Tuesday 18 December 2018

A real Republic of Opportunity? We'd have to tax land to the hilt

Taoiseach Leo Varadkar with European Commissioner Phil Hogan at the Ploughing Championships in Offaly this week. Photo: Mark Condren
Taoiseach Leo Varadkar with European Commissioner Phil Hogan at the Ploughing Championships in Offaly this week. Photo: Mark Condren

David McWilliams

The budget, only a few weeks away, is the main instrument used by a government to signal what type of economic policy it favours. Using the tax system, the cabinet indicates where it would like the country to go and what sort of society it is trying to establish. The taxes that it decides to levy should reveal a government's true colours and, if it isn't too much to expect, its vision.

This Government's motto is "the Republic of Opportunity".

Supposedly this is our own version of the American Dream. According to this slogan, Ireland is a country where if you get up early in the morning and go out to work, you will be rewarded.

The promise is not that we will all be equal - that's socialism - but it is a capitalist undertaking whereby those who try will be rewarded. Working people should feel assured that the State is on their side; the more you work, the more you will receive in return.

In contrast, there are those who don't work for a living but are fortunate enough to depend on inherited wealth for their income or who have large portfolios of assets such as land and stocks, which pay a rent or a dividend. These people should not be indulged at the expense of workers. They are the drones as opposed to the workers.

Given that most people in Ireland are not sitting on land that generates income or do not have a large portfolio of assets, the budget's biases should be reasonably straightforward.

Most people depend on wages for their income so, as a result, the Republic of Opportunity should be a Republic that taxes wages less than assets. This bias would help create a level playing field where equality of opportunity can flourish.

Of course, a level playing field for opportunity also implies taking meaningful steps towards reducing wealth inequality in the country.

Wealth inequality is very real in our country. The latest figures from the Central Bank reveal that the top 5pc in this country own close to half the entire wealth of the country. Most of this wealth is held in property and land.

Armed with these observations, let's look at the budgetary figures and see whether the Republic of Opportunity is just a slogan or something real.

How do we tax income and wealth in this country of ours?

Last year, the Government raised €47,664m in total taxes. Of this, a meagre 1pc, or €463m, was raised in property tax.

Therefore, the assets that are most useless - land and property that drive inequality in this country - are taxed least. Are you still hearing the Republic of Opportunity in your ears?

In contrast, the State raised €19,168m in income tax. The Government takes 40 times more tax from wages than it does from wealth. Therefore, despite all the talk, taxes on work and effort dominate taxes on inherited wealth. I say this because most land-based wealth is inherited in Ireland.

Quite apart from the small issue of wealth inequality, the other reason that taxing land is a good idea is that land is useless. Land generates no innovation, no creativity, no enhanced productivity. It is a feudal, pre-industrial-age asset, so taxing it would not hinder the economy in any way. It would simply encourage those who hold land to make it more productive. This means selling it for more productive activity like making it available for houses, rather than hoarding it.

This would drive down the cost of housing and this fall in the cost of housing would also put money back in the pocket of ordinary working people. Now that would be an opportunity.

But here in the Republic of Opportunity, we are taxing hard work over sloth and in so doing driving up the cost of accommodation when we already have a housing crisis. How bizarre is that? Is this a way of levelling the playing field?

This is feudalism. Real capitalists tax useless assets and make work as attractive as possible. A medieval feudal system rewarded land because that was what the squire owned and he in turn raised a tithe from the peasants to pay for his knights. Have we progressed much?

So, what else makes up our tax take in the Republic of Opportunity?

We raise just over €12bn in VAT. VAT is a 23pc tax, levied on most items, which we all pay for. It is levied on everything from furniture, fridges, car parts, detergent, office equipment, bottled water, washing machines… and I could go on but you get the point. It is 23pc on almost everything, bar children's clothes and food.

Because VAT is levied on almost everything we buy, VAT is regressive. This means whether you are rich or poor, you pay the same rate. This means that countries that lean heavily on VAT as a way of raising revenue, penalise the lower paid and people on average wages and, by extension, we give a subsidy to those who own assets.

The other major tax we raise is excise duty. This is basically fags, booze and petrol and a few other things.

Ireland generates a whopping €5.7bn from this source. This is well over 10 times what we raise from property. Yet again this is a regressive tax as wealthy boozers pay the same as poor boozers. And, of course, as the poor smoke more than the well-off, it's a hyper regressive tax.

So, taken together, the tax system is telling us something. If you are wealthy and are sitting on lots of assets, particularly land - which is the main form of wealth in this country - the State will barely touch you. If on the other hand, you are working hard and moving up the career ladder and aim to be paid above the average wage, the State will clobber you.

Now think about the Republic of Opportunity. This slogan purports to reward hard work and punish unproductive assets. But how do we square that with a tax system that does precisely the opposite?

Indeed, by overburdening indirect taxes, the State drives up the cost of living here directly and thereby leaves less income in the pocket of the already heavily taxed average worker who is supposed to be seeking opportunity.

Until this country taxes land to the hilt and reduces dramatically taxes on income, it will not be a Republic of Opportunity but an outpost of feudalism.

Feudalism is feudalism; capitalism is capitalism. What sort of system do we want?

You have a hard look at the numbers and decide.

Irish Independent

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