More taxes are on the way to help close the Covid budget gap, the National Economic Dialogue has heard, but it’s unclear what form they will take.
he Government will rack up close to €250bn in debt by the end of the year and will lose out on multinational revenues under a global corporate tax deal, so it needs to find new ways to fund investments in housing, healthcare and other priorities.
“There was general agreement that the tax burden is going to be much higher in the next 10 years,” said Stephen Kinsella, an associate professor of economics at the University of Limerick, who participated in the two-day event.
“There is a need for a mature debate on how these taxes are raised, from whom, and the efficiency required to spend these moneys effectively.”
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The Economic and Social Research Institute (ESRI) has said that increasing the standard and higher income tax rates by one percentage point, to 21pc and 41pc respectively, could generate an extra €1bn a year. They also suggest VAT or property tax hikes.
“There are probably areas where you could increase the revenue base of the state. Obviously the property tax is one area that springs to mind where you could look to increase taxes,” ERSI research professor Kieran McQuinn told the Irish Independent.
However, given the upcoming changes to global corporate tax rules, he said Ireland will have to make sure any tax moves don’t scare away investors.
“You don’t want to see more and more taxes being raised in the economy because it could have an impact on our competitiveness,” he said.
There was also talk of a rise in PRSI payments or the Universal Social Charge at the National Economic Dialogue on Tuesday.
Some interest groups were even angling for tax breaks to encourage research and development or to benefit farmers, according to the minister for finance.
“A tax incentive is a tax reduction, and that rarely pays for itself,” Mr Donohoe said. “It sometimes does – and we do have examples of where it happens – but we have many more examples of where they don’t.”
The other side of the equation is spending.
Falling unemployment and more buoyant growth this year – up to 11pc in the ESRI’s latest forecast – will do a lot of the heavy lifting in budgetary terms.
The Taoiseach is aiming for a “broadly balanced budget over the medium term” which Mr McQuinn says leaves some room for manoeuvre for capital expenditure on housing or other infrastructure.
“We do think there is a case for having what we would call a mild deficit. That deficit would be somewhere in the region of 1-1.5pc [of GDP] and that would bring in an extra €6-7bn in revenue each year for the government,” said Mr McQuinn.
The Government recently committed to a €5bn economic recovery plan, including both spending and tax measures, but the Irish Fiscal Council says it has very little leeway for new spending.
Ibec CEO Danny McCoy says the golden rule is “only borrow for investment. The future gets the debt but also the productive assets to both pay for it and the benefits of the investment.”