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. In Budget 2014 the Government should reduce income tax while increasing the total tax take. This would make the tax system fairer and move Ireland closer to the European average level of taxation.

Central to a sustainable future is a fair and equitable tax system. A balance must be struck between the overall level of taxation and its capacity to support economic, social and infrastructural requirements adequately. The current low-tax model is not sustainable.

Over the next few years policy should focus on increasing Ireland’s total tax take towards the EU average. Guided by these parameters, Social Justice Ireland has made a number of recommendations on taxation as part of its policy briefing on “Budget Choices 2014”. These include:

1 An increase of €5 a week in the PAYE tax credit
Increasing the PAYE tax credit by €5 per week (€260 per year) would benefit all workers, especially those on low and middle incomes. The cash benefit is the same for everyone but the increase is proportionately larger for lower-paid employees. Using the tax credit system ensures resources are distributed in a progressive manner.

2 The introduction of refundable tax credits
To maximise the capacity of tax credits to tackle the "working poor" issue the two main tax credits should be made refundable. This would make Ireland's tax system fairer, address part of the working poor problem and improve living standards of a substantial number of people.

Our detailed study on this issue in 2010, Building a Fairer Tax System: the Working Poor and the Cost of Refundable Tax Credits, showed that 113,000 low-income people with jobs would benefit in an efficient, cost-effective manner from making these tax credits refundable. The cost of refunding unused tax credits to individuals satisfying the criteria outlined in the study is €140 million.

3 Apply the top USC rate to all earned income over €100,000 a year
Self-employed earners currently face a tax rate of 55 per cent on all income they earn in excess of €100,000 – (41 per cent income tax + 7 per cent USC + 4 per cent PRSI + an additional 3 per cent USC levy). The additional 3 per cent USC levy does not apply to others with income above €100,000. This additional levy should apply to all income in excess of €100,000 irrespective of its source so that self- employed earners are treated in the same manner as all others in the taxation system.

4 A maximum effective income tax rate of 45 per cent
Budget 2014 should introduce a maximum effective income tax rate of 45 per cent. The effective tax rate is the percentage of one's total income paid in tax (income tax + USC + PRSI). This proposal would mean that nobody would ever pay more than 45 per cent no matter how high their income was. These proposals would allow the Government to achieve a more appropriate contribution from the very highest earners in Irish society.

5 A minimum effective corporate tax rate of 6 per cent
Ireland's corporate tax regime has been under intense international scrutiny in recent weeks. It is clear that while small and medium enterprises, for the most part, pay close to 12.5 per cent of their profits in tax this is not the case for some large multinationals.

Social Justice Ireland believes all corporations should make a fair contribution towards Ireland’s tax take. A minimum effective corporate tax rate of 6 per cent should be applied to all corporate profits.

6 Financial transactions tax
A very high proportion of all financial transactions traded are speculative currency transactions which are tax-free. The Government should support the recent EU move to introduce a financial transactions tax (FTT). It should be set at the levels proposed by the European Commission. This would mean the exchange of shares and bonds would be taxed at a rate of 0.1 per cent and derivative contracts, at a lower rate of 0.01 per cent.

7 Other tax changes
Social Justice Ireland also recommends an increase in tax on online gambling to 5 per cent as well as the introduction of a "bad nutrition tax" of 2 per cent and a "text tax" of a third of a cent on text messages.

These proposals would ensure reform of the taxation system in a manner that was fair, equitable and sustainable. For more details see socialjustice.ie

Dr Seán Healy SMA is director of Social Justice Ireland, an independent think tank and justice advocacy organisation