Dr. Nat O'Connor:

Certainly, we would be in favour of strengthening the tax base. In previous submissions we have looked at an equality-proof property tax. We have looked at a water credit system to make water charges more equitable. We are in favour of the tax changes as long as they are equality proofed. We have looked in detail at Ireland’s tax system. EUROSTAT, the European statistical service, for example, produces a book every year called Tax Trends in the European Union, and there is a phenomenal amount of data in it. In looking at that what we have seen is the biggest difference between Ireland’s tax system, broadly speaking, is our level of social insurance. Our social insurance levels are incredibly low compared to other European countries, in particular employers’ PRSI contributions are incredibly low. That keeps down labour costs in Ireland. It is part of the tax wage we discussed earlier, but one could double employers’ PRSI contributions and they would still be the lowest in the European Union. There is a real difference.

This means that people take a greater risk if they lose their jobs, as they immediately go to a welfare level and there is no income replacement. In other countries, one is insured through social insurance payments and might get 80% of one's income per year upon losing one's job, then 60%, before dropping down to a subsistence level. This allows people to find other jobs, keep making their mortgage repayments, etc. Social insurance is the main gap.

The level of local taxation in Ireland is low and only 2% of all tax revenue is spent locally. The European average is 10%, with 50% in some Nordic countries where people pay taxes locally and see services locally. Irish local government has been eviscerated in terms of its finances. The property tax may go some way towards addressing that, but we are yet to see the system settle or know how much property tax there is locally.

Consumption taxes are indirect and regressive because they affect people on lower incomes more. We tend to have more of these taxes and fewer direct income taxes than other European countries. There is an imbalance. A part of the reason for this is not the rate of tax, as many countries have higher marginal tax rates at average earnings. For example, it is 59.4% in Belgium, but people there pay higher actual amounts of tax because they have fewer tax credits and reliefs. I have two pages of Revenue's statistics showing the items for which we give reliefs and expenditures. This approach reduces the amount of income tax people pay. Australia has a large book that allows its parliament to scrutinise whether reliefs are value for money and good for the economy. Ireland has many tax breaks compared with other European countries, but they are not scrutinised and they can expand in the economy. During the boom, they distorted investment decisions in hotels, property and so on. There is plenty of scope for a structural examination of the detail of the tax system.

The European assessment of Ireland's finances was mentioned. According to Europe, the fact that we charge no or low VAT on food and other large categories makes it poorly targeted. In other words, many people are getting them VAT-free. However, much of this benefit can be absorbed through higher prices. Compared with many European countries where VAT is charged on food items, Ireland does not have cheaper food despite the fact we pay no VAT on it. We need to examine the detail of the tax breaks and how we distribute consumption taxes. There is scope for another tax commission if people have the appetite for it.