Why we need a public debate on the future of tax and spend policy.

People in Ireland have a historical disliking toward paying tax and for good reason. The average PAYE worker was paying almost 60 per cent on their income in the mid 80’s. During the 90’s and 00’s a policy was adopted to increase market earnings and let people spend it on what they want. Similar to the US. Nowadays, Ireland has an extremely low tax regime, on a par with Latvia and Estonia and a gaping hole in its public finances. A hole that government is trying to close via cutting expenditure. Even though we have one of the lowest public expenditures in the OECD. Impossible to maintain public services in this regard. But, now more than ever we need a public debate about the very concept of tax or more precisely tax and spend policy.

I am interested in the policy area of taxation. For me, it is quite simple. Most tax comes from income. People earn their income in every country in the world with the exception of Cuba in the labour ‘market’. The question therefore is how much should the state take from individual earnings to spend on things regarded as a ‘public good’; roads, street lighting, healthcare, security and education. Now, most economists would say as little as possible. Giving your money to the state is like giving your money to someone to do your shopping, charges you extra and only gets you half of what you need. Thus, economists build a distrust toward public goods in their models of tax and spend policy. But most recognise, when it is put to them in a serious policy based discussion (outside modelling) that some form of public body has to raise revenue to spend it on collectively required goods?

In reality it comes down to the question as to  how much a public body should take money off people to spend it on things that are collectively required.  Most tax is spent on cash welfare benefits and benefits in kind (health, education). I support this but dont trust the government to deliver it efficiently or equitably.  It is hard to argue for more taxation when you have a government that is not committed to the delivery of universally provided public goods. Public money has been wasted in Ireland on a variety of things not least over paid bureaucrats and politicians, spending money like John O’Donoghue.

Tax and spend (fiscal) policy has to be a priority for anyone wanting to develop progressive politics and Ireland needs a completely new approach to tax and spend policy. It is impossible to argue for a quality public service and increased state spending in the absence of a viable source of revenue. The entire tax system need to be red-designed so that it is a) progressive and redistributive, b) reduces income inequality and c) deliver high quality services managed and designed by those delivering them. That is, pushed downwards, away from central government to local government. Personally, I dont trust central government to efficiently design an equitable spend policy.

It makes more sense for me to re-design the tax system to ensure it is closer to the labour-producer that is paying for it delivers, i.e. local public services. Presently the only public bodies capable of doing this are local authorities. This becomes all the more important if it involves a scare resource. Stories of people leaving taps running for weeks on end to stop their pipes freezing, is, for anyone, with an interest in environmental politics and ecology; disgraceful. So, a tax can also be used to alter individualised behaviour. I I dont like the idea of people being charged for something that is a right. But if one thinks collectively rather than individually, tax can be an effective means to alter selfish behaviour.

I would design a system that ensures every taxpayer receives a receipt at the end of the year detailing exactly what their money was spent on. Thus, no money is raised without clear accountability that it is being spent on what it was raised for. This could be achieved quite easily at a local level. So, if local government said we are rasing X amount of money from a water tax for two reasons a) to limit demand and distribute fairly a limited resource and b) to use that revenue to employ unemployed construction workers to fix the water supply system and any other public mainteance; fixing roads after the floods etc, then I would support it. This is not likely to happen but is the sort of dialogue local government should be having with communities. However, it could be temporary. What should be permanent is a property tax for all those owning a fixed asset such as private property. This is a much more effective means to raise revenue.

Politics is a collective action problem. Dealing with things like water is a classical ‘tragedy of the commons’. Tax and spend policy has to be central to overcoming this and so many other collective action problems facing society.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s