Ireland is one of the lowest taxed states among the 34 members of the OECD and the 28 members of the European Union. Capital taxation is among the lowest in the developed world, not only on corporate profits but also on the social insurance contributions which companies make for the workers they employ.
This low-taxation model underlies the discontent currently sweeping through Irish society, whether expressed in demands for more pay or in protests over poor and unequal standards of health, childcare, housing and pensions. Popular aspirations for better public and social services contradict existing methods of taxation to fund them.
The OECD regularly publishes statistics dealing with its members’ comparative tax rates. Ireland stands out with a seventh lowest “tax wedge” of 27.5 per cent (the proportion a government takes as a percentage of total labour costs) compared to an average of 35.9 per cent.
Italy at 49 per cent, Sweden at 42.7 per cent, the US at 31.3 per cent and the UK at 30.8 per cent contrast with our take. Ireland's total tax take in 2012 came to 30.3 per cent of GDP compared with an EU average of 40.7 per cent.
Although Ireland’s gross national product (GNP) and gross domestic product (GDP) figures often diverge because of the large presence of multinationals, the GDP figure is appropriate because it measures all economic activity.
From that perspective these companies benefit doubly from their Irish location: from the low level of profit tax and the low rate of social insurance they pay.
Welfare state
An OECD ranking of marginal employer social insurance rates for a worker on median earnings in 2015 shows Ireland at 10.8 per cent, the UK at 13.8 per cent, Germany at 19.3 per cent, Finland at 23.1 per cent, Austria at 28.9 per cent, Italy at 32.1 per cent and France on top at 37.9per cent. In Ireland a worker's contribution is usually 4 per cent.
These statistics reflect different welfare state models, often classified as liberal (such as Ireland and the UK), conservative or “Christian democratic” (such as Germany), or social democratic (such as Sweden). In spite of such differences Ireland’s low ranking stands out.
Overall, tax on capital in Ireland is low compared with other developed states. The pattern is reinforced by the comparatively high levels of indirect taxation here, taking about a third of the total compared to another third from income tax, and its regressive effects which reinforce social inequalities.
These figures cut across regular media headlines bemoaning high levels of income tax based on when average earnings (themselves about two-thirds of the highest OECD ones) hit the 41 per cent rate.
In fact, there is a huge gap between this marginal rate and average payments because of many offsetting tax reliefs. And because social insurance payments from the PRSI system are so low, the universal social charge introduced during the recession is all the more needed to fund the relatively high proportion of social expenditure coming from the general exchequer.
Social insurance
In comparable countries, much more social expenditure is borne by the social insurance system. The EU’s statistical services identify the eight categories mainly involved: sickness and healthcare; disability; old age and pensions; survivors of the insured; family and childcare; unemployment; housing; and social exclusion including income support and rehabilitation.
Ireland’s system covers only some of these, or a smaller proportion of them than elsewhere: mainly, jobseeker’s benefit; illness; contributory old age pension; maternity; and childcare leave and injury.
In Ireland the gaps between lower employer and employee insurance payments and higher expectation of social services are made up by private insurance as well as the exchequer.
Private health insurance covers 45 per cent of the population compared to 10 per cent in the UK where the National Health Service is universally organised. The OECD warns how weakly Irish private pension payments (covering 40 per cent of non-public workers) are protected by legislation, as seen in current scandals.
The social insurance model relates contributions directly to benefits. Moving to a more comprehensive system in Ireland would increase the tax base currently loaded in favour of capital and increase its legitimacy among workers on average incomes of €35,000-€50,000. This could be done in phases by linking increases to specific benefits. But first we need to realise and debate how unusual we are.
This should be part of a wider move beyond the low-tax economic model now under pressure in the EU. It has fulfilled its developmental function and needs to be succeeded by a more acceptable one economically, socially and politically.
Or would Ireland rather go with a “Brexited” UK and a “Trumped” US towards a reinforced neoliberal future? Such are the choices we face in coming years.
pegillespie@gmail.com