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Introduce property tax
November 7, 2010
VOL 27 NO 45
You might feel a slight pinch: a dozen more cuts for taxing times
Last week, the 'Sunday Tribune' detailed a dozen ways the government could cut public-service spending. This week, we focus on how up to €6.7bn could be saved through non-public sector cuts. Martin Frawley breaks down the numbers ahead of the state's toughest budget yet
Toll the roads
1. Cut back pension relief
The estimated cost to the exchequer of the tax relief for private pension contributions is €1,990m. Plans are already underway to reduce the relief to 33% for all (those on the lower tax bracket only get 20% relief) which would make it more equitable.
Even a 10% cut in the exchequer cost of pension relief, targeted at the higher paid, would bring in an estimated €199m.
Income €200m
2. Switch To Generic drugs
The state’s drug bill under the GMS scheme is €1,800m or around 13% of the €14bn health service bill. Generic drugs are considerably cheaper but less than 20% of the drugs dispensed under the scheme in Ireland are generic as against 70% to 80% elsewhere in Europe.
It is estimated that through this, €100m to €300m could be saved annually.
Saving 150m
3. Get the tax in
As of March 2010 there is €2,100m in outstanding tax due to the exchequer or around 5% of the total. Of that, €669m is under appeal, which means the Revenue cannot make any moves to collect it. This leaves Revenue with €1,443m of debt which is ‘available for collection’. A bit of a push could bring in half of that outstanding debt.
Income €721.5m
4. Tax the Higher paid
There are over 111,000 people earning in excess of €100,000 a year. A new higher 48% tax (as opposed to the current top rate of 41%) would yield an extra €410m. If one wants to secure the €3bn originally signalled by finance minister Brian Lenihan back in the good old days last June, when the economy was just on a tough path as opposed to dropping over a cliff as at present, the top rate would have to be increased to 84% for those earning over €100,000.
Income €410m
5. Introduce a property tax
A 0.25% property tax on the 1.934 million houses would yield an income of €1,231m, while if the rate was set at 0.30% it would yield a windfall of €1,476m. This, according to the Commission on Taxation, would produce a property tax ranging from a low of €188 on a house valued at under €150,000 to €3,750 at the 0.30% rate on house valued in excess of €1.5m.
However, when waivers for low income households are factored in, the yield will drop to €926m at the lower rate and to €1,112m at the higher rate.
Income €1,112m
6. Toll the Roads
Local Government Efficiency Review Group estimated that €200m could be collected by tolling the national roads, although it is not transport minister Noel Dempsey's preferred option. This appears a conservative estimate given that the government paid National Toll Roads €650m to buy back the M50 tolls, which shows just how much money there is in tolls.
Income €200m
7. End the Tax Relief Schemes
Like pushing an open door, this would be a popular move even though it would come from a government that introduced them in the first place – a move which fuelled the property crash. Most of the property relief schemes which spawned a host of 'flat pack' hotels and multi-storey car parks have been guillotined. But some are still operating and there would be legal problems in ending them before their term comes to an end.
The Commission on Taxation report of last year lists 24 tax-relief schemes that should be abolished, yielding €259m. These include artists' exemption (€66m) relief on rent, the rent-a-room relief, disposal of a site to a child, tax exemption on patent royalties, the seafarer's allowance and others.
The commission also suggested amendments to over 30 other relief schemes including capping at €500,000 the annual donation to charities which attract tax relief, ending mortgage interest relief for non-first-time buyers and treating child benefit as taxable income. These should yield a further €100m.
Income €359m
8. Tax Everybody
Though Taoiseach Brian Cowen has said that the cutbacks in the forthcoming budget would concentrate on spending rather than increasing taxes, some increase is likely.
While taxing work as a response to the recession is at odds with countries which have cut taxes in order to stimulate growth, as a small economy in dire straits, we do not have the same choice. Yields from a 1% increase across all rates:
Increase income levy rate from 2% to 3% €573m
Increase standard rate (20%) by 1% €420m
Increase higher rate (41%) by 1% €145m
Increase health levy by 1% €522m
Total €1.66bn
9. Raise VAT
Inevitably will cause near hysteria among the business fraternity, who will say that it will erode our competiveness with the UK in particular and spark another flood of cross-border shopping. Certainly, Ireland has one of the highest standard Vat rates of 21% (we also have a reduced rate of 13.5% and a zero rate) and are in sixth place behind Poland, Finland (22%) and Sweden, Denmark and Hungary (25%).
But we are not the highest and still behind Finland, birthplace of Olli Rehn, so…
A 1% increase on the reduced 13.5% rate €253m
A 1% increase on the standard 21.5% rate €334m
Total €587m
10. Increase Corporation Tax
The sacred cow of the Irish economy, the low 12.5% corporation tax has been rigorously defended by the government against attack from the EU's Olli Rehn and President Obama. We are now regarded as a tax haven by many in the US as large companies channel products through their Ireland branch to avail of the low tax.
Last month, EU finance commissioner Olli Rehn announced that Ireland "will be a higher tax economy". So let's take the bull by the horns now; move it up.
In the period to October 2010 Corporation Tax yielded €2,621m, down €200m from last year. A 1% increase would yield €210m.
Income €210m
11. E-Gossip Tax
The doyen of political tweeting, the Green Party, has already suggested a 1c tax on each of the 1.4 billion texts sent by Irish people every year, which would yield around €14m.
To this can be added a tax on emails, tweets, text alerts etc. Raising up to €100m shouldn't be that difficult and the mobile phone companies could act as collectors.
Income €100m
12. Reintroduce Rates
Call it what you will – rates, poll tax, local charges – but an annual household charge for services, discarded with such munificence by Fianna Fáil in the 1970s, is now desperately needed. A charge of €750, including water charges and the existing waste charges of circa €300 a year, would yield €1.5bn or well over €1bn when waivers are included.
Income €1bn
TOTAL SAVING: €6.7bn
November 7, 2010
Comments
#2 Fiona commented, on November 7, 2010 at 11:40 p.m.:
If they cut the pension tax relief to the standard rate why would any higher tax person lock their money away for up to 40 years and then hope the return is sufficient.
They would be taxed on the way into their pension and again when they draw it down.
For the last couple of years it has only been the tax relief that has made pensions anyway enticing. People will drop private pension in droves if this happens.
Agree that a tax on emails is just a silly idea!
#3 Michael Kavanagh commented, on November 8, 2010 at 12:19 a.m.:
Your suggestions are too general and will hit those who have little or no disposable income, such as retired private self employed who have lost 50% of their pension value. Luxury spending and high incomes should be taxed. Vat on Irish produced products should be reduced to 15%. 21% on foreign goods. If we can be allowed lower corporation tax than Europe this should also be feesable. Incentives to promote local business introduced. Income tax payable on income above minimum wage after personal allowances etc. Introduce a national pension plan for all individuals above minimum wage payable directly to Revenue rather than insurance companies.
My focus would be on ensuring more consumer spending particularly on locally produced goods to reinflate the economy rather than taking money from individuals who cannot afford it.
#4 Michael Kavanagh commented, on November 8, 2010 at 12:26 a.m.:
This is a national emergency. If there was a war, everybody would pitch in. (I hope). Its a pity that everybody is more interested in keeping what they have (myself included) instead of asking how they can help others. Wishful thinking!!!
#5 Jason commented, on November 8, 2010 at 12:38 a.m.:
"To this can be added a tax on emails, tweets, text alerts etc."
You ran out of ideas towards the end of your rant. After reading this I expected to see a tax on farting.
#6 kevin spain commented, on November 8, 2010 at 2:52 a.m.:
On point 12, what services do we get that we are not already paying for ? Maybe it should be called a bolloxed tax.
#7 Ed Van Der Hoff commented, on November 8, 2010 at 11:30 a.m.:
This is probably one of the most idiotic articles ever written on the subject. The author effectively increases taxes by 6.7 billion (give or take). Assuming a workforce of 2 million, you've just added 3,350 Euro per person (on average) to their tax bill. We know that 1/8th of all mortgages are under water, or approximately 100,000 homes. That's a possible bank liability of 25 billion in addition to their current woes. Take three grand from everyone in a job, and all those people already on the edge will be pushed over. The banks will quickly follow.
As for your comment about collecting revenue owed to the commissioners, you should study accrual-based accounting. That money has already been shown as income.
We tried increasing the VAT rate. Nature, as we know, abhors a vacuum and more of us would be persuaded over the border for all but the most menial of purchases. The government had to back-track the last time they had that "brilliant" idea.
Suggesting a tax on emails shows a complete and utter lack of understanding of how the Internet works.
Ultimately, we are spending more than we are taking in. There aren't any deep pockets we can dip into (they've all moved to Malta or Portugal). We have to cut spending, pure and simple. There is some scope for a tax increase, but very little.
#8 David Fennell commented, on November 8, 2010 at 12:40 p.m.:
A 1% increase in corporation tax wouldn't raise a cent. The 12.5% rate is an international 'brand' and any adjustment could be interpreted as the start of a series of hikes. Ireland competes with low-tax countries well beyond the EU for inward investment (i.e. jobs!) and many projects are planned years in advance. Behavourial changes by foreign multinationals in response to any increase could actually reduce the corporation tax take not increase it. More to the point it would be a high-risk strategy that could adversely affect employment by multinationals, today and in the future.
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"A tax on e-mails"
Martin would you ever get a grip of yourself.