Campaigners should unite to demand fairness in the tax system
Article by Patrick Nulty
Sinead Pentony has done us all some service. In the last Village, she highlighted the fact that Ireland’s overall tax-to-GDP ratio is third lowest in the EU at 28 per cent.
The burden of adjustment since the recession began has been carried by spending cuts, rather than changes to our tax system. There is ever-increasing acceptance that we will need to enter into a new funding programme when the IMF-EU deal runs out. This is further evidence of a giant policy-failure.
Those who advocate the policy of “cut first, grow later” must now make themselves accountable. Will they admit that their austerity policy has failed, and that if it hasn’t worked so far, it is unlikely to somehow miraculously start delivering now?
Recent CSO and ESRI figures have shown that low- and middle-income earners have borne the brunt of fiscal adjustments and that Ireland is becoming a radically more unfair society as austerity deepens.
The first step in a major effort to tilt the balance would be the introduction to Ireland of a wealth tax. A wealth tax is a tax which is levied on the wealth held by a person or entity. The tax rate is typically a percentage of the taxpayer’s calculated net worth, and varies in proportion to that worth.
The Fine Gael-Labour coalition government introduced a wealth tax in 1975. We taxed annually at a rate of one per cent the net market value of the taxable wealth of individuals, discretionary trusts and non-private trading. When Fine Gael and Labour lost office in 1977 Fianna Fáil abolished this tax. It was a tax that Labour had pushed hard to introduce, and wealth taxes would have been once been part of mainstream social-democratic thinking in Europe.
In many countries, wealth taxes have been another casualty of the neo-liberal consensus and euro-wide decline of social-democratic politics. However, France, Norway and Switzerland continue to levy wealth taxes, while Luxembourg applies a form of wealth tax on companies.
In France, the tax is worth €4.4 billion a year. In tiny Luxembourg it is worth €8 billion. According to the Minister for Finance, a wealth tax applied along the French model would raise €500 million a year. Over a five-year period it could be worth up to €2.5 billion, which would remove the need for many cutbacks. It should also be noted that there would be benefits in other tax areas. It would provide the Revenue Commissioners with a new audit-base to ensure compliance in areas like income tax and capital taxes.
I recently submitted a series of questions to the Minister for Finance on wealth-tax proposals. In a written response to me, he wrote: The Government does not propose at this time to introduce a wealth tax. There is a clamour now calling for growth measures. The new mantra is “not just cuts, but growth too”. The problem is the cuts are killing the opportunities for growth. The cuts in the capital budget alone in budget 2012 cost 10,000 jobs, according to the Department of Finance. The increasing volume of research relating to inequality in Ireland shows that such cuts generate structural inequality and will damage our economic growth in the long run.
Unless we respond to the continuing crisis with measures on the revenue side which can help drive investment in the economy, we will be ignoring opportunities to confront the crisis. In the absence of political will, it may very well be left up to citizens to demand a wealth tax that is both economically prudent and socially fair. This campaign in Ireland would be following in the footsteps of the tax-justice movement elsewhere. Groups such as Community Platform and Reclaiming our Future have led the charge on this issue. They need now to be joined by other forces, including public representatives, to build a movement which will have to be listened to.
Patrick Nulty is Labour TD for Dublin West and former secretary of the Poor Can’t Pay campaign