ESRI urges radical rethink on taxation
Published 12/10/2010 | 05:00
THE Government needs to impose property taxes and increase income taxes, the Economic and Social Research Institute (ESRI) will urge today.
It should also discourage pensions and other saving methods and instead create a rainy-day fund.
By putting so much into property and pensions we now find ourselves with too much money tied up in houses and pensions which means we have little money to spend during the recession.
The ESRI's Joe Durkan claims we need to take such such measures to stop the boom and bust policies traditionally followed by Irish Governments.
The radical move will be outlined at a special conference today ahead of November's four-year budget announcement.
Ordinary people should be encouraged to own their personal "rainy day" fund to meet downturns rather than relying on investments such as property and pensions, he says.
Most people in wealthy non-English-speaking countries own assets such as shares, bonds, gold and businesses as well as houses and pensions.
The suggestions from the country's leading think tank come as Finance Minister Brian Lenihan ponders how to raise taxes and present a credible plan to bring down Government expenditure to levels which might allow the country to slash spending from almost a third of gross domestic product to 3pc within a few years.
A separate paper to be presented to the conference by researcher from the ESRI and University College Dublin, calls for the abolition of PRSI and other levies and their replacement with a single universal charge equivalent to 7.5pc of taxable income. Such a change would favour the wealthy who are currently paying levies equivalent to around 11pc of income but would help to alter the tax system, the researchers say.
The ESRI researchers also urge the Government to consider changes to the income tax system and the abolition of the dozens of reliefs discussed by the Commission on Taxation in a report last year.
That 550-page report contained over 230 recommendations to broaden the tax base without increasing the overall tax take including tax on child benefit, a property tax, a carbon tax and new water charges as well as the abolition of tax relief for trade union membership and abolition of stamp duty on houses.
"A strategic approach to reforming direct taxes is needed as part of the new long-term plan for the public finances," Prof Tim Callan said ahead of the conference.
Newly appointed Department of Finance adviser Jim O'Leary will tell today's conference that he believes that the growth and stability pact which was supposed to govern economic policies among European Union member states was not enforced strictly enough before the present crisis struck.
Analytical errors meant that Ireland was judged have a structural budget balance when this was far from the case, he will say in what will probably be his last public statement before the former academic and stockbroker has to temper his views to chime with official policy.
The EU is likely to respond to this failure but far greater scrutiny of member states' budgets and far harsher sanctions for states that break the rules, Mr O'Leary adds. Far greater emphasis will be placed on the 60pc debt/GDP ratio as a target of fiscal policy, he will say.
This is likely to prove particularly difficult for Ireland which is forecast to have one of the highest debt to GDP ratios.