At this time of year my inbox fills up with emails urging me to attend something called a “budget breakfast” on the morning after the budget. Such events are normally held in the plush offices of well-respected accountancy firms. These chrome and glass financial citadels on the river are testimony to the enormous fees paid by the wealthy to advisers in order to avoid tax.
The tax avoidance industry is one of the staples of the professional classes. And the annual nature of the budget ensures that these fees are fool-proof recurring annuities.
Tax avoidance is the cottage industry of choice for those with multinational aspirations. Without it, the price of property in redbrick Dublin 6, already tottering, would be cascading downwards.
It’s all perfectly legal. And, as I have yet to meet anyone who pays more tax then they absolutely have to, tax avoidance is human nature.
The annual budget jamboree is the marching season for the professional tribe who meet up with old friends, bonded by a common cause. Like other outdated rituals, the reality is the annual budget process is an anachronistic hangover from the time we had our own currency and the budget deficit or surplus set the tone for domestic interest rates, government bond market and exchange rate.
We needed an annual budget to signal to the markets what the government needed to run the place. Once this was laid out, the rest of the domestic financial system orbited around that outcome. The budget was the anchor.
But with the euro and EMU, all that is all long gone. On Tuesday, the rate of interest on Irish 10-year bonds will hardly budge, irrespective of what the Minister says. As a result, in pure economic terms, the budget is merely a bit of parliamentary pageantry, designed to keep political hacks scribbling and political adversaries frothing at modest differences in emphasis.
The reason I say modest is because when you interrogate the numbers, you can see there has been quite a lot of continuity in the way in which this country has been run for a long time.
However, the budget is critical because it underscores the great ideology of the State. Who you choose to tax and what you choose to tax reveal the deep prejudices of the country. A State can tax either income or wealth. This is the choice. And that choice signifies what sort of country we are.
Given that we have a housing crisis and that land and property are assets that generate enormous wealth, bear this choice in mind as we dig a bit deeper into the budgetary choices.
In 2017, our government took in just over €50.7 billion in taxes. The breakdown of this figure reveals our preferences. But before we become party political and start roaring for an election to change things immediately, understand that the way we tax things is the culmination of years of policy from both the left and the right. It is not something new, but something that has evolved.
Here’s the breakdown. We raise nearly €20 billion or close to 40 per cent of all tax revenue from income tax. These are taxes on effort and hard work; these taxes also reduce people’s take-home pay, adding to the pinch for the squeezed middle.
A further €13 billion was taken in VAT, which is a tax on buying and selling almost everything (except for food and children’s clothes). It’s a tax on economic activity. We raise 26 per cent of our total tax take from charges on commercial activity. VAT is a tax on commerce and the wheels that make the system go round but it adds to the cost of everything. Obviously, a tax that pushes up prices on most things reduces the buying power of people’s salaries, which are already compromised by income tax.
Nearly €6 billion was raised in excise duty – essentially petrol, fags and booze, the “old reliables”. Excise duty also pushes up prices directly and again eats into take-home pay.
This means that some €39 billion of the State’s €50.7 billion income is taken from the income of the average worker, the people who drive the economy.
Then we can add in the extra €8.2 billion that comes from corporation tax. This brings us up to close to €47 billion.
And wealth? How do we tax wealth?
Before we answer that, consider the fact that the top 5 per cent in the country own over 40 per cent of the wealth. This is a huge disparity at the core of our nation. What’s more, 85 per cent of this wealth is in the form of property and land.
And take into account that land is an asset that can either be hoarded or used. When it is used intensively, housing problems become much less acute because we build more accommodation per plot and thus lower the cost of each square metre.
Therefore, we should be isolating property and land and making sure the tax system penalises land hoarding in favour of land usage. When land is used, the money that comes from rent is captured in the form of income so it’s in the nearly 40 per cent of revenue raised from income.
The tax system should tax land and land hoarding in order to reduce its attractiveness as an asset class.
So how does this country tax the wealth stored in houses, land and property? The short answer is: it doesn’t. We raise only €500 million of our total taxes from land, despite the fact that it is the single biggest asset in the country.
“We” don’t tax income. Just look at Google, Apple, etc…. And then there are the tax don domicile heavyweights who wear the green jersey, Denis O’Phoney, the Bonnox, and use their media clout to lecture the rest of the populace. “We” tax worker’s income. Actually the polticians do this, under the behest of some extremely suspect media players, which include tax non-domiciles, an unaccountable trust on D’Oliers Street, plus the completely unaccountable An Bord Sno in Donnybrook. The real question – why do “we” spend so much on social welfare in a country with near full employment, and where the… Read more »
Can somebody tell me what is the effective tax rate being paid by Google, Ebay, Apple etc… ? Or Diageo, which is has more power over Ireland, than fast food has over the US ? [ there are actually media outlets in the US that stand up to the fast food sector, yet the Irish media relentlessly endears itself to the national drug which has produced an incredible amount of desctruction on the people ]. Or the artists ? Or the horse “industry” (whose principal output is gamblers) The problem with a property tax is that it will be another… Read more »
The real estate market fundamentals now encourage investment in residential real estate development. But it is not happening. There is a bigger factor here than hoarding. The first bottleneck is planning regulations. Dublin is a vertically challenged urban space. Sandyford has a higher than average profile, and it is very prosperous and successful. Tallaght has pony fields, and is completely ugly. The area around the IFSC also has a high development profile. For some baffling reason the local authorities in Dublin have absolutely determined to prevent high rise residential development. Vancouver has repeatedly been recognized as one of the world’s… Read more »
We tax income instead of wealth because there are more poor people than rich people and it is easier to get money from poor people than it is to get money from rich people.
This is about power. And that power has an imperial scale backer. Just like the British empire in 1910, and the RCC in 1960. And that imperial backer is the Brussels mega-power structure. And as before there is a local garrison to implement it’s authority, and to sell it’s agenda. There were benefits to the previous imperial schemes. Both had noble objectives underpinning them. Both regarded themselves as civilizational forces. The British had magna carta, the right to freedom of expression, consent as the basis of government, and the division of power. The RCC had concern for the weak, the… Read more »
This discussion reminds me of the opening paragraph of the book, a tale of 2 cities “It was the best of times, it was the worst of times”. When you have a President (who is the commander in chief of the armed forces. Driven around in a Rolls Royce, or similar put up in hotels where the price of them are resemble phone numbers), While his troops defending the Pope against terrorism, while visiting here saying MASS in the park and our heroes, sleeping with the rats in the park and been fed chicken, beans and other slop to sustain… Read more »
By the way, commercial real estate is taxed. And it is taxed heavily. For residential real estate, the people who live in it are usually scelped before they have it. And many of them do not own it – the bank does – they still have to pay their mortgages. Will real estate tax be levied on the banks until the mortgage is paid off ? Because if not, then that is a fraud. For agricultural real estate, the problem is that you are taxing a factor or production – and the farmers will probably start a riot, and demand… Read more »
Is that €500m just Local Property Tax? Is there really no other tax on wealth in this country?
The budget is another step on the road to pervasive statism, and control over the individual. It is a copper fastens the concept that a powerful state is needed to keep you all in line, and is the source of all morality of society, superior to the individual, and individual effort.
The useful thing about David’s articles is that they summarize values, beliefs and proposals which are always wrong. What is the figure he quotes? Five percent own 40% of the wealth? I would say that I would not like or approve of many in that group of people but I would *still* oppose a wealth tax. Deco has put the case well already. The state would waste the money and make things worse. The state should not be given an more power as it already has far too much. Crotty would have agreed wholeheartedly with this. Now, what is this… Read more »
A Corby govt will ditch the dreary six counties, then the sparks will start flying in Dublin.Combined with a hard Brexit brought about by the moronic Free Presbyterian Dup,cross border shopping will return to 09 levels and a sinking sterling will wipe out much irish owned manufacturing.Problems only starting.Champagne socialists in the Irish labour party will enter govt and sell us out to their Euro buddies.
A tax on land is a tax on agriculture, as that’s what most land is used for.
I miss Brendan Behan: I miss Ireland.
More Tax More Tax More Tax Ireland are nearly paying Scandinavian style tax rates and getting shit services. Ireland pay 40% more than the oecd average per capita on their health system and get 10,000 less hospital beds. 350,000 apts getting 16,000e rent are paying 8,000e rent tax plus 600e property tax. Irish economists and politicians made sure that vulture landlords pay NO tax. Irish economists and politicians also insist that failed bankers pay NO tax either. These tax transfers are an economic burden. Overpaying for public services is an economic burden. We have the worst value for money health… Read more »
It should not be about taxing wealth. Wealth has been created, taxing it destroys it. Wealth creation should in fact be encouraged because everyone benefits from the creation of that wealth. Therefore taxing wealth is the last thing that should be done. Property taxes should be based on the services provided rather than the value of the property. It then is no longer a wealth tax. There may well be a case for taxing the output that wealth creates but goose and golden egg should be a consideration Footnote I’m not wealthy ie I own my own house and that’s… Read more »
A wealth tax is part of the fantasy. A few years ago I would have favoured a land tax (like George and Raymond Crotty) and I advocated it on this blog. It would bring under-used land into production and encourage enterprise. However I now realise that the most urgent problem is the fighting the fantasy. I assume the Democrats want a wealth tax too. Has anyone noticed them recently? Cory Booker? Diane Feinstein? The mention of Booker reminded me of this article by Colm Flaherty: https://www.americanthinker.com/articles/2018/08/where_do_we_get_such_losers.html Cory had an imaginary friend called T-Bone. Richard Blumenthal fantasised about serving in Vietnam.… Read more »
There are a few issues here.
We need to modestly and fairly increase tax on businesses.
We need to change planning laws to allow let’s say 20 story high rises. We need to meaningfully disincentivise land hoarding and deal with select sites.
We need to deploy a flat tax on all…. from social welfare recipients to billionaires…. not this weirdly punitive ~50% tax rate for modest marginal income while 50% of people pay virtually no income related tax.
McCawber put his finger on it.
Taxes should ONLY be paid, based on the services provided by them.
Ireland are provided with 40% less hospital beds than the oecd average.
Therefore it concludes that Irish average/ median workers should pay 40% less tax than the oecd average.
If Irish public services( health mainly) value for tax monies were a restaurant, you would never come back. The Irish tax payer is trapped by a health system that demands self service before public service.
The Irish health service is the worst value for money health service in the oecd.
Yesterday England drew 0-0. Today Ireland drew 0-0 v Denmark. The last time Ireland drew 0-0 v Denmark, England also recorded a 0-0 draw the previous day. Ireland’s referee in 2017 reffed the 2018 Champions League Final. England’s referee in 2018 reffed the 2017 Final.
Why capitalism works and creates wealth for all and socialism destroys wealth for all.
[…] overwhelmingly, their preferred asset, with many acting as landlords. Thus, according to economist David McWilliams the wealthiest top five-percent in the country own over forty-percent of its wealth, with […]