Ireland’s Taxes are LOW

Our tax burden is one of the lowest in the EU — and that’s the truth

By Fergus Finlay

A LONG, long time ago, when you and I were young, I wrote a column
here about the myths and mantras of Irish politics.

It was my feeble attempt to change the way things might be looked at,
and it fell on the deafest of deaf ears. I called them M&Ms, and I
tried to talk about the health warning that should always be attached
to a myth, or a mantra. Just because it’s said with a self-important
air, and repeated ad nauseam, doesn’t mean it’s true.

The PDs were starting to be in the ascendancy then, and the core myth
they created was being repeated like a mantra, day after day, by their
acolytes in Fianna Fáil. You may remember their myth — although
actually, you don’t need to, because it has now been elevated into an
article of faith.

You could maybe sum it up in this phrase: “Public spending bad, tax
cutting good.” Little by little, we all came to believe that Charlie
McCreevy’s tax-cutting strategy (he was the PD’s mole in government)
had created the growth of the Celtic Tiger years. It was in fact the
other way around –- McCreevy gave away the growth in tax cuts, rather
than created it. But never mind. There is nobody, it seems, who
doesn’t now believe the M&Ms about tax and spend.

In fact, it has been added to, to the point where it is now both
unchallenged and unchallengeable. How many times have we heard the
phrase, “you can’t tax your way out of a recession”? And when Michael
Noonan was asked why he had decided to put up the VAT rate, his reply,
again and again, was the same thing: “I don’t want to increase income
tax, because that costs jobs.”

There is something deeply depressing, isn’t there, about a political
discourse that won’t allow anything to be challenged. It’s simply not
true that a properly structured and well-balanced tax system costs
jobs. But it feeds into the other myth we all suffer from in Ireland,
that we’re all grossly over-taxed, and couldn’t possibly afford to pay
another cent towards the cost of public services we claim to value.

If you go looking for the evidence for this assertion, it’s hard to
find. But there is some data about.

For example, Eurostat, the statistics office of the European Union,
gathers all sorts of information about the way we pay taxes, and goes
to great lengths to apply the collected information so that we can
compare like with like. Their most recent publication came out in
July, but sadly didn’t make the bestseller lists that month, so it has
taken me until now to catch up with it. It’s called Taxation Trends in
the European Union.

And it makes amazing reading. The amount of tax collected in Ireland,
expressed as a proportion of our national wealth, is not far short of
30%. The actual figure — it’s called the tax-to-GDP ratio – is 28.2%.
Just imagine. Shock. Horror. The pain of that. The cruelty. No wonder
the economy is in such trouble. Our tax rates must be the highest in
the world, to produce a figure like that.

Eh, no. Our tax-to-GDP ratio isn’t the highest in the EU at all. In
fact, it’s the third lowest. There are two other countries in the EU
that have a lower tax burden than us. Latvia is one of them, Romania
is the other. And this is all taxes we’re talking about. If someone
feels like writing in to the paper and telling me that I’m ignoring
the stealth taxes, I’m afraid not. Our total tax take, expressed as a
proportion of our total wealth (even taking account of the fact that
total wealth has been going down), is the third lowest in Europe.

It does offer one answer, of course, to all those who think we’re
crippled by tax. They could choose to live somewhere else. Although,
I’m told, Bucharest and Riga start to get pretty cold around this time
of year.

But seriously, here’s a fascinating paragraph from the chapter on
Ireland in Taxation Trends: “From 2000 to 2002, Ireland reduced the
total tax burden across the board from 31.5 % to just 28.4 % of GDP.
Since 2002, however, the total tax ratio has increased every year,
reaching 32.2 % in 2006, in large part due to a surge in VAT receipts,
capital gains tax and stamp duties. This upward trend was interrupted
in 2007 when the total tax ratio decreased by almost one percentage
point. In 2009, total tax revenue to GDP has reached the lowest

It’s like a picture of the property bubble, expressed in the less than
lyrical language of a Eurostat statistician. As property prices rose,
we collected so much tax that our total tax take began to resemble the
European average. The minute the bubble burst, our tax take collapsed.

And that is precisely the thing that has caused us the problem we face
today. We talk all the time about how awful public spending is, and
how out of control it is. And yes, there’s a lot of things that need
to be much better managed, and some things that need to be reformed.
But our real problem is an income problem, not a spending problem.

I don’t understand why we’re so determined to shy away from raising
some additional revenue. If employers are asked for more in terms of a
contribution, for instance, another one of the M&Ms is trotted out,
about how important competitiveness is.

But look at what Eurostat has to say: “Social security contributions
represent a meagre 5.8 % of GDP (second lowest in the Union after
Denmark), compared to an EU-27 average of 11.1%”. Throughout Europe,
on average, direct taxation contributes about a third of total tax
revenue, indirect taxation another third, and a third comes from
social security contributions (which are funnelled into much better
systems of social protection). In Ireland, just over 40% comes from
indirect taxation (and that will go up with the VAT increase), just
under 40% comes from direct taxation, and around 20% comes from social
security contributions.

You know what’s even more bizarre about all this? We concentrate all
our anxiety here on the marginal tax rate — the rate you pay on the
highest proportion of your income. And sure, the marginal rate is
pretty high in Ireland at 41%. But in Germany (remember them, the
people who pay our bills?) the marginal tax rate is 47.5% — that’s
what better-off people pay there. And it contributes to an overall tax
take of 39.7%, slightly higher than the European average.

In fact, if you look at the overall European table, the astonishing
thing is that higher tax contributions are much more often associated
with leading prosperous countries — the ones with the Triple A ratings
we envy — than otherwise.

That’s the truth, as opposed to the myth. Isn’t it about time we began
to debate these issues on the basis of truth rather than myths and
mantras? Then maybe we’d start to construct a tax system that’s
progressive and fair, rather than try to cut our way out of the

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