Budget 2010: Cuts or Progressive Tax Reform?

This is a link to an excellent document by the Community Platform aimed at starting a dialogue on Progressive Tax Reform. The Community Platform is a network of 20 organisations (including the Irish Traveller Movement, Simon Community, Age Action, Womens Aid and the Irish Refugee Council) that was established to represent the interests of the voluntary and community sector in Social Partnership.  The document details 4 policy proposals which aim to act as both an alternative to the €3bn cut in public expenditure and a fiscal stimulus to the wider-real economy. The four policies include:

  1. Reduce tax breaks (expenditures) to the EU average (this would save almost 1.5bn a year, over 4 years). See TASC.
  2. Introduce a wealth tax (particularly on financial assets) as a more progressive form of ‘property’ tax (i.e. expand it beyond the ownership of a ‘home’). This would raise between €500m – €1bn
  3. Tax all citizens and not just residents (i.e. to disable the approx 6,000 wealthy individuals using Ireland as a non-resident tax haven). This, however, is not costed in the document.
  4. Make all income eligible for PRSI and additional ‘income’ levies.  This is estimated to raise approx €500m

This is a welcome contribution to a much needed debate on Irelands tax system. Irelands public finance crisis is the result of a collapse in an unsustainable tax regime that relied upon pro-cyclical taxes. Indirect taxes, by their very design are regressive. Low income families (those least able to pay) end up paying more as a percentage of their overall income (than those most able to pay).  Cutting expenditure rather than re-designing the tax system (as a means to solve budget defict) is a short-term ‘band aid’ solution to a deeper crisis in Ireland’s ‘low tax’ model of growth.Public expenditure in Ireland as a percentage of GDP & GNP is already below the EU 27 average. It is the 2nd lowest in the Eurozone 16. Now is the time to tackle deep structural problems in how revenue is raised and public services delivered. Reform and re-design not cut and burn.

In the build up to the budget 2010, most media commentary will present ‘expenditure cuts’ as an accounting  exercise.  This is not the case. The choices facing government are deeply ‘political’ with significant socio-economic implications. Shifting the entire burden of ‘adjustment’ on to those dependent upon social services whilst allowing the revenue base to benefit the wealthy makes no economic or moral sense. The crucial point to keep in mind, however, is that there are real alternative fiscal policies to the current policy of retrenchment and deflation.

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