Direct and Indirect taxation

[oilean]

The government appear to be moving towards indirect/stealth taxation in more and more cases

Increasing the lower VAT rate from 12.5% to 13.5%

As a consequence there is the scope for the lowering of the higher rate personal tax rates and an increases in the lower rate band

Some examples are

The reported prolonging of the toll on the west-link and further toll roads (Drogheda bypass toll on M1), increased taxation in recent years on alcohol, increased taxation on fuel

Relatively excessive levels of stamp duty, as this specifically hits investors (as owner occupiers may only purchase 3/4 houses in a lifetime)

There is no VAT on staple food types (bread, milk) but there is 21% on luxuries (chocolate, ice-cream)

(I have posted the above examples of indirect taxation merely to illustrate the discussion and am not purporting to a particular view on these specific points)

There will always be a requirement for direct income taxation but will this play a lesser role in years to come

Is taxation of expenditure rather than taxation of income a more socially aware method of personal taxation in a developed and educated society or does it just create a nanny-state?

 

[Guest]

One thing that might be pertinent to note in this context is that Ireland has the lowest OVERALL tax burden in the newly enlarged EU:

[broken link removed]

 

[Protocol]

taxes

Also, not that direct taxes tend to be more PROGRESSIVE, while indirect taxes tend to be REGRESSIVE.

Progressive = take a bigger share of a higher income.

Regressive = take a smaller share of a bigger income.

Progressive = fairer.

 

[darag]

Re: taxes

most economists seem to prefer consumption taxes over income taxes. if the burden of taxation is shifted onto consumption, it creates an incentive to save (i.e. invest). ireland has relatively high consumption taxes (VAT, VRT, and other "indirect" taxes) compared to our european neighbours.

i'm not convinced by protocol's mantra. if taking a bigger share of a higher income is fairer, it would follow that the complete confiscation of high earners' income is the ultimate in fairness. the infamous labour government of 70s britain followed this logic to disastrous effect. i don't see anything intrinsicly fair about such a system; the more you earn the more you pay seems as reasonable.

i think the balance of tax on consumption/income here is about right but the fact that there is no tax on wealth (such as a property tax) is an anomaly. it means that a very wealthy person who fully owns a 1 million euro home earning 30k a year, for example, can pay a fraction of the tax that someone earning 45k a year who owns nothing and has no wealth. this seems far more inequitable to me than the lack of a 60% top rate of income tax.

 

[Tommy]

Re: taxes

A property tax might be a good idea to help cool demand for residential property and reintroduce some sanity and perspective into the property market. On the other hand, I'm not sure if it is that socially equitable however to tax people on the basis of their assets. You could end up with a situation where elderly widows literally could not afford to live in their own home if they were surviving on their pension while being taxed on the value of their property. It is all well and good to say that they should trade down but I would baulk at any system that effectively forces them to do so against their will.

I am sure it is feasible to devise some property tax system that protects the elderly and vulnerable against ripoff. If so, I would probably favour it.

 

[purple]

Re. Property Tax

Why should someone who had worked hard and bought a house be penalised because they have had the good fortune to find it has gone up in value, be they young, old widowed or married?

 

[Guest]

Re. Property Tax

> Why should someone who had worked hard and bought a house be penalised because they have had the good fortune to find it has gone up in value, be they young, old widowed or married?

Replace the word "house" above with "share" and you might see how somebody might argue in favour of some form of property taxation. Property is a capital asset even if PPRs are generally exempt from various taxes at the moment.

 

[purple]

property V shares

Replace the word "house" above with "share" and you might see how somebody might argue in favour of some form of property taxation

I can see how somebody might argue in favour of some form of share taxation, but not a property tax.
You can't put it on a PPR for the reasons outlined by Tommy and you can't put it on investors because it is unreasonable to tax one form of business and not others. Would you put it on shops and commercial premises? If you say you would only put it on residential properties that are owned by investors then what about a shop that people live over, or a unit with retail and residential units?

 

[Guest]

property V shares

Maybe I'm missing the point here (in terms of the type of taxation that we're talking about) but investment property is already subject to tax in the form of CGT right now. At least at disposal. I guess the difference here is that were talking about some sort of tax that applies to the asset (and not any income accruing from it) while it is held and not just when it is disposed of?

 

[darag]

Re: property V shares

yes, blank, that's what i mean. i'm only talking about individuals not businesses or companies. people have money coming in which is taxed (income tax) and money going out which is taxed (VAT, etc.) but also have a stock of wealth which is not currently taxed.

Why should someone who had worked hard and bought a house be penalised
because they have had the good fortune to find it has gone up in value,
be they young, old widowed or married?

you could go further than the suggestion to replace the word "house" with the word "share" and get:

why should someone who had studied hard and gotten a good qualification be penalised because they have had the good fortune to find a high paying job?

that's a facetious question obviously. taxation isn't about penalising people, it's about raising the money required to run the state. taxation should be reasonably fair. in my mind this means the burden should be shared among those who can afford to pay. exempting very wealthy people from contributing their share for the running of the state doesn't seem particularly fair to me. like any tax, it could be tuned with exceptions for widows and other emotional cases and/or have progressive bands. i'd say a very low rate would do - perhaps .5% in the top band. i'd try to include all forms of financial wealth - shares as well as property.

 

[purple]

Re.Re: property V shares

why should someone who had studied hard and gotten a good qualification be penalised because they have had the good fortune to find a high paying job?

Because they are being taxed on their income and so the taxation is relative to their ability to pay (in general) whereas a tax on a property would mean that average income people would be forced out of areas that become expensive due to the disproportionate increase in property tax relative to income.
Effectively a tax would be levied that penalised you more the lower your income was. So if your parents left you the family home in Howth village that cost them the price of a bag of bruised apples in 1958 you could only hold onto it if you were rich.
So what about just taxing investment properties?
You say only those owned by individuals, not businesses. Sound good in theory but what about a sole trader, a Doctor or an individual with two or three properties who just forms a company? I am not shooting your points down, I just don't know enough (anything!) about tax or company laws to know if they will work or if the big investor will be able to get around them and the little guy will be pushed out.
If that did happen and property prices fell the big boys will just snap up more property.

 

[Tommy]

Re: Re.Re: property V shares

You can't put it on a PPR for the reasons outlined by Tommy

Purple, you misquoted me. If you read my post again, you will see that I would broadly favour a property tax, once it did not unduly penalise the elderly or vulnerable. To be in any way effective, of course this would have to apply to PPRs.

 

[N0elC]

Re: Re.Re: property V shares

Wasn't the existing property tax axed by the so-called "Rainbow coalition" in the early nineties? It was so politically unpopular with the middle classes, that I doubt that any Government would want to re-introduce it.

The idea of a tax on total asset ownership (covering cash, property, and equity) being mooted by some contributors above, was also tried in the form of a wealth tax. Again, it was so politically unpopular with the upper middle class, that the inept FG-Lab government of 82-87 axed it.

I think one or both of the above ideas merit further investigation, but like third level fees, they are unlikely to be implemented by an Government, as they would be too politically unpalatable.

 

[darag]

Re: Re.Re: property V shares

hi purple, you're getting off track worrying about sole traders and companies. you cannot currently evade tax by forming a company to hold assets or to pay for your holidays or dvds or whatever. in fact, in many cases you'll end up worse off. the revenue have thought these issues through and the tax system reflects this. a wealth tax would require little or no adjustment to the tax system to avoid abuse through such mechanisms.

you addressed the question which i admitted was flippant but you've avoided the main point which is a about fairly spreading the burden to run the state. even with your hypothetical situation, i don't why someone who has inherited a great deal of wealth but is incapable of creating income is exempt from paying their share to run the country while someone who began with nothing and has had to work for every penny pays much more than them. give me a house in howth village for nothing and i'd be able to retire from my job tomorrow - even if i had to pay a .5% wealth tax.

however, as noelc points out, given the way irish politics works, there's no chance such a tax would be introduced no matter how strong the argument is in favour.

 

[Tommy]

Re: Re.Re: property V shares

what about a sole trader, a Doctor or an individual with two or three properties who just forms a company?

Quite apart from the inadvisability of putting personally-owned property into a corporate structure, surely any wealth tax system would have to count the value of shareholdings held by each individual in quoted and unquoted companies?

 

[purple]

Re: Re. etc property V shares

you've avoided the main point which is a about fairly spreading the burden to run the state. even with your hypothetical situation, i don't why someone who has inherited a great deal of wealth but is incapable of creating income is exempt from paying their share to run the country while someone who began with nothing and has had to work for every penny pays much more than them

So if you work hard and buy a house with the money you have already paid tax on you should pay tax again every year on the value of your house? I take the point that if you have vast assets but a low income you should not be exempt from tax but I just can't see how it would not be a blunt instrument.

Purple, you misquoted me

sorry

you cannot currently evade tax by forming a company to hold assets or to pay for your holidays or dvds or whatever. in fact, in many cases you'll end up worse off

That's not what I'm saying. If I owned 15 houses (if only!) and formed a company to own then and run them then in order to tax me would you have to tax every business in the country? That's a real question, I'd like to know.

surely any wealth tax system would have to count the value of shareholdings held by each individual in quoted and unquoted companies?

That would get over all of the above points but should tax not be levied on income derived from an asset rather than the asset itself? The implications of a general wealth tax are massive. Farmers would have to sell up, people would have to move house just to get out of an area that has gone up in value, companies whose wage and cost structures are based on current outgoings would have to move out of built up/expensive areas, people in this country could not own shares unless they had pots of cash etc etc....

 

[oilean]

Re: Re. etc property V shares

The debate seems to be concentrating on whether there should be a wealth tax or not

I am not advocating a weath tax

Taxing people just becasue they have assets is not an answer to alleviate poverty (comrade)

I referred to higher indirect taxes on expenditure
If I own a house currently valued at €2 million a wealth tax serves no purpose if I do not have income
Most peolpes PPR will never put cash into their pocket (unless a lodger appears) in most cases the reverse (home insurance)

But higher tax on goods purchased, eg cars, tv's, dvd players
This would be a fairer system of taxation

People should be taxed on expenditure on non-essential goods

If you earn little but chose not to go crazy on a flash car and wide-screen tv you will be paying less tax
You will be free to try and save or invest if you wish