Analysis/Comment
The myth of a low tax Irish economy as farmers make up to €500K an acre from development land & the Government collects average of €100,000 from cost of every new housing unit
By Michael Hennigan
Sep 18, 2006, 09:42

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Progressive Democrat Party (PD) President and Junior Minister in the Department of Finance Tom Parlon (seated) has warned that any change in the restrictive rezoning system of land for development that has a 20-50 times multiplier effect on values, would be to the "left of Stalin" even though as a big farmer, he is a significant beneficiary of European socialism. The bonanzas of up to €500,000 from sale of land near Irish towns, are part of a huge transfer of wealth in Ireland and a massive "stealth tax."

With the campaign underway for the Irish General Election that is expected to be held in May 2007, the Progressive Democrats under their new leader Michael McDowell, plan to outline proposals on taxation today.

There is a myth that Ireland is a low tax economy. Our tax burden is as high as the UK's and we pay some of the highest indirect taxes in the OECD.

The corporate tax rate is low at 12.5% and income taxes are low but other taxes are high. That is an attractive option for foreign direct investment but we shouldn't allow ousrselves to be deluded into believing that the overall tax burden is very low.

The Government collects  €100,000 on average from the cost of every housing unit built in the State; new car prices are 28% above the European average; Private health insurance is a necessity because of the poor standard of the public health service and there are many more stealth taxes.

A PD source had told the Irish Times on Sunday that McDowell is expected to outline  options on stamp duty ranging from its abolition, a major reduction in rates, or changes to allow householders pay the duty over the lifetime of a mortgage rather than in one lump sum, as currently happens.

Stamp duty on homes has amounted to €1.9 billion so far this year - an increase of 43 per cent on the same period last year - and is expected to raise €3 billion for 2006.

One of the biggest "taxes" of all is the bonanza of up to €500,000 that farmers can make from land near Irish towns, in a country that is 4% urbanised.

PD Party President Tom Parlon has said that any change in the current system would be a move to the left of Stalin.

“To make Ireland a competitive place to do business internationally, we are talking about radical tax reform. We will be talking about getting agriculture, which is now in the doldrums post EU reforms, to provide alternative energy sources.”

The party also said that it will announce plans to relocate Dublin Port to North Dublin, which was first advocated by a group from Engineers Ireland, the country's largest professional body.

Other infrastructure project announcements are also expected even though almost ten years in government could not deliver even a second terminal at Dublin Airport!!

McDowell also said: “We’re talking about taking more people out of the 40% tax band. We’re talking about getting as many people as possible into a position where they pay as little as possible income tax so that the beneficial effect that the country has had from taking a low share of the payroll will be continued into the future.”

Tinkering with the tax system is the easy option when contrasted with a record of failure in putting in place reforms for the post-construction boom Ireland when 17% of the private workforce will not be in construction and the Government cannot rely on property related taxes to fund 20% of its annual spending.

It took a public outcry about waste on IT projects and infrastructure projects to prompt Michael McDowell and his colleagues to propose new control measures in October 2005! 

UPDATE: McDowell offers update of Fianna Fáil 1977 manifesto

The following is an extract from the Finfacts Review of the Irish Economy and the Failure to Reduce Significant Reforms

Irish Economy 2006 and Future of the Celtic Tiger: Putting a brass knocker on a barn door! 

The report Prices and Earnings that was published by Europe's biggest bank UBS on August 9th, says that Ireland is the 8th most expensive of a sample of 71 cities worldwide.

However, in Dublin, rents are low but house prices are very high. So net earnings after housing costs can vary widely depending on whether the worker is a renter or mortgage payer. In contrast with other European cities, where public health care standards are high, many Dublin workers have to buy private medical insurance from their net earnings after tax. There are other examples of hidden taxes such as the data from the EU last month that electricity prices for consumers from the State-owned monopoly, are 46% higher than in the UK.

The Irish Government gets an average of €100,000 in various taxes and levies i.e. tax, from the cost of every housing unit built in the State. It amounts to more than 30% of the average cost and is  the Mother of all Stealth Taxes. In November 2004, the Minister for Finance Brian Cowen, said in the Dáil that the percentage was 28%. The Construction Industry Federation says that its more than 30%.

Figures published by the OECD in October 2005 show that Ireland's tax as a percentage of GDP (Gross Domestic Product) ratio was 30.2% in 2004 compared with 29.1% in 1975. The European Commission said in May 2006 that Ireland's tax ratio burden fell 2.9% from 1995 to 30.2% in 2004.

GDP in Ireland is substantially larger than GNP (Gross National Product) due to the disproportionate impact of multinationals in Ireland.

The ratio of tax to GNP in Ireland in 2003 was 36.21%, according to the National Competitiveness Council (NCC). In other countries, the difference between the GDP and GNP ratio, is small.

The OECD says that Sweden once again had the highest tax-to-GDP ratio among OECD countries, at 50.7% in 2004 against 50.6% in 2003. Denmark came next at 49.6% (48.3%), followed by Belgium at 45.6% (45.4%). At the other end of the scale, Mexico had the lowest tax-to-GDP ratio, at 18.5%, against 19.0% in 2003. Korea had the second lowest, at 24.6% (25.3%), and the United States had the third, at 25.4% (25.6%).

The OECD says that many countries with high tax-to-GDP ratios provide family benefits as cash payments rather than as tax reductions, increasing the apparent tax burden as measured by the tax-to-GDP ratio.

The NCC says that the fall in the Irish tax burden by 10% in the period 1995-2003, can be largely attributed to the significant rise in the value of Ireland's GDP.

The NCC also says that the breakdown of total tax revenue between direct, indirect and social security tax shows that Ireland has one of the highest shares of indirect tax as a percentage of total tax revenue. Low direct taxes and high indirect taxes favour export oriented manufacturing and services sectors over tourism.

As the Celtic Tiger boom accelerated from the mid-1990s, the Irish Government significantly extended property-related tax incentives in respect of rundown areas in most urban areas, car parks, nursing homes and holiday homes.

Very wealthy people have been able to use such incentives to reduce their tax liabilities to low levels or even zero.

Income tax or direct taxes rates have fallen since the dawn of the Celtic Tiger.

In the 2002 Programme for Government, Fianna Fáil and the PDs agreed that 80 per cent of all income earners pay only standard rate tax. The commitment has not been met.

In 2002, almost three quarters of earners paid only standard rate tax. Today, just two thirds do. Four years ago, just over a quarter paid tax at the higher (42 per cent) rate. By 2006, nearly a third now do. The failure to index bands and allowances for inflation in recent budgets, except in December 2005, is the principal reason.

In percentage terms, more people are paying tax at the higher rates in 2006, than in 2002. And this has happened despite years of strong growth.

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