Thursday 29 September 2016

The poor mugs who carry tax dodgers and freeloaders on their backs

The people of middle Ireland who rescued the country after the crash in 2008 are still paying the price.

Published 03/09/2016 | 02:30

Middle-income earners felt the brunt of the downturn
Middle-income earners felt the brunt of the downturn

Large numbers of people on the dole stopped claiming their welfare payments over the summer because they were on holiday.

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More than 2,200 jobseekers notified the Department of Social Protection that they would not able to sign on because they were either leaving the country, or heading off for a break in the sun.

Many of those who consider themselves to be among the hard-pressed, so-called squeezed middle will allow themselves a wry and doleful simile that those on the dole can afford to go on holidays at all.

A recent Irish League of Credit Union-commissioned survey found two thirds of parents sacrifice a family holiday to meet back-to-school costs.

We all need a holiday. And it may well be that the holidays of the dole recipients were paid for by a partner or spouse who is in employment.

But the fact that so many in receipt of unemployment benefit can afford to leave the country for a summer break perpetuates the troubling belief among the wedged middle that they are expected to shoulder an unreasonable burden, with many others hitching a free ride.

Never mind phrases like the squeezed middle, the hard-pressed, or the coping classes.

Middle-income, middle Ireland would be better described as the mugs.

These wedged ones are not wealthy enough to employ clever lawyers to wriggle out of their tax commitments, nor are they at a low enough income level to argue that they are entitled to a free house, free college education, or free whatever.

The middle-income mugs are mostly those one million people who ponied up for water charges, because they recognise that treating water is expensive, because they realise that we need to broaden the tax base beyond income tax and the universal social charge (USC), and because it was the law.

These mugs rescued the country after the calamitous collapse in 2008, and continue to pay the price to save the situation.

Remember that the economy got out of control due to bankers, but also because public spending was too high, and the tax base too narrow.

So the suckers in the middle are being charged an extra €5bn a year in income tax and the USC since the bust.

That is to without even mentioning higher pay-related social insurance (PRSI) payments.

A series of adjustments to tax bands, the introduction of the USC, and the restriction and abolition of tax reliefs, has hiked the amount of income tax paid by households.

Income taxes in the last year amounted to almost €19bn, up by €5.2bn since the peak of the boom in 2007/2008.

The controversial USC makes up €4bn of the income tax take.

And this does not include another €8.45bn in pay related social insurance payments (PRSI) paid by workers.

All of this means that a family on a modest income of €55,000 is paying €2,000 more in income tax and USC since 2008, according to Irish Tax Institute calculations.

Ordinary, middle-income families in this country have been hammered by austerity.

What do we get for the extra €5bn, in terms of benefit? Squat diddly, is the answer.

Benefits in this country are worst than in the likes of Britain or Germany, and they have been reduced further here since 2008.

Workers here may pay less income tax than a middle-income earner in Germany, but they get a lot more in terms of benefits than we do.

The big problem with our income tax system is that you hit the higher rate at relatively low levels of earnings.

Single people pay the higher 40pc rate on income over €33,800.

A married couple, with one earner outside the home, hits the high rate on income over €42,800.

But it is not just on income taxes that we have been hammered by austerity.

We used to have a system that supported home-owners, but we abolished mortgage interest relief and bin charges relief.

We introduced property taxes and water charges instead.

We used to encourage people to provide for their retirement with a liberal pensions tax relief system, but we started to whittle that away and increased the retirement age.

Remember that the Government stole €2.5bn from private pensions, mislabelling it as a pensions levy.

We used to pretend education was important, then introduced college fees and denied tax relief on most of them.

We used to give people full tax relief on their medical bills, then we halved the relief, but still leave them queuing for hours in A&E.

Worst of all, we told the population we had a fair and progressive tax system, and then left just 20pc of earners paying three quarters of all the tax.

Or to put in more starkly - some 36pc of earners pay no income tax at all.

When it comes to the USC, some 29pc of earners avoid paying it.

USC may be resented as the epitome of an austerity tax, but one of its big plusses initially was that it applied to all - even the rich could not use reliefs and allowances to avoid it.

The whittling away of the numbers paying USC has added to the pressure on middle earners to take up the slack, as has the immature decision to abandon water change.

The indefensibly low amounts of tax paid by the likes of Apple and the vulture funds that have bought up distressed loans and assets are equally resented by those holding up the system through high income taxes, and other charges.

These are examples of how we have failed to broaden the tax base.

The pity is that the wedged ones, who deserve it most, can expect little relief in the Budget.

Never mind that incomes have been cut, pensions are a distant promise, childcare costs are among the highest in the Western world, school and college costs a nightmare, and offspring can't afford a home, the pinched ones will be told to keep pushing the rock up the hill.

Some claim that taxes are only for the little people.

Nonsense. In Ireland, taxes are only for the middle people.

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