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Saturday 30 August 2014

Double levy on property, cut income tax and hike VAT 'to boost economy'

Paul Melia

Published 04/01/2014 | 02:30

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A levy on property is designed to boost the economy
A levy on property is designed to boost the economy

A SENIOR economist in the Department of Finance has suggested doubling the property tax and hiking some VAT rates to help grow the economy.

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Reducing income tax and increasing the property and some rates of "consumption" taxes would encourage people to spend more and promote employment creation among companies, he said.

Writing in the 'Economic and Social Review' journal, Brendan O'Connor said that although the switch from income to consumption and property taxes might not have "much effect" on the average tax paid by workers, it could promote economic growth.

This is because workers would have more take-home pay, which could encourage them to buy goods and services and boost the economy.

The article is not endorsed by the Department of Finance, however, it was tweeted by Mr O'Connor's employer.

Mr O'Connor said the aim of the paper was to "stimulate thought and discussion".

In the paper, 'The Structure of Ireland's Tax System and Options for Growth Enhancing Reform', Mr O'Connor said that Ireland has low consumption taxes compared with other OECD countries, but acknowledges hikes in these rates could affect those on low incomes.

To counteract this, cash payments or other incentives through the tax system could be made to the least well-off to help them cope with higher prices.

If the property tax was doubled to collect €1bn a year instead of €500m, it could grow employment by 0.43pc over five years, he said.

If another €1bn was collected through higher VAT rates rather than income tax, it could grow worker numbers by the same figure, a total of 0.86pc. This equates to a total of about 16,000 jobs.

He said that an increase in VAT did not mean hitting the higher rate of 23pc, but increasing the "efficiency" of the lower rates. This could include items like newspapers and restaurants, which are VAT rated at 9pc, and utility bills, which incur a 13.5pc rate.

CONSUMPTION

"Taxation of consumption is below the EU average," Mr O'Connor said. "This suggests that there may be some scope to use consumption taxes to reduce the burden on labour."

The Government has committed to retaining the property tax at current levels until 2016, with any changes before then likely to be politically damaging.

However, several Fine Gael ministers have said they wish to ease the income tax burden on workers, with Taoiseach Enda Kenny suggesting it could be considered in the next Budget. Tanaiste Eamon Gilmore has spoken along similar lines.

The highest rate of 52pc tax kicks in at €32,800 for a single PAYE worker and €41,800 for a single-income family. This rate is calculated using a combination of the Universal Social Charge, PRSI, as well as the higher 41pc income tax rate.

The rate is even higher for a self-employed person, at 55pc.

Mr O'Connor said a "central issue" to exiting the bailout is how the economy could grow to provide "greater employment opportunities and sustainable improvements in living standards".

While much of the debate on taxation has centred around increasing or reducing tax rates, particularly in relation to high earners, there had been "very little comment" in relation to shifting how taxes are imposed, which would not result in a loss to the State, he added.

Consumption taxes may be "less harmful" in the longer term.

Irish Independent

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