Taxation and wealth

Sir, – In discussing proposed tax cuts and the nascent Fine Gael election manifesto, Donal McGrath makes several suggestions which appear, to me at least, irreconcilable and to lack a factual basis (Letters, December 31st).

In suggesting our top rate of tax is “not out of line” with international norms, he seems to express approval of it. However, he subsequently suggests that it is “obvious” we need the introduction of a higher tax rate, or perhaps two. He proposes to tax “millionaires” and “the rich” not by a wealth tax but by tinkering with income tax. And he appears to think that emulating the French system would increase taxes on high earners and spare those paid less. These suggestions may be popular, or even populist, but they could not form a coherent policy nor boost revenue.

It seems true that our top tax rate is consistent with that of most comparable economies, while one reaches it at a relatively low level of income. However, most who are on high salaries in France pay less income tax than in Ireland. Online calculators of “after-tax salaries” easily verify that those earning anything from €100,000 to well over €300,000 per year pay less tax in France, generally by about €5,000 a year. The numbers in society earning above this level are minuscule and will presumably have little impact on receipts.

In April of this year, the Economist rated Ireland as by far the most equal country globally. Similarly the OECD in 2016 ranked ours as the second most progressive tax system in the world, with less than 10 per cent of workers paying the bulk of all income tax. Such individuals tend to be occupationally mobile, and often employ others, and so they are important to retain. It is hard to believe that much can be gained by higher tax bands. Higher rates may, however, encourage such people to work less, for example half-time, or simply to emigrate. Importantly though, if we were to tax income in ways akin to France it is likely to have the opposite effect to that envisaged by Mr McGrath. Those on low salaries would be hardest hit. If earning €20,000, for instance, a worker in Ireland takes home an extra €132 per month in comparison to his French equivalent. There are of course a great many low-paid workers so that these sums amount up at exchequer level, while those in the top centiles are, by definition, rare. Thus we would redistribute the tax burden onto lower earners if we copied the French model. This is indeed why we are already an exceptionally equal society.

READ SOME MORE

In contrast to income, a tax on wealth is already in place in France, and would be the logical approach to remaining inequality. One can avoid punitive income tax by working less, but few people will willingly divest themselves of wealth. Wealth taxes are famously advocated by the influential French economist Thomas Piketty, and it's worth observing that Paschal Donoghue has favourably reviewed his writings in The Irish Times. However, as the largest store of wealth in Ireland is in property, and taxing that appears politically so unpopular, it's unlikely to happen. The same can broadly be said of estate taxes.

Clearly these facts are unpopular, both with journalists and the public. They are inconsistent with widespread but incorrect assumptions about our society – the popular “narrative” – and as such will rarely be articulated by politicians. However, one cannot fund state services on anything other than a rational basis, something such leaders know well, and I suspect they will therefore change little in the area while in office. Propagating public misconceptions is unhelpful to improving our society though, and may even increase the gap between what our politicians say and do. – Yours, etc,

BRIAN O’BRIEN,

Kinsale,

Co Cork.