ESRI: Tax hikes of €5bn needed just to plug looming exchequer losses
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Annual tax hikes of over €5bn, including politically contentious increases in personal and local property taxes, are required just to plug looming revenue losses, the Economic and Social Research Institute (ESRI) has warned.
In a major report, the think tank sets out the extra billions in tax the State will need to tap to meet its spending and investment commitments for Sláintecare, building and retrofitting homes for climate change, and investing billions in infrastructure.
However, the State will also have to replace €2bn in annual corporation tax revenues it collects from multinationals and €3.5bn in motor taxes - even before it can start to fund future commitments.
Economist Barra Roantree at the ESRI said the report was not about meeting the huge additional exchequer bills from the Covid-19 economic crisis but learning the lessons from the crisis about long-term planning on spending programmes the Government and opposition parties have agreed on.
”The research highlights that there is likely to be a need for substantial tax increases in the decades ahead and what our report does is set out some of the issues we need to discuss as a society if we want to fund services that are talked about,” Mr Roantree said.
“Increases in broad-based taxes on incomes, consumption and property may therefore be needed in the years ahead,” he said.
The ESRI said it is setting out the options for tax billions the Government could raise from the traditional big sources such as income tax, Vat hikes and new valuations for the local property tax, frozen at 2013 property prices.
The report shows that increasing the rates of income, Vat and the property tax would be the easiest way to raise significant billions in additional taxes.
Increasing the main rates of income tax by 1%, to 21% and to 41%, would raise about €1bn. About a third of the additional haul would come from the best-paid households, according to the report.
Increasing the rates of Vat by 1% would raise almost €700m, with the top half of income payers paying the most because Vat taxes are less regressive than many people believe, the ESRI said.
Mr Roantree said that wealth taxes would need to include property because property was “an overwhelming part” of household wealth.
“Given that we already have a property tax in place, for a wealth tax property is probably the best place to start, and given we are still basing it on 2013 valuations it raises only €500m but if you update the valuations you could raise another 50% and raise more by also increasing the rates,” he said.
“There is a recognition it is difficult to run health systems at a high level of capacity and there is a consensus around adding to capacity," Mr Roantree said.
"There are also plans for spending on infrastructure and for meeting renovations of homes and very significant climate change challenges that will require additional public investments,” he said.
The ESRI said its research highlighted "the large number of anomalies" or tax exemptions in the Irish taxation system that helps specific groups of taxpayers.