Why the tax system is stacked against low and middle earners
Budget day! The devil is in the detail though, and that will not be rolled out until the actual Finance Bill is brought before the Dáil on October 18. History has shown that day to be a day of sneaking in a few financial scuds. Those scuds will not pass across the bow of the rich; they seldom do.
The Comptroller and Auditor General recently carried out a study on the tax paid by over 300 of the country’s richest people. People with more than €50 million in assets are termed ‘high-net-worth individuals.’ The study looked at the tax paid by 334 taxpayers from this group.
In 2015, this group paid €473 million in income tax. That is an average of just over €1.4 million per person. However, it is not that simple. Ten of those rich taxpayers paid 85 percent of the €473 million. This means that over €400 million was paid by ten people while the other 324 paid the remaining €73 million. That creates a different scenario.
Following the release of the study, The Irish Times reported that 140 of these high-net-worth people (42 percent) reported a taxable income of less than €125,000. It transpires that 83 of those 140 had taxable income of less than the average industrial wage, which is just over €36,500. It gets better! Ninety of those 334 rich taxpayers actually paid income tax at a lower rate than the average taxpayer.
For the record, single earners enter the higher rate of tax on earnings of more than €34,550. It is €43,550 for married one-earner couples.
People who do not pay their tax are brought before the justice system for breaking the law. And then there are those who use various measures to move money beyond the reach of Revenue. They are playing the system that is supported by government. They are not breaking the law.
This raises a question about justice and fair play. There is a huge discrepancy between justice and fair play. So many workers in this country are squeezed so badly because of the tax system. They do not have recourse to the tax breaks enjoyed by the rich.
A person who might choose to feed their family rather than pay their taxes is guilty of a crime. One thinks of the crass words of the then TD Michael Noonan when he claimed that a person was obliged to pay property tax before putting food on the table. There are no similar words of advice for the business executive who can write off a child’s private-education fees when doing tax returns.
It is not that there are two laws in this country; it is just that some laws are framed so that only wealthy people can avail of them.
That is the part of democracy that needs to be tackled by politicians – the two-tier system. We also have it in health so that rich consultants can avail of public-health facilities for their private patients. Rich people are encouraged to use tax credits and reliefs while the regular taxpayer is continually squeezed.
Low- and middle-income earners are being bled. A budget is just another way to get the last drop. The taxman is not interested in parity of esteem or fair play; he is just implementing the law as promulgated by the government of the day. The taxman neither makes nor changes the laws.
Tax avoidance of the magnitude stated is a major challenge for the funding of public services and providing the necessary infrastructure for society to function. When the wealthy engage in tax ping-pong something has to suffer.
Advocacy group Social Justice Ireland has called for, among other things, an increase from 30 percent to 35 percent in the minimum effective tax rate of those earning more than €400,000 per annum and a reduction in the tax expenditure on private pension contributions, the majority of which is appropriated by higher earners. It has also called for a ‘sunset clause from the outset’ for tax breaks.
We shall see what unfolds today. The Greek philosopher Aristotle can have the last word: “Republics decline into democracies. Democracies degenerate into despotisms.”