Higher taxes AND higher growth are not incompatible

[The Earl of Desmond]

Well Scandanavian countries have high taxes, high quality ofl ife, high quality public services and high quality politicians and standards.

I don't think people mind paying higher taxes except they want to know they are not wasted and they want transparency. THey won't get that in Ireland which is why people resisit more taxes.

Until FF go through spending line by line and cent by cent and also change the mentality of how the government spends money they nothing is going to change in Ireland.

You'd think we would be learning from successful small/medium economies with similar demograhics to us like Denmark or the Netherlands or Austria or Israel instead of kidding ourselves we are the same sort of economy as the UK or US.

[W..R.H]

Well Scandanavian countries have high taxes, high quality ofl ife, high quality public services and high quality politicians and standards.

I don't think people mind paying higher taxes except they want to know they are not wasted and they want transparency. THey won't get that in Ireland which is why people resisit more taxes.

Until FF go through spending line by line and cent by cent and also change the mentality of how the government spends money they nothing is going to change in Ireland.

You'd think we would be learning from successful small/medium economies with similar demograhics to us like Denmark or the Netherlands or Austria or Israel instead of kidding ourselves we are the same sort of economy as the UK or US.

Yes this. Higher taxes would be acceptable if there was trust. As we don't trust the government, and rightly so, why should we hand them even more money to waste. It wouldn't make sense. ( also ministers should put their money where their mouth is in reguards to cuts and such, by taking a pay cut themselves. It has been long said that the td's of this country are being paid ludicrous figures, excluding expenses.)

[patslatt]

I've been calling for higher taxes for some time now. I dont believe that our problems can be solved by spending cuts and think the current mantra in political debate and media are leading us down a very dangerous path. I dont have anything aganist cutting wastage in spending but as a nation the govt spend very little as it is. They do however spend it wrongly and that must change.

You mention have a income tax levy until 2012, you are still thinking in the old ideology. Our tax system needs to be changed and permanently, that includes higher income taxes permanently and applied to all, public and private.

It is frankly ridiculous that 1/3 of PAYE workers do not pay income tax. The tax free allowance at 18k needs to be lowered to bring in more people into the tax net. If this was any other country, someone earning 18k would be on perhaps a 2nd tax band, Britain excluded.

Tax rates need also to be considered, but not to high as to act as a disincentive to to take money out of the economy(remember taxes act as transfers and when spend by govt have higher mulpile factor).
There is a a false mantra within political discourse that any rise in taxes is bad, it is not bad. Excessive taxes are bad but when we have such a low tax bruden we can AFFORD and it is ONLY FAIR that we pay higher taxes.

As it stands, there is a rapid and sharp fall in government tax revenues and no-one seems to want to address that apart from token tax increases of 1-2%. Instead govt and media find it more acceptable to talk of spending cuts. Our tax burden is dangeroulsy low(was never very high) and thats just being accepted and spending much take the pain. We are slowly and willingly walking oursleves into a country that will have small govt activity in the economy.

The debate must move on from spending cuts, it diverts attention(no-one has the appitite to) from discussing how to create a fair, balanced and sustainable tax system and how the burden of taxation will fall upon people. That is lacking in media and on discussion boards like this.

It is never nice to have to pay higher taxes but during the boom people had it VERY good, they paid very low taxes and that was 'fine' because construction windfall taxes subsided it. We now know(though politicans, media and the public are in denial about that) that situation was never fine, it was unsustainable and the fall off of revenue from housing has crippled the govt finances.

There needs to be a challenge to the misguided but understandable argument that higher taxes will drain more demand from the economy. Higher taxes will be spend by govt and that will create demand since govt mulplier effect is usuallly higher than households. As the economy improves due to govt spending(govt is the biggest consumer), households will feel more confident about employment and will begin to spend again.


As a side note, did anyone see the Late Late last night and the amount of hands raised in the audience when Pat asked who was willing to take a pay cut. Well the Celtic Tiger might be gone BUT THE GREED OF THE TIGER IS STILL ALIVE AND WELL. I felt very disappointed when just a handful raised their hands.

Another thing that has to be stopped is the blame game, public against private. We are all to blame for the govt mess, no-one is exempt. Its unhelpful and a misuse of time to be blaming the other side for the crisis(in the belief that it will exempt you from resolving the crisis). Everyone has to play their part. Pay cuts might be part of that to help employment in the short term, BUT tax increases must happen and it appears that it will be come time before that happens, judging by the absence tax increases have been from debate. Tax increases must be larger than token 1-2% increases..

Taxes are low relative to GNP only because the government budget deficit is maybe 8 to 10% of GNP projected in 2009.

Your proposal to tax the bottom third of PAYE incomes would remove the incentive for people on social welfare to get a job. In most advanced EU countries that tax low income workers, the hidden unemployment in social welfare and perpetual phoney job training schemes is maybe 12% of the potential labour force. This level of welfare dependency is tolerated because it creates constituencies for left wing politicians.

A high tax Scandinavian type of economy would not work here because of a lack of discipline in our extreme form of proportional representation governments which are more concerned with regional and local politics than the national interest. At the very least,the multiple member constituencies in which politicians from the same party are constantly stabbing each other in the back should be terminated.

Our governments have shown a very poor ability to manage the huge increases in tax revenues since the early 1990s,witness trolleys in hospital corridors,prefab schools and wildly overpaid salaries relative to the private sector eg Cowen's salary bigger than Obama's.

[Brenny]

I'd like to contirbute two points here,

During economic and political discussions in Ireland it has for some time been regarded as axiomatic that low taxes – income, capital gains and corporation taxes - were critical factors in creating the Celtic Tiger

1)It's important that you qualified the 'low taxes' point. It's debatable whether we actually have a low tax economy when every kind of stealth tax is taken into account. It was originally the PDs idea, FF took it and used the old magicians trick, 'Watch my hand I am going to lower income tax' while simultaneously the other hand is creating ways to tax everything you every time you spend the extra money you saved from income tax reductions. It's all about fooling the public, which brings me to my second point,

2)The important thing to concentrate on is not which taxation plan is more beneficial for the country but rather which one is more popular and easier to sell. We should have had higher income tax over the past few years and the opposition should have been pointing this out but who's going to vote for them then? Even labour promised to drop taxes in the last election. The PDs low tax model is impossible to counter at election time because the mob will always fall for it.

Things are so bad now, however, that it's going to be hard for FF to try that tactic again. What can they do apart from raise taxes? Put college registration fees up to 2500 euro (and still claim that 3rd level education is free), VRT up to 2000 for a standard car? Put another four euro on the pint and make cigarettes 15 euro?

[Dios]

This caused exports to soar and the productivity of labour soared with it,allowing wages to rise very rapidly with a lag of a few years, given that wages tend to equal the marginal productivity of labour.

Exports soared purely due to MNCs and FDI, which can be laid squarely at the feet of the low corporate tax rate. Even today 90% of our exports are from multinational corporations basing their European HQs here. Also worth noting is that seven of the top ten largest exporters on earth are first world countries, including Japan, which knocks our wages into a cocked hat, so to speak.

What can they do apart from raise taxes?

Surprisingly large amounts can be raised through efficiency measures and leveraging information infrastructure to cut down overheads. Singapore for example has a fully centralised electronic patient information database, which reduces administration overheads, by comparison, from approximately 40% in the US to 2% in Singapore, according to several reports I have read.

Similar saving could be made in education, to the extent that we could conceivably licence out a centralised software system to other countries - imagine if most of the education system paid for itself?

There are many areas where savings could be achieved.

As another poster pointed out, correlation does not equal causation. Low taxation represents increased fluidity in the private sector, which will be vital for growth. Of course if there is no demand there will be no growth, as people squirrel away cash under the mattress, actually making things worse.

I might be in favour of increased taxes, if and only if the influx of capital could be targeted towards infrastructure and domestic industrial projects, public works projects, enablers for the greater economy to grow.

[Brenny]

Surprisingly large amounts can be raised through efficiency measures and leveraging information infrastructure to cut down overheads. Singapore for example has a fully centralised electronic patient information database, which reduces administration overheads, by comparison, from approximately 40% in the US to 2% in Singapore, according to several reports I have read.

Similar saving could be made in education, to the extent that we could conceivably licence out a centralised software system to other countries - imagine if most of the education system paid for itself?

There are many areas where savings could be achieved.

As another poster pointed out, correlation does not equal causation. Low taxation represents increased fluidity in the private sector, which will be vital for growth. Of course if there is no demand there will be no growth, as people squirrel away cash under the mattress, actually making things worse.

I might be in favour of increased taxes, if and only if the influx of capital could be targeted towards infrastructure and domestic industrial projects, public works projects, enablers for the greater economy to grow.

Good point. The more you increase efficiency the less you need to increase taxation. Unfortunately we can't bank on that happening can we. My father works for a company that deal in mining equipment and his collegues in europe are very familiar with the costs involved in drilling operations. They all laughed their head off when they found out how much the port tunnel eventually cost us. If things like this could be controlled then we might be okay. Otherwise we'll have to go back to six bands of income tax.

Do any of ye think it'll be possible to raise corporate tax rates or will that just scare off the last few remaining multinationals from our shores?

Is there any possibility of catching the super rich who live here for 5 months, 30 days and 23 and a half hours a year?

[wombat]

What part of the public service is underfunded? Where will the extra taxes go? HSE?, Fás, teachers pay?, Prison guard overtime? TD's allowances?

[ManOfReason]

Higher taxes make the benefit of being unemployed vs on benefits marginal for lots of people, the incentive to work overtime is almost completely removed, while investing your own money in further education or expanding your skill set becomes financially pointless. In essence higher taxation turns every worker into a civil servant.

Terrible idea.

[Dios]

If things like this could be controlled then we might be okay.

Yes, there definetely needs to be stricter controls on public works like that, coupled with serious financial penalties for underperformance or failure to deliver. Eyre Square in Galway anyone?

Do any of ye think it'll be possible to raise corporate tax rates or will that just scare off the last few remaining multinationals from our shores?

There haven't been that many leaving. Even Nortel which has gone into receivership is keeping its doors open. And don't forget, for every one person directly employed by a multinational, there are five contractors and suppliers that derive most of their income from them.

If we raise corporate taxes we might as well make our next major import horses and carts, with a side of oil lamps, at least until we can stand on our own two feet.

[stringjack]

Cost competitiveness explains much the differences in export growth rates between the first half and second half of the Celtic Tiger years. Ireland was extremely cost competitive in the early 1990s,thanks to the grinding deflation of the late 1980s austerity programmes. This caused exports to soar and the productivity of labour soared with it,allowing wages to rise very rapidly with a lag of a few years, given that wages tend to equal the marginal productivity of labour.

It's also worth noting that cutting income tax rates (all else equal) allows real incomes to rise without wages rising, which takes the heat out of wage inflation and protects competitiveness. Cuts in income tax were the quid pro quo for wage discipline.

1)It's important that you qualified the 'low taxes' point. It's debatable whether we actually have a low tax economy when every kind of stealth tax is taken into account. It was originally the PDs idea, FF took it and used the old magicians trick, 'Watch my hand I am going to lower income tax' while simultaneously the other hand is creating ways to tax everything you every time you spend the extra money you saved from income tax reductions.

'Stealth' taxes, or less prejudicially, consumption or indirect taxes, can yield greater gains in efficiency than direct taxation, as people can adjust their consumption patterns accordingly. They aren't necessarily a bad thing.