It’s not surprising then that when rich lists are published they show that the rich are getting richer. The Sunday Independent list shows the richest 300 Irish citizens are thought to be worth a combined €87.7bn, an increase of 4% in one year. The combined wealth of the top 300 has increased by an incredible 76% since 2010.

 

A modest wealth tax, even on assets over €1m, would provide almost €3 billion for the exchequer.

 

  1. Employers are not paying their fair share. Irelands rate of employer PRSI is way behind the EU average. So, for example, in 2012 revenue raised from employers PRSI was equivalent to 8% of GDP compared to an EU average of 20%. If Ireland’s rates were at EU levels, we could raise an additional €8 billion a year. Making more modest changes (for example raising the rate from 10.75% to 15.75% for income over €100,000) would raise €331m.

 

An equally large scandal concerns corporation tax. A very simple way to resolve present difficulties would be to force Apple to pay up the €13 billion it owes us. While public servants saw €2 b per year taken out their incomes at the height of the cuts, Apple is allowed get away scot free. The cost of current cuts to public servants is about €1.4b per year. And  media, politicians and IBEC wonder why public servants are angry?

 

But it’s not just Apple. While the rate of corporation tax here is 12.5% the reality is very few companies pay this and in some years effective tax rates were as low as 2% (see http://www.progressive-economy.ie/2016/11/jim-stewart-policies-of-trump.html?showComment=1479913798732#c4730590999113056481).

Google paid an effective rate of 0.14% between 2005 and 2011. So billions could be raised by forcing companies to pay the full rate of 12.5%. Further the average rate of corporation tax in the OECD is about 30%. Raising our rate to 19.75% would raise, according to the Department of Finance, an extra €4 b.

 

  1. And finally. There is a lot of dirt being thrown at public servants as if we were at fault for the crash. But we all know that it was speculators and bankers who were at the heart of the problem. The national debt soared from 25% to 120% of GDP between 2007 and 2012.  The cost of bailing out the banks is estimated at over €60b accounting directly for almost 40% of the increase in the debt. The banking crash obviously had indirect consequences leading, for example, to higher unemployment and higher social welfare cost and further borrowing. Nearly €1 in every €10 raised by the state now goes to pay interest on this debt which will be almost €6.5b in 2017. It’s the fourth highest item of expenditure after social protection, health and education.  The other consequence is that these debt payments turn a projected government surplus (tax – expenditure) of €5b in 2017 into a deficit of over €1b.

 

Surely it’s time to call a halt to this. To say our priority is to rebuild our services and infrastructure and pay back public servants the money they are owed. Surely the banks and financial institutions, the main holders of Irish government debt, can wait a little longer. So can the Troika who account for about 25% of our debt. A moratorium on repayment of interest on bank debt would provide the necessary breathing space to reprioritise the needs of society.

 

In the debate about public sector pay the media and politicians are trying to create unnecessary divisions between us and rest of society. Some trade union leaders are contributing to this divisive narrative.  What I have tried to show above is that there is potential to raise plenty of money to repay public servants and also invest in the services we need. The problem is that the political will is not there to do so.

Written by tomasoflatharta

November 28, 2016 at 2:54 pm

Posted in Ireland

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