Indo - "Almost one in four Irish earners is paying no income tax, says Revenue"

[T McGibney]

Consumer price inflation destroys wealth. Asset price inflation increases it. That is especially the case when wages are static.

Asset price inflation does not increase wealth when the purchasing power of the underlying money value is eroding.

 

[The Horseman]

We're quite generous to people who house themselves, in the form of an enormously valuable CGT exemption for the principal private residence. We're less generous to people who house themselves by paying rent.

And we're conspicuously generous to those who put money into pensions; our tax treatment of this is among the most attractive in the world.

Most states do; why wouldn't they? And, if your concern is with efficiency, that's a good thing; going for the easiest option is usually the most efficient way of collecting revenue (or, indeed, doing anything else).

Those who house themselves have done so by sacrifice paying a mortgage, those who house themselves via renting is as a result of State in action. A recent report indicating there are 53k units in the rental sector availing of HAP and this is distorting the market. I specifically use the term "market" because thats what the private rental market is. It is not there to provide social housing which is what people on HAP need.

We are not generous on tax treatment on pensions as if it a one sided benefit to those who invest. This I am sure you understand is to defuse in as much as possible the pensions timebomb along with auto enrolment. Most of those who will receive a private and state pension will most likely return half of the State pension back to the state in terms of income tax.

Taking the easy route is not always the most effective or efficient. It is easy for the State to take the easy route if people feel unfairly treated that is when they find alternative ways around the unfairness. Most people will take a balanced approach to life where you win some and you lose some. Without going off topic to much those in the middle who pay for everything are over the threshold for social housing but don't earn enough to get on the property ladder. Hence the unfairness in this.

 

[TomEdison]

Inflation doesn't actually increase wealth. It usually destroys it.

It's more complex than that, I think. It also transfers wealth.

Inflation tends to be good for borrowers and bad for savers. Those who buy houses on mortgage do particularly well out of inflation; the real value of their borrowing, and the real cost of their mortgage payments, is eroded by inflation, while the real value of the house they have bought is at least maintained (and in fact commonly increases).

The people who do worst are the people who don't own property, and who invest their surplus assets by lending them (usually, to a bank).

The impact is partly a time-of-life thing. People who are saving for the deposit on a house can be crucified by inflation, as the real value of their savings erodes while the real cost of the house (and therefore the deposit they need) rises. But if they get past that point and succeed in buying a house they are now borrowers, inflation becomes their friend, and they can make out like bandits.

 

[Purple]

Asset price inflation does not increase wealth when the purchasing power of the underlying money value is eroding.

It does if it's inflating faster than the erosion of the underlying money value. The point is that property and stocks are twice as valuable as they were 15-20 years ago relative to labour. That's a direct result of QE and the intervention in the market by Central Banks after the 2008 crash.

 

[Ruffian]

Given that we have seen about the OPW and what we continue to see in the Healthcare Sector I don't think anyone can, with any degree of credibility, claim that there isn't massive waste and inefficiency in the State sector.

I'm not sure many people are claiming this though. I am as sceptical of state spending ideologues as I am sceptical of the the "vast savings waiting to be made by cutting state spending ideologues" - combined with great efficiencies.

 

[joe sod]

Musk is looking for new job,

That would be funny, just picturing musk arriving into the department of government expenditure waving his chainsaw around like a mad man. They would be in shock like Bishop brennan after fr Ted kicks him up the ass, they would refuse to believe it and think they were having a nightmare.

 

[TomEdison]

Those who house themselves have done so by sacrifice paying a mortgage, those who house themselves via renting is as a result of State in action. A recent report indicating there are 53k units in the rental sector availing of HAP and this is distorting the market.

HAP may or may not be distorting the market, but it certainly isn't true that "those who house themselves via renting is as a result of State in action". There may be 53k rental units in respect of which HAP is paid, but that's only about 10% of all rental units and the occupants of the other 90% do not benefit from that. Indeed, if HAP is distorting the market they suffer from that. Renters, as a class, are not advantged by HAP.

I'm also amused by the characterisation of homebuyers as "sacrificing" themselves. They are buying assets that will make them much better off. How is paying for those assets a "sacrifice"? It would be a sacrifice if they were spending their money to provide assets for other people; spending their money to provide assets for themselves is in no sense a sacrifice.

We are not generous on tax treatment on pensions as if it a one sided benefit to those who invest. This I am sure you understand is to defuse in as much as possible the pensions timebomb along with auto enrolment. Most of those who will receive a private and state pension will most likely return half of the State pension back to the state in terms of income tax.

We are massively generous on pensions. This is unarguable. It may be that this has the effect of "defusing the pensions time bomb", but all this really means is that pensions are signficantly funded by income tax payers (via the enormously valuable income tax reliefs given to pension funds) rather than by social insurance payers (via a higher social welfare pension). These are, of course, largely the same group of people.

Note, I'm not saying that our pension taxation system is unfair, or a bad policy, or that it should be changed. Just that singling out people who contribute to pension funds as people who are penalised, or treated unfairly, by the Irish tax system is, frankly, absurd.

 

[Purple]

I'm not sure many people are claiming this though. I am as sceptical of state spending ideologues as I am sceptical of the the "vast savings waiting to be made by cutting state spending ideologues" - combined with great efficiencies.

The problem with State inefficiency and incompetence isn't the waste of money, it's the waste of manpower. We have loads of money, skilled labour is the main constraint across the economy and in the delivery of services in our society.
That State waste and inefficiency of labour then causes waste and inefficiency of labour in the private sector. See housing delivery for reference.

 

[DannyBoyD]

Getting the right tenant

Don't kid yourself; a major life event is enough to upend things.

 

[Premos]

The point is that property and stocks are twice as valuable as they were 15-20 years ago relative to labour.

How does that work when the average house price in Dublin is about the same as in 2007 (18 years ago).

 

[Purple]

How does that work when the average house price in Dublin are about the same as in 2007 (18 years ago).

Okay, post the 2008 crash.
Nationally they are now around 20% higher than at the top of the Celtic Tiger Bubble.

 

[joe sod]

We have a chronic shortage of nurses and SNA's and plenty of other sectors face the same problem... and yet we have an abundance of trained SNA's and Nurses. They problem is that so many of them don't work fulltime. And they'd be mad to do so. If anyone thinks there isn't a link between the extremely progressive nature of our income tax system,

That's a key point about what is really wrong with our economy and our inability to staff hospitals and build houses, our "progressive " taxation policy and very generous welfare state.
Many people have made the calculation that it is better to work part time or stay in lower paid (less strenuous and stressful jobs) because the tax and welfare system does not reward them for working more.
The welfare rates, minimum wage rates and tax free work thresholds have risen with inflation even more than inflation in some cases. On the other hand the higher tax threshold stayed more or less static for years after the crash and then only belatedly started rising in last few years. Therefore people on middle incomes are paying higher tax relative to everything else than they would have 2 decades ago and more than their European compatriots.
Is it any wonder then that nurses builders and labourers have decided not to work 40 hours or more , or do unsociable hours etc because they are not rewarded by our "progressive " taxation system.

 

[Peanuts20]

Firstly the Independent need to employ some decent editors as there is the 1 in 4 headline, the 4 in 10 and another reference to 30%. So totally unclear what the real figure is.

Secondly, every earner pays income tax, even if it just a little bit. It's just not called income tax, it's called USC. It's not much, but it is income tax in another guise

Thirdly, everyone pays direct and indirect taxes (eg car tax, property tax, DIRT and of course VAT).

It is correct to say that the tax base should be widened and property tax is the easiest and simplest way to do it. Increased taxes in SUV's and big cars, congestion charges in Dublin could also be considered. If you live in D4, you probably don't need a "Chelsea tractor" as they call them in London.

I don't personally agree on taxing savings and investments if people are doing the right thing and looking ahead and also providing funds for banks and investment companies to invest/lend elsewhere but that is just me.

There is also a need to clamp down on the black economy. Lets be honest, most of us at some stage have been quoted a price and then a price in cash by tradesmen/mechanics etc.

 

[BIG-notorious]

Keynes would disagree. The use of public spending to smooth the impact of external economic shocks (which would include smoothing their impact on revenue streams) is a core Keynsian tool of economic and fiscal management.

Yes.

But you leave out the taxes part of Keynesian economics- in boom times taxes should be increased and spending somewhat curtailed in order to both cool the overheating economy and and build up a reserve so that when (not if, but when) the economic cycle reaches the next part of the curve there's scope to reduce taxes and increase spending to stimulate the economy without resorting to massive borrowing.

But nobody likes that part.

What happens is that the government of the day (doesn't really matter what government or country, politicians are politicians) wants to enhance its reelection prospects by ensuring the rising tide lifts more boats faster, so it cuts taxes while increasing spending and the boom gets boomier then crashes- made worse by the consequent requirement to raise taxes, cut spending, and increase borrowing all at the worst possible time

Should sound familiar to anyone over 40. But maybe this time it's different...

 

[TomEdison]

Many people have made the calculation that it is better to work part time or stay in lower paid (less strenuous and stressful jobs) because the tax and welfare system does not reward them for working more . . . Therefore people on middle incomes are paying higher tax relative to everything else than they would have 2 decades ago and more than their European compatriots.
Is it any wonder then that nurses builders and labourers have decided not to work 40 hours or more , or do unsociable hours etc because they are not rewarded by our "progressive " taxation system.

The problem with this theory is that the distribution of household income in Ireland, after tax and transfer payments, is about average for Europe.

Yes, we have a more-than-averagely progressive tax system. But we also have a more-than-averagely skewed wage structure — i.e. a greater gap bewteen the top and bottom earners, before tax and transfer payments, than is normal. The one offsets the other, and the combined effect of the two is that the distribution of household disposable income in Ireland is close to the European average.

Which in turn means that, if you work longer hours/take a more senior or more skilled job/whatever, even after paying tax, etc, you improve your material circumstances in Ireland about as much as the average European does.

So, if it's true that Irish people are less incentivised to work longer/harder/smarter than our European neighbours even though we get the same material reward for doing so, the reason may in fact be that we are less incentivised by material rewards than they are, which would be a cultural thing.

It's not impossible that that's the case. But it may not be. One of the premises of the argument is that Irish people do opt to limit their working hours, etc, more than in other European countries. Is this, in fact, true? I haven't seen any figures on this, one way or the other.

And, if it is true, we need to consider that factors other than the disincentivising effect of high marginal tax rates may be at work. For example, if Irish people opt to work part-time or to take career breaks, this may be partly attributable to the higher costs or poorer availabilty of childcare than is the case in other European countries. There'll be many other factors like this in play, and disentangling their effect may not be easy.

Finally, we need to consider the welfare/wealth distinction. A person who works longer hours may be richer, but not necessarily better off. Governments tend to be focussed on GDP and similar figures, so they always want to to work longer, smarter, etc and will adopt policies designed to get you to do this. But your own choices may be affected by a wider range of considerations — you may think you'll be happier and healthier if you have less stress, and more time with your family, or doing what you enjoy.

 

[Purple]

The problem with this theory is that the distribution of household income in Ireland, after tax and transfer payments, is about average for Europe.

Yes, we have a more-than-averagely progressive tax system. But we also have a more-than-averagely skewed wage structure — i.e. a greater gap bewteen the top and bottom earners, before tax and transfer payments, than is normal.

Which in turn means that, if you work longer hours/take a more senior or more skilled job/whatever, even after paying tax, etc, you improve your material circumstances in Ireland about as much as the average European does.

I don't think that they corollate to the extent that you are suggesting.

The one offsets the other, and the combined effect of the two is that the distribution of household disposable income in Ireland is close to the European average.

The factor that drives that is our extremely generous welfare system.

And, if it is true, we need to consider that factors other than the disincentivising effect of high marginal tax rates may be at work. For example, if Irish people opt to work part-time or to take career breaks, this may be partly attributable to the higher costs or poorer availabilty of childcare than is the case in other European countries. There'll be many other factors like this in play, and disentangling their effect may not be easy

I think that is undoubtedly the case. We have a young population and we have more nurses per head than most European countries so why are we short of nurses? I suggest that high marginal taxes and the high cost of childcare are major factors. When the very generous welfare rates are added the incentive to work part time, if at all, is very strong.

Finally, we need to consider the welfare/wealth distinction. A person who works longer hours may be richer, but not necessarily better off. Governments tend to be focussed on GDP and similar figures, so they always want to to work longer, smarter, etc and will adopt policies designed to get you to do this. But your own choices may be affected by a wider range of considerations — you may think you'll be happier and healthier if you have less stress, and more time with your family, or doing what you enjoy.

Yes, women are far more likely to priorities quality of life over income. It's no accident that the sectors where the workforce is predominantly female are the ones with the biggest labour shortages. That's in no way a criticism of women (quite the opposite in fact) but a system that has developed over centuries to incentivise men to work isn't fit for purpose when it is used to attempt to incentivise women to work.

 

[TomEdison]

The factor that drives that is our extremely generous welfare system.

It's the combined effect of our tax and welfare systems. For the very poor, and the elderly, the heavy lifting is largely done by the welfare system. But for relatively low-paid workers — say, people earing between 20% and 50% of average it's mostly the tax system.

We have a young population and we have more nurses per head than most European countries so why are we short of nurses? I suggest that high marginal taxes and the high cost of childcare are major factors. When the very generous welfare rates are added the incentive to work part time, if at all, is very strong.

Well, it could also be that we have set ourselves up to need lots of nurses. We have 14.2 nurses per 1,000 people, as compared with, say, Germany (12.3), Denmark (10.5), Portugal (7.6). Does that look like we have a shortage of nurses to you? I think a factor here is that we have relatively poor primary care services, particularly public primary care services, so we rely heavily on hospitals, and that's nurse-intensive. So, actually, we could be just as good at attracting nurses into the profession as other countries, but we'd still experience that as a shortage.

es, women are far more likely to priorities quality of life over income. It's no accident that the sectors where the workforce is predominantly female are the ones with the biggest labour shortages. That's in no way a criticism of women (quite the opposite in fact) but a system that has developed over centuries to incentivise men to work isn't fit for purpose when it is used to attempt to incentivise women to work.

But the implication of this argument is that offering women more money (via lower marginal tax rates) won't incentivise them to work. You need to offer them a better quality of life — provide a healthy work-life balance and make work rewarding and fulfilling by means other than giving them more money. Which, ironically, would likely mean more part-time working, more career breaks, etc., and a workplace culture/structures which ensure that availing of these possiblities doesn result in a loss of status, career progression, promotion opportunities, etc.

(Note that some of things you need to provide could potentially cost money, so labour costs would rise, but earnings wouldn't.)

 

[Ruffian]

Which, ironically, would likely mean more part-time working, more career breaks, etc.

Or more sharing of roles and responsibilities?

Maybe the Swedish model offers some insights?

 

[Purple]

Well, it could also be that we have set ourselves up to need lots of nurses. We have 14.2 nurses per 1,000 people, as compared with, say, Germany (12.3), Denmark (10.5), Portugal (7.6). Does that look like we have a shortage of nurses to you?

That depends on whether those nurses are working, where they are working, what hours they are working and how efficiently they are working.
The useful comparison would be how many nursing hours are worked her capita in each country.
I agree about the structural inefficiency within the healthcare system and how that reduces the productivity of those who work in it.

But the implication of this argument is that offering women more money (via lower marginal tax rates) won't incentivise them to work. You need to offer them a better quality of life — provide a healthy work-life balance and make work rewarding and fulfilling by means other than giving them more money.

I agree. We are trying to fix a broken leg by putting a splint on the patients arm.
I'd like to see free crèches in all hospitals for all employees who work full time. If you work one hour less than that then you have to pay the full cost of the crèche.
I'd also reduce FIS and other welfare rates. Nobody of working age should be better off (or as well off) not working.

 

[TomEdison]

Maybe the Swedish model offers some insights?

It might. And note that for the majority of Swedish taxpayers the combined marginal rate of income tax and social security tax is just under 64%, so clearly this model is compatible with very high marginal rates of tax.