The papers published each year ahead of the budget by the Tax Strategy Group – made up of senior civil servants – are designed to outline the options for reform. In reality, they are a strange mixture , in large part a formulaic rehearsal of how things now are, along with a series of studies of options for change. These are a mix of proposals , some of which are likely to happen, some of which might happen and some of which almost certainly will never happen. The trick is trying to understand which proposal fits under which heading.
The meat of the document is in the sections on income tax and welfare. In reality, once taxpayers and welfare recipients are compensated for the impact of inflation, a lot of the spare resources on budget day will be spent.
Indeed, there is a case to consider building both into the base of the budget. This means the Government would have to make a conscious decision if it decided not to make these moves, rather than misleadingly presenting them giveaways.
It is part of a generally opaque approach to budgeting which ensures that the big decisions are made away from the public glare. We do get some hints of the pressure points. The cost of reducing the VAT rate on hospitality is significant, meaning its introduction may be delayed to allow scope elsewhere. And in the mix of options put forward in other areas – for example inheritance tax– we see the tension between popularity and maintaining a wide tax base.
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Reforms in recent years have leaned too far to narrowing the base. Now the top 10 companies pay nearly €6 out of every €10 in corporation tax and the top 10 per cent of income taxpayers pay 63 per cent of the total in that area. This leaves Ireland exposed to the profits of a few big companies and the earnings of their employees.
And still, for a long as tax revenues remain strong, the Government will be attracted to the tax reductions outlined in the paper and chose to ignore the proposed increases and measures to widen the base. Only when the State urgently needs cash is this likely to change.
