The International Monetary Fund, that well-known bastion of anti-capitalism, suggests that it might be prudent for Ireland to consider introducing a property tax. The report in the Irish Times this morning dwelt on its prediction that growth would be a little less than expected. This IMF assessment is one of its regular "Article IV" consultations with the authorities in its member countries.
There was much predictable stuff here including praise for Ireland's flexible labour market. Other elements that were lauded included "continued impressive economic performance, the result of sound economic policies, including prudent fiscal policy, low taxes on labor and business income, and wage moderation. Directors welcomed the authorities' intention to keep these policies in place, allowing Ireland to maintain its competitiveness and sustain its remarkable performance going forward."
But what caught my eye in the report on the IMF web site was the following passage:
Regarding the composition of fiscal adjustment, Directors recommended that the growth of current spending be restrained and that the tax base be broadened. Moderating the steep escalation in current spending would limit the risk of inefficiencies. The tax base could be broadened by limiting property-related capital allowances, preserving the nominal ceiling on mortgage interest tax relief, and introducing a property tax.
Sensible and sound advice from an organisation not noted for heterodox thought. Last week the ESRI published a new study highlighting the issue of so-called "tax expenditures" - which are special breaks in the tax system availed of by the better off, and are, in effect, a hidden form of government expenditure. Extensive use of such schemes means that very high earners pay little or no tax. This is not acceptable in a nominally progressive income tax system. The ESRI report concludes that tax expenditures need to be more carefully controlled.
Dealing with similar issues, the Combat Poverty Agency in a pre-budget submission argues that Ireland’s income distribution is particularly unequal, and tax reliefs play a significant role in Ireland’s persistently high level of income inequality. As such, those tax expenditures that fail to demonstrate a net gain to society should be stopped. The Irish Congress of Trade Unions have taken a similar stance in their pre-budget submission. They even claim that tax expenditures are "anti-competitive" because they give subsidies in tax breaks to some property-based investments but not to other potentially productive activity.
The IMF report recommends that "it would be useful to deepen public understanding of fiscal issues". This is because of the dangers it perceives in ramping up public expenditure at the wrong point in the economic cycle but I believe that more attention to the inequities and inefficiencies caused by tax expenditures would also deepen the public understanding of fiscal policies. It's time the Labour Party got more specific on these issues.
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