Can we ignore higher corporate and property taxes?

Hi Ronan,

I think this –

increasing corporate tax to 15% is a step worth considering

Is potentially very dangerous. Michael Taft produced a graph of Irish and EU average corporate, personal and indirect tax takes as a percentage of GDP a couple of weeks back. Despite lower corporate tax rates, we take in higher than average corporation tax revenues as a percentage of GDP (and we have a high GDP per capita).

http://notesonthefront.typepad.com/.a/6a00d8342f650553ef01156f81e70a970c-pi

That suggests to me that in Ireland’s case, that our more competitive corporation tax rate is responsible for high corporation tax revenues.

Given that we already have high corporation tax revenues, I think we should be looking at other ways to solve our fiscal mess (rather than pass the burden onto mostly foreign multinationals who seem to be responsible for the most dynamic portion of our economy anyway). If we do increase corporation tax – are we telling them, that we expect them to pay for our mistakes (benchmarking, bank bailouts)? I’m not sure that is an attractive proposition, and we may struggle to get future investment at anywhere near the same rates…

Hi Mack,

Thanks for the comment. I’m fully aware that Ireland gets a bigger share of its tax revenues from corporation tax than most other OECD countries. Given how things are looking now, though, that will not be the case in a couple of years.

What I was trying to do with this post was keep our taxation model the same – i.e. re corporation tax, a low rate producing a high return – but make sure we pay our way.

The alternative is taxing people (either directly on their wages/weath or indirectly on their consumption). While that is certainly part of the solution, I think it will be damaging to Ireland’s competitiveness if we tax skilled labour too much. Recent statements by the Havok CEO about the difficulty in attracting skilled workers here because of the taxes they’d face highlight for me the danger of forgetting that these days capital and skilled labour go hand in hand. Being attractive to just one side – capital – will not be sufficient.

R

Ronan,

Given how things are looking now, though, that will not be the case in a couple of years.

This is worrying. Is our comparative advantage disappearing in this area? Do you think this is a temporary phenomena (medium term) linked to the downturn, or have the rules of the game changed?

By the way, do you know if the commonly repeated fact, that 90% of our exports are from multi-nationals is true?

The alternative is taxing people (either directly on their wages/wealth or indirectly on their consumption)

Cutting government spending should play a role too. By the way, your proposal for a property tax is very fair (if it replaces stamp duty, and those who have already paid sd at penal rates get a rebate).

Recent statements by the Havok CEO about the difficulty in attracting skilled workers here because of the taxes they’d face highlight for me the danger of forgetting that these days capital and skilled labour go hand in hand

I absolutely agree raising personal taxes or indirect taxes will make matters worse. As a skilled worker in that industry, I also worry about potential difficulties in attracting high-tech employers! The only other point I would make on this issue, is tech salaries seem to have stagnated (at best) over the last 10 years or so (10% pay cut this year to boot), while those salaries our taxes pay for have sky-rocketed ahead. Perhaps there would be less need of higher taxes if some of the protected sectors in Ireland were opened up to the same kind of labour competition we face in tech!

Hi Mack,

Thanks for coming back on this. On corporate taxes, while we do get a high proportion relative to most of our EU neighbours, we’re only just in line with the OECD (unweighted) average: http://www.oecd.org/dataoecd/48/27/41498733.pdf. On the actual rates levied, the trend is very much downward – see page 79 of the NCC’s report, http://www.competitiveness.ie/media/ncc090108_acr_2008.pdf, but even a 15% rate would be well below the EU15 average.

On exports and exports from multinationals, it’s more difficult to know exactly but a large chunk of Ireland’s exports does come from sectors dominated by multinationals. Perhaps that’s worth a post over the summer to see if I can be more specific.

On government expenditure, I totally agree. My only concern is that a 25% cut in public expenditure (and even that would only get us €15bn of the way there) might hit good and bad expenditure and even a 10% cut – such as in Latvia – could be tricky to do overnight. Some support to government cuts will have to come from tax increases.

Glad to have some details on the wages in skilled IT. I think your point about competitive pressures ties in nicely with an overall point, which is that the government should only really be engaging in those activities where it can do them best. I’m not sure, for example, that IT administration or data storage or anything like that falls into that set of activities, so there really is lots of scope for reinventing, rather than just reorganising, our public sector so that it’s ‘future-proof’.

R

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