Opinion

We need to raise taxes, not cut them, to support our growing and ageing population

Rite & Reason: Profitable firms should make a contribution to society rather than pursue various schemes to avoid paying their fair share

Workers applaud during the first day of in-store sales of Apple's latest products at Apple's Fifth Avenue store in New York this week. Photograph: Victor J Blue/Bloomberg
Michelle Murphy
Sun Sept 22 2024 - 00:30

The recent Apple tax judgment has put the issue of taxation back in the spotlight again, with the budget just over a week away. Government Ministers have rightly pointed out that this money cannot be spent on day-to-day expenditure. Neither should the windfall corporate tax receipts of recent years.

This money should be used to fund once-off infrastructure and capital projects. In his first – and last – budget for this Government, Minister for Finance Jack Chambers should allocate a proportion of these windfall revenues to a domestic infrastructure fund.

It would fund basic requirements in 2025 such as more social homes, the classrooms, school buildings and schoolbuses required to provide a school place for every child, upgrades to our public transport fleet, our footpaths and our active travel routes to make sure that they are accessible for people with a disability. Simple, straightforward investments that would make a huge difference.

While it is right for Government to temper expectations and point out that once-off revenue must be spent on once-off projects, it is unfortunate that Ministers aren’t equally focused on the recurring taxation measures that are required to fund the services and infrastructure that a growing and ageing population requires, now and into the future.

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Instead, the narrative to date has been on reductions in income taxes, indirect taxes and levies as a means of providing short-term solutions to the continuing cost-of-living challenges. These measures are poorly targeted, costly, and should be avoided.

This narrative fails to deal with the core issue: our levels of taxation will have to increase in years to come, just to provide existing levels of service to a growing and ageing population. What’s more, we know that the existing levels of public services and infrastructure are nowhere near what is required for that population at present. We are going to need more revenue, not less, to fund the childcare, education, pension and social welfare, healthcare, home care and home help, housing adaptation, disability and community care needs that are required in 2025, and in the coming decades.

Put simply, we need to start raising taxes, not cutting them. On October 1st, the Government must begin to implement the recurring taxation measures required to fund the current expenditure required to provide an appropriate level of social infrastructure for the population now, and to meet the needs of the population in the decades ahead. There are several measures that can be introduced in Budget 2025 to begin this process.

One of the core elements of the social safety net provided by the State is the social insurance system. As our population ages, there will be fewer people contributing to the social insurance fund. We need to plan now to anticipate any future shortfalls and ensure that we collect sufficient levels of PRSI from employers, employees and the self-employed.

To strengthen the social insurance fund, all PRSI rates should be increased by 0.5 per cent per year for the next five years, starting in April 2025. Changes to tax bands are costly, must be funded annually, and don’t reach lower-income workers. If Government is really serious about reaching these workers and their families, reducing the costs of and improving access to public services should be a priority, not changing tax bands.

To make the tax system fairer for this group, the Government should make the two main income tax credits refundable, and use increases in tax credits rather than changes to tax bands as a means of making any income tax changes.

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Given the continuing housing and homelessness crisis, the vacant homes tax occupancy period should be reduced to six months and the rate increased to 10 times the annual local property tax level to bring existing, unoccupied units back into the system. To increase the amount of zoned land available to utilise for housing, the residential zoned land tax should be increased to 5 per cent of the annual land value.

Looking at corporate tax, and the fallout from the Apple judgment, the issue is principally one of fairness. Profitable firms with substantial income should make a contribution to society rather than pursue various schemes and methods to avoid such contributions. The Government should phase in a minimum effective corporate tax rate for all firms of 15 per cent by 2030, starting with a minimum rate of 10 per cent in Budget 2025.

Taxation plays a key role in shaping Irish society through funding public services, supporting economic activity and redistributing resources to enhance the fairness of society. Put simply, it is the foundation of our social infrastructure. In Budget 2025, the Government should focus on building up our social infrastructure, not weakening our fiscal foundations.

Michelle Murphy is a research and policy analyst with Social Justice Ireland