| 7.3°C Dublin

We don't realise how lucky we are – just look at tax statistics

WHO are those lucky people with the seventh smallest tax burden in the 30-nation OECD? Actually it's us, and no, I don't feel lucky either.

But there are the figures – with our taxes as a percentage of gross earnings just a bit less than those of Americans and Australians, and certainly less than any other Europeans.

Don't believe it? Hardly anybody does – or did. The figures come from the annual review of global taxation produced by staff at the OECD (Organisation for Economic Cooperation and Development) in Paris. Down the years, they have given me a bit of harmless amusement.

We were much better than seventh in the good old days. Back then, only a typical Mexican family paid less to the state than an Irish one. It goes without saying that the average Irish family is a good deal better off than the Mexican one, so it had a good claim in reality to be the lowest-taxed in the world.

The amusement came from the incredulity when I reported those figures. Some people would get distinctly annoyed – including one former senior manager, whose salary was anything but average, but with whom I decided it was wiser not to argue.

As I say, it seemed harmless stuff, although it did give some insight into the complexities of political economy, as distinct from theoretical economics. In this area, perceptions there are more important than reality.

People did not perceive themselves to be lightly taxed. They never do. Spending rises to match disposable income. Wants are never fully satisfied. Levels of dissatisfaction were probably much the same – maybe even worse – than in high-tax countries such as France or Denmark.

Now it is anything but harmless. Lethal might be a better word. Taxation has risen sharply, so that for many families spending exceeds disposable income. Many observers of the political economy world say the limits of taxation have been reached. Yet the tax burden is still low by international standards, while public spending is not.

That is bad enough, but it is not helped by the degree of confusion and denial over the position we find ourselves in. The OECD helpfully provides data for the years 2000, 2009 and 2012 which fits neatly with the peak of the Irish bubble, the beginning of the correction and the present situation.

It is impossible to reconcile these figures with the political discourse over the period. Put crudely – and it often is put quite crudely – the consensus says that, as well as paying too much tax now, the tax cuts of the 2000s were for the benefit of the rich, and the less well-off bear the brunt of the correction.

The figures tell a much more complex story. The data are for total labour costs, including employers' social security contributions. These are much lower in Ireland than almost anywhere, which does mean that more of the tax burden falls on employees here.

That has to be borne in mind in any comparisons. But what matters to the worker is how much remains in their pocket, which is what the figures measure. The other important thing about these figures is that they calculate the tax burden by including payments from the State, which obviously reduce that burden. Child benefit is by far the most important of these.

The lethal bits are the changes during the 2000s. What matters with taxation is not the level, but the direction. Increases are what cause trouble and the OECD tracks the substantial increases since 2009.

But even after those increases, only single, childless Irish workers contribute anything close to the OECD average. They also saw relatively little change over the decade. For lower paid workers, with children, the dramatic changes came from transfers from the State rather than tax cuts and rises – but they were dramatic. In 2000, a single worker with two children, on two-thirds of the average wage, received 11pc of their income from the State. By 2009, such payments had increased to 36pc of that worker's income. Now it is down to 26pc.

They still make no direct contribution to the exchequer. On average across the OECD, such a worker would pay out 16pc of income rather than receiving a quarter, but the Irish worker has seen a sharp fall in disposable income.

A two-salary couple with two children, on the average wage, might be regarded as more typical. Thirteen years ago they paid 22pc of their earnings in tax and social security. That fell to 14pc in 2009 and was back to 18pc last year. The OECD average burden is 30pc of income.

Ireland's political and economic dilemma is depressingly clear from such figures. Despite the thrust of political discourse, the low-income family received a 25pc boost from tax cuts and benefit increases during the early 2000s. It still receives enormous transfers but has lost 10pc of its net income since 2009. That is bound to cause hardship.

The average-earning couple is down 4pc, which doesn't seem much to complain about. There are other things to complain about, and here, perhaps, is one reason why most of the complaints seems to come from public sector workers. They have been hit with pay cuts and the hated pension levy, which would not show up in these figures.

One can also see why political debate has become more than usually detached from reality. Perceptions of unfairness have some validity, in that lower-paid workers have had a bigger hit. But woe betide the politicians who said that they had also had the biggest gains, or that the exceptional degree to which Irish workers depend on transfers from the State is unsustainable.

Even more troubling is the apparent impossibility of bringing the total Irish tax take of 26pc of labour costs anywhere near the OECD average of 36pc. There is universal agreement across parties that this is out of the question, but with government spending around 50pc of national income, the question must somehow be faced.

It must be faced, though, in the context of some overall strategy to deal with these discomfiting facts. Given the importance of child benefit, both to individuals and the system, the excuse that nothing could be done except across-the-board cuts was feeble in the extreme.

Many more difficult things than that will have to be done to turn what one hopes is the coming end of national bankruptcy into the beginnings of national solvency.

Irish Independent