Raise €500 million in tax? Easy-Peasy. The Recession Diaries - July 19th

Brian Keegan from the Chartered Accountants Ireland says that finding €500 million in tax revenue for Budget 2011 will be ‘very difficult to find’. There are no easy choices, he writes in the Sunday Business Post. He does flesh out two ideas – a flat-rate property tax which could raise €500 million and a reduction in personal credits which could raise €300 million. In the former, someone owning a one-bedroom terraced house would pay the same amount as Denis O’Brien’s crib on Shrewsbury Road. In the latter, an ultra-low paid worker on €9.50 an hour would suffer a tax rise of €14 a week; an income-earner on €100,000 a year or more would suffer a tax rise of . . . €14 a week.

Now you could argue these are deeply inequitable. But as Brian says,

‘ . . we have an urgent need to raise exchequer finance . . . (and) the international bond markets are breathing down our necks.’

Of course, such tax increases as Brian suggests will so hammer demand that tax revenue will dive and unemployment will rise – leaving us little gain (which is one of the reasons why Moody dumped on our bond ratings today: sluggish growth).

So in a helpful spirit I’d like to suggest to Brian that he look to other areas – ones that won’t impact on demand and, so, would yield greater savings to the Exchequer:

First, apply the Health Contribution Levy to rental and dividend income. This would bring in €89 million according to Fine Gael.

Second, apply PRSI and other income levies on capital gains, inheritances and gifts. This could bring in up to €290 million.

Third, apply PRSI to executive share options. This would raise €29 million according to the Commission on Taxation. If share options are exempt from the income and health contribution levy, apply them. This would bring another €29 million or so.

Fourth, remove the employers’ PRSI relief on pension contributions made by employees (currently, employers’ get this relief even though they make no pension contribution themselves). Fine Gael says this could raise €185 million.

Fifth, abolish the PRSI contribution ceiling. This would raise €120 million.

So, five simple proposals that would raise over €700 million. And we haven’t even looked at income tax and business taxes (all those tax breaks that do nothing for the economy but line the pockets of high income groups). All we’ve done is applied a simple proposal – that all income, regardless of source, should be treated the same. No new taxes, No hit on low and average income earners.

So there are easy options. The difficult ones – for the economy and for households – are when you  hit the living standards of those who can least afford it. If you go down that route, all you will end up doing is lengthening the recession into next year.

And give Moody’s another excuse to downgrade our ratings.