Eh, no. We’ll have a new social security tax next year. Maybe.
Did that chap get a different copy of the budget to everyone else?
Lenny! Is that you in there! Or better still, is it George or Richard? When’s the handover lads!
Its neither, btw read the speech, “It is my objective to introduce in 2011 a new system of just two charges on income”.
Further on he says" Income Tax will apply on a progressive basis".
Please have the manners of reading something before attacking me, stick to the facts not your opinion.
Perhaps your version is flawed?
Next year is 2010 pal.
Tut tut, budgets are released in Dec of each year, for the following year, therefore next years budget which will be delivered in Dec 2010 will refer to 2011.
You sort it out then.
All very good points but you are missing the single biggest unknown. Just how much of Irelands tax evasion and regulatory evasion economy will survive the next five years? I see absolutely no scenario where they survive in their current form.
Starting about 3 to 5 years out as the domestic budget crunch becomes politically unbearable you will start seeing very serious moves from countries like the US, UK, Germany etc to stop the flow of funds through Irish subsidiaries purely to avoid tax. These countries loose many many billions of tax each year due to Irish state facilitated tax evasion by MNCs. The Irish subsidiary of Microsoft on it own costs foreign taxpayers somewhere north of $7B a year in lost revenue. Add up all the rest of the MNC tax evasion that is facilitated by Irish subsidiaries and you are talking a noticeable percentage of the domestic countries tax revenue.
This situation will not be allowed to stand when the desperate scramble for revenue by governments starts in 2 to 3 years times. The MNC tax evasion will no be shut down completely but I would be not very surprised if the majority of the current Irish revenues of MNC’s is repatriated in 5 years time.
So there goes 40% of Irish exports and maybe 20%/30% of Irish tax revenue. And all hope of recovery through economic growth for several decades.
And we have not even got to the festering cesspit of the IFSC yet. Having already destroyed the domestic banks and spawned NAMA if the IFSC implodes in the next few years (and I cannot see how it can not by this stage) then the international political and financial liability fallout has a very good chance of propelling Ireland to Trans-dniester levels of pariah status.
The real pain has not even started yet.
So, Income Tax will apply on a progressive basis. That is how it currently applies. That is a ‘no change’ item.
New universal social contribution will replace employee PRSI, the Health Levy and the Income Levy. That is a new social security tax. As I said…
We will have the same income tax system and a new social security tax system. Both will be progressive. ‘Everyone’ will pay the social security tax.
The ‘everyone’ is interesting, as it implies it will be paid by those on welfare and pensioners…
Now, about opinions…
Firstly I wasn’t responding to you.
Why shouldn’t everyone pay, the system that we have at the moment isn’t progressive enough when the min wage is essentially untaxed,first €7500 tax free with rates starting at 5% up to 50% all in, thats a progressive tax system, where everyone pays, even a little.
I would additionally remove all automatic free medical cards for the over 70’s and have the amount they can earn be dropped to €30,000 per household.
Most of the income tax gathered in this country will come from those earning €40k plus, whilst those on €15k pay nothing except an income levy.
Hey, you’re talking to the converted. Indeed, you’re talking to people who have long proposed such a system.
You wanna stick around a bit before letting loose.
And I was responding to your rudeness. You were wrong, or at the very least inaccurate; you were pulled up on it…
Where was I rude? one example will suffice, I was the one that was “let loose” on, so please one example will suffice.
Get back on topic.
Discussion of your rudeness is not on topic.
erverybody seems to be forgetting we will have negotiated a 50% haircut with our bondholders by then after defaulting in 2011 and being frozen out of the money markets
most negative, frightening, post - Evar!!!
Ah, there are a couple of possibilities. A sudden stop is one of them. Another is a partial decline. This would be where the US government comes to an agreement with the companies that it will charge x% on top of the tax treatment they get in Europe. It’ll still be cheaper than the US, but it’ll be more expensive than they are currently getting.
Of more danger is the attitude of the EU. It will seek to ossify FDI into the country it goes into to prevent, for example, the sort of thing that Dell have done. Playing off one state against the other is common practice in the US, but I don’t believe it is something that the hardcore states in Europe are interested in.
I also believe that an era of protectionism and economic empire is close. It’ll be wrapped in the green cotton wool, non-GM of course, of carbonomental protection, but its core effect will be to set trade barriers with least favoured nations (by imposing carbon ‘standards’ on them). TBH, I don’t think it’s a bad thing, but I’d rather see it based on pollution, humanitarian, corruption and environmental (as in physical environment) standards. Buyers of goods have far more power than sellers…
I agree that the IFSC has been a dump; I am reasonably confident that the FR will get it’s act together. Having been quite negative about the BMA, I have to confess that I haven’t heard of any ‘blow-ups’ there. If we are going to operate as some sort of tax haven, we have to be selective in what we are haven to. Bermuda seems to have done that successfully (?), so let’s hope that we can move away from German conduits, SIVs, and other dodgy operations named after red-light streets…
Re: The multinationals.
In our favour, US politicians are heavily in bed with and indebted to big business.
The same big businesses that want to avail of friendly tax regimes abroad.
The richer you are, the more persuasive your lobbying will be.
Sorry, was off doing the pressie shopping yesterday afternoon… Now, to try and tidy up a mess of my own making!
That’s a very fair point, Larry. I did the economists’ usual trick of not worrying too much about the minutiae and trying instead to focus on the aggregate behaviour. From a purely mathematical point of view, it will have to come from somewhere in the economy, i.e. one of the sectors into which the economy is classified:
- Agriculture, forestry and fishing: will continue to contribute the economy, but only in a treading water capacity, I would have thought (particularly with little incentive for efficiency under CAP)
- Mining and quarrying: not really the hand Nature dealt us
- Manufacturing: at one point, the be-all-and-end-all of economic development, now less than 20% of the typical high-income economy and shrinking; Ireland’s going to miss this, because of the large employment multiplier effects
- Electricity, gas, steam and air conditioning supply: with the possible exception of Spirit of Ireland type activities, this is more a domestic sector and the big push in this area is negative growth (i.e. energy efficiency), not growth
- Water supply; sewerage; waste managment and remediation activities: projects such as SmartBay in Galway are very exciting, but again, water supply is a domestic sector; installation of a nationwide intelligent water network could drive some growth but that would have to be taxpayer funded, one way or the other
- Construction: hmmm, I think we’ve had enough of that for one generation
- Wholesale and retail trade; repair of motor vehicles and motorcycles: we do have a lot of retail space per capita, so if we could become a regional (i.e. continental) hub for shopping, this could be a growth area, but we’d need to get costs down for that, and… is it realistic?
- Transporting and storage: perhaps a more likely niche internationally traded activity, given our strategic geographic location, but perhaps a little later to try and rain on Rotterdam’s parade
- Accommodation and food service activities: i.e. tourism; not going to drive growth, but certainly an area we could build on
- Information and communication: the first of the true ongoing global growth areas
- Financial and insurance activities: not as boomy as its pre-2007 counterpart, but still - particularly given London’s apparently suicidal attitude towards the City at the moment - an area Ireland can attract internationally traded activity
- Real estate activities: hmmm, I think we’ve had enough of that for one generation
- Professional, scientific and technical activities: this and the next one are sort of catch-alls as the national accounts system tries to catch up with an economic aligning itself around activities, not sectors - the international bits of this (I’m loathe to use the phrase R&D… damn, I just did) is definitely an area Ireland should target (and indeed is, through the IDA)
- Administrative and support service activities: as per above
- Public administration and defence; compulsory social security: not really a sustainable growth area, as we’re discovering
- Education: overall not a growth area, but English-speaking & in the EU means that we can better use higher education as a services export
- Human health and social work activities: it’s unlikely we’ll be in a position to as Bahrain is trying and become a regional health & wellness hub anytime soon.
- Arts, entertainment and recreation: reasonable prospects for growth, particularly in line with tourism activities, but not going to be a huge employer
- Three stragglers, none of which are big enough to drive growth: “Other services activities”; “Activities of households as employers; undifferentiated goods - and services - producing activities of households for own use”; “Activities of extraterritorial organisations and bodies”
So to answer your question, where might (as opposed to will) our growth come from, aside from a gradual pick-up in some domestic activity? I would pick (1) ICT, (2) finance & insurance and (3) professional & technical activities, with some potential from perhaps one of electricity, tourism, education and the arts.
Speaking of all these international activities…
This is a very important point. The IDA is increasing going to be attracting a much larger number of small generally services-based activities, as opposed to a few large projects. I think their 100+ projects this year (an impressive total) are only expected to employ about 4000 people, i.e. one 1990s project.
(1) As per the NTMA’s website, the typical interest costs of our national debt (2005-2009) are between 4.5% and 5%. I’ve assumed that this will rise to 6.5% in 2010 and 2011, as the markets wait to see whether we’re serious about our fiscal crisis, falling back to 5.5% as we head to 2015 - but no lower, because we’re no longer a low-debt country.
(2) The debt-GNP ratio, as I’ve calculated it (and I may not be properly accounting for the whole banking recapitalisation mess), rises from 50% in 2009 to 100% in 2015
(3) I’ve assumed that there are going to be no real changes in the total amount collected through the new system (which is going to replace health, income and other levies and PRSI), rather the changes simplify the system. As it happens (given the debate that followed this question), I have assumed that income tax receipts grow 5% in 2011 as tax credits reduce somewhat the extremely progressive income tax system we have.
I’m not a currency expert, but my general economics training tells me that the UK economy is in the middle of a huge mess of its own at the moment, so I don’t see sterling strengthening hugely over the coming 2/3 years… after that, though, it’s anyone’s guess!
Lack of recovery in sterling is certainly one reason to not expect Irish-owned firms to see a boost in exports anytime soon. It may help with general deflationary pressures over the coming 12-18 months, though, which is good for consumer spending here.
While I can see popular political pressure coming on this setup, we’ve got to remember what these tax avoidance measures mean to the wealthy and influential US elite. After tax profits up = dividends or share price up = more wealth for the shareholders. It would surprise nobody here that the elite in this country equates what’s good for them with what’s good for everyone, the US is no different. The US elite believes that any increase in their wealth is good for the economy as a whole, trickle down economics…
As an aside , as per Ronan’s article, corporation tax is 13% of total tax take. Plenty of scope there without upsetting too many people.
Pretty much in the same way that when trying to puzzle out the great Anglo/NAMA bail out mystery the evidence kept leading back to the totally unexpected destination of the Coolmore Mafia as I’ve stood back and tried to look at the bigger picture all roads seem to lead back to the IFSC. And not in a good way.
What is startling about the IFSC is not only the large cast of bottom feeders that seem to be involved but the utter lack of official inquizativeness about what has been going on there. Considering the huge capital flows through the IFSC it is remarkably difficult to get any real handle on what exactly is going on there. This does not smell like the Cayman Island, Bermuda or Jersey. This smells like Belize or the Norfolk Islands back in the good old days. i.e stinks to high heaven.
So when you add up all the operations that actually are legit(ish), the MNC corporate treasury operations, the back office operations, the “tax efficient” subsidiaries, the not-quite-kosher-in-the-home-country operations there still seems to be a big mystery about what exactly accounts for the rest of the very large capital flows through the IFSC. And considering the very dodgy legality of a lot of the public and relatively transparent financial instruments and deals that have been kicking about for the last 15 years I shudder to think of what exactly was going on with the financial instruments and deals that they are trying to keep so quite about.
I get the distinct feeling that a lot of the scuzziest deals were funneled through the IFSC - where the profound lack of curiosity by the regulatory authorites was a given. Once you start along this particular line of inquiry a lot of the more puzzling mysteries of the last few years start making a bit more sense. Especially some of the odder decisions, or lack thereof, by the government.
I think if the full story of the massive frauds at Anglo (and elsewhere) came out the domestic political consequeneces would be profound. But I think if the truth of what exactly has been going on in the IFSC over the years ever got out then the international consequences for Ireland and its future would probably be very dire verging on the catastrophic.
The story of the destruction of the Irish financial system seems to start and end with the IFSC. Decisions made to facilitate the IFSC and its opeation, and the kind of people a place like the IFSC attracts, set in motion the sequence of events that have lead to the current situation were all the banks are insolvent, the countries national debt will be quadrupled, and the next decade of economic growth has just been mortgaged.
I think the IFSC may have been the cancer at the heart of the Irish financial system that ultimately killed it.