James Fitzsimons: We've all done our bit, now companies must pay more
The latest exchequer figures provide little comfort for ordinary taxpayers
Published 06/01/2013 | 05:00
It will be alright again – not because they say so, but because of what you do to make it better. A couple of big companies paid a lot of tax in December.
That doesn't make it a new beginning and it certainly isn't the end of our troubles. More income tax was collected in 2012 than ever before, not because the economy is recovering, but because the Government increased income tax in spite of its promises. It just called the tax another name – the universal social charge (USC).
VAT increased too. But the Government increased the standard rate by 2 per cent last year, from 21 per cent to 23 per cent. The VAT take in January will be higher still because of the higher-than-expected retail sales for November and December, compared with 2011. But 2011 was one of the worst years on record since the downturn.
Brian Hayes, Minister of State at the Department of Finance, proclaimed that the Government had almost taken all it wanted in higher taxes. But for some that is already too much and the Government hasn't left enough for them to claw their way back out of the holes that the global downturn forced them into.
It's not that things won't get better. They will, but we are paying too high a price. It is not that the Government hasn't helped, however small its help might be. But ministers have been naive in negotiating a better deal for Ireland. They missed the best opportunities to cut a deal and have thrown away what bargaining power we had.
The two big companies that paid corporation tax of nearly €400m in December show just how much these firms can be worth to the Exchequer. But while income tax is higher than it ever was, companies are contributing a lot less than they did before. Company tax generated nearly €6.7bn in 2006. Even with the windfall addition of €400m in December, it only yielded €4.2bn in 2012.
If companies paid a social charge like the USC, we would be €2bn a year better off than we are now. But that presupposes we wouldn't scare them all away. Let's hope the €400m extra isn't a one-off and that this is the beginning of a positive trend. Companies must pay a lot more if things are to get any better for the rest.
The Government would like us to believe that things are better than they are. But even now we are spending €15bn a year more than we collect in tax. There's nothing wrong with running a deficit if it helps build the economy. But it's not helping.
Brian Hayes says the Government will focus on public sector reform to get the savings we need. If it is that easy, why haven't we seen the benefits by now? Outrageous pensions continue to be paid. Ludicrous expense payments continue because nobody stops the waste.
They have cut spending in the public sector by €2.5bn a year, but that shows how much waste there was. They haven't even started to cut most of the outrageous payments that the Croke Park Agreement is protecting. Clearly, they know where the problems are. But they are powerless to do anything about it. The country is being run by public servants, for public servants.
The Minister for Finance, Michael Noonan, and the Minister for Public Expenditure and Reform, Brendan Howlin, are positive about what they describe as a continued improvement in the public finances. I find it difficult to share their enthusiasm when businesses are still struggling to get out from under the burden of debt the Celtic Tiger created.
There is little in the exchequer figures to suggest that things are any better, at least not for those forced to do the heavy lifting. The Revenue Commissioners will collect what it is due and while the banks are still calling the shots, there just isn't enough to go around.
Viable businesses have been pushed over the edge by a tax burden that is too high. Companies that are subject to tax at only 12.5 per cent have gone under. Imagine what it is like for businesses, families and individuals who are subject to tax at up to 55 per cent. There is not enough to pay off their own debts. There Government makes it worse still.
Companies can keep 87.5 per cent of what they earn. If the two companies that provided the €400m tax bonanza in December pay tax at 12.5 per cent, they keep nearly €3bn between them in profits after tax. The special corporation tax rate saves them more than €1.3bn a year, compared with what it could be. That is more than the Government is trying to raise in extra tax this year. Surely there is something left for a social dividend from companies.
We are well within our budgetary target that was set by the troika. We have performed so well that it has become embarrassing to ask for help or financial assistance. The French had to increase income tax on the rich to 75 per cent. Even Barack Obama has forced those with most to pay an extra 4.6 per cent to help the rest in the US. Why would the French agree to give us concessions when we don't even need to increase tax on companies? We embraced austerity. Now we have to live with it.
The €6.467bn in costs to service the national debt took nearly 18 per cent of all tax revenue last year. That won't get any better. If anything, it will get worse. The two ministers responsible find this to be acceptable. Over-runs at the HSE will absorb windfall gains in corporate tax.
We have already shown Europe and the financial markets that we are capable of meeting our commitments, no matter what it takes. The only thing stopping us re-entering financial markets is that our debt burden is still too high. So either the EU guarantees what we have or it writes down the debt. The prospect of the latter is now highly unlikely. That means the cost of servicing the national debt will continue to place an enormous burden on our resources for the foreseeable future.
If you entered the recession with a financial cushion, the Government hasn't taken it all away. But if you are one of those who can no longer make ends meet, the exchequer figures have no lifeline for you. We have been promised access to finance from the banks and personal insolvency if you want to unburden yourself through official channels.
We have a functioning economy, but it hasn't been fixed. The message from the Government is that there is a glimmer of hope, but not enough for everyone. Unless, like Michael O'Leary, you are willing to take the other guy's lunch, you could be left behind. Find what you need and take it. There are no handouts anymore, unless you are still cushioned at the top.
James Fitzsimons is an independent financial adviser specialising in tax and financial planning