News Comment

Sunday 21 September 2014

It's time to ease the tax burden on ordinary people

Sinn Fein and Fianna Fail have the ingredients needed to make the system work again, says James Fitzsimons

Published 01/06/2014 | 02:30

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Electing a high-tax government will see us return catastrophic years
Electing a high-tax government will see us return catastrophic years

Sinn Fein capitalised on the losses sustained by the Labour Party in the recent local and European elections. Voters had enough austerity and they're turning to whoever will make things better for them. Politicians have had it easy until now. Maybe the winds are changing and something better is on the way. But it's not likely to come from a paramilitary party with anti-business policies.

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Fine Gael is not for turning and it has been lucky until now. The electorate has not been as harsh as it could be. Most people accept that there was a need for austerity, even if it was excessive. Nobody has a solution and that's why so many have turned to Sinn Fein. They are not ready for mainstream government and their values are too extreme.

If Sinn Fein gets its way, we'll all be on the minimum wage and pay even higher taxes than we pay already. They have no cohesive economic policy for the country even though they talk the talk that wins the most votes. What they have going for them is that they listen to the vulnerable when everyone else turns away. The Labour Party were their only hope, but they abandoned them once they got a taste for power.

There is already talk within Fianna Fail that the two republican parties should unite. But it might split the vote that they won back, as a rift develops in Fianna Fail as to what they should do. Sinn Fein and Fianna Fail may be worlds apart, but together they offer the two ingredients that are needed to make the system work again. One is focused on the people and the other has experience of dealing with the systems. The key is getting the right balance.

Fianna Fail is part of the establishment that helped the economy grow before it came crashing down. If it learned from its mistakes it could help turn things around. Sinn Fein has never been in power and is willing to shake things up for the better good of the people at large. Combining the needs of the people with a plan to rebuild the system is what we've been missing. Maybe the Government will get the message before it is too late. If they don't the paramilitaries could move in.

Sinn Fein would indiscriminately tax income, capital, inheritances and gifts. Who wants to live in that kind of a society? The system needs reform, but it shouldn't punish success. Next year our balance of payments should be back on target, paid for by ordinary working people and the sacrifices they have made. The austerity won't be gone away, but it should start to ease. Until that happens the Government should focus on the deteriorating situation of its citizens and do something about it.

For six years it was left to market forces to correct the problems and put us back on the road to recovery. But it hasn't worked. Direct intervention is the only way and the electorate has reaffirmed it. Those who were saved and bailed out such as banks and developers are still grinding the rest into the ground. Nearly 90pc of all government spending goes on health, education and welfare and welfare accounts for almost half of the that. Most of it is being financed out of personal tax and consumer taxes. It's time to ease the burden for ordinary people.

There are 5,000 homeless people in this country at any given time, many of whom are children and people in need. There are nearly 260,000 people classed as unemployed now. It's time to ask those who have the most to contribute a bit more to ease the burden of the rest. In the good times, property became the be-all and end-all for most people. You'd buy it if you had the money and you'd borrow if you hadn't. Tax relief fuelled the flames and it's starting again. Workers should be able to put a roof over their heads and still have enough left to pay the other bills, provide a pension in retirement and still have something left to save for a rainy day. The market will never get it right without government intervention. The only thing holding us back from financial recovery now is that we are still waiting for the banks to accept their losses and deal fairly with their customers. Government needs to give them a push.

Everyone should have the right to work and for a reasonable wage that leaves enough to provide the lifestyle that they've earned. Bausch and Lomb are to lay off 200 workers and more, if the rest don't agree to pay cut of about 20pc. That means the exchequer loses too, as it would have taken more than 50pc tax from these lost earnings. If we must be a low-wage economy, the cost of living should be brought down too. That means lower taxes on income, cheaper housing and lower, if not, free medical care. There is no incentive to work if the rewards can't provide a decent lifestyle.

The squeezed middle may face even higher taxes that have pushed them to breaking point already, but the 1pc elite few who have the most should be asked to contribute more, even if it's higher than what anyone else pays. This is not a new problem – the great 18th century economist, Adam Smith, spotted it and called for the same. If the tax system doesn't take enough from workers, it's only because they don't have enough to give. We still haven't sorted out the welfare system that pays child benefit and State pensions to the rich who don't need it. It might be relatively small, but everything counts. We can't blame the rich for using the tax system to their own best advantage. If they pay more, there is no guarantee that the Government won't waste it. It is up to the Government to remove the anomalies that make the system inefficient. They have to profile people better for tax and welfare benefits than they have. If they can do it for property tax and water charges there is no reason why they can't do it for the rest.

The political system hasn't fallen apart, but it is breaking down. The most vulnerable have switched their allegiance away from mainstream politics. Even the squeezed middle is moving back to Fianna Fail. A national government could have made things better and maybe it's not too late. The paramilitaries are still only suited for opposition unless they come up with something better.

James Fitzsimons is an independent financial adviser specialising in tax and financial planning.

Sunday Independent

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