The Report of the Commission on Tax and Social Welfare contains some proposals that would have a dramatic effect in rural Ireland.
The Commission, which reported last week, was set up in fulfilment of a commitment in the Programme for government. It was given a very tight deadline to complete its work, and this may explain the gaps in its analysis.
The Commission was chaired by an academic. It had two civil servants in its membership, a tax consultant, an accountant, two members from economic research institutes, one person from a homeless charity, a businesswoman, one from an environmental charity, someone from IBEC…..but NOBODY representing agricultural or rural interests!
In addition, it received at least 28 submissions, mostly from other civil servants, state agency employees and academics but not one, as far as I can see, from the food and agriculture sector. This is surprising.
The terms of reference of Commission seem to assume that a steadily rising level of spending by government in Ireland will be necessary, equitable and inevitable.
Its task, as it saw it, was simply to
“ensure sufficient resources would be available to meet the cost of public services” as if that cost was a given that could not be altered.
More “resources” in the form of more taxes are simply assumed to be required.
Deciding on the details of the tax changes the Commission recommends, as a consequence of this assumption, is to be left to elected representatives.
The Commission offers them a long , and unpalatable, menu of tax changes from which they may choose.
But the Commission does not look at the expenditure side of government at all!
Over the last fifty years, the functions taken on by government have steadily increased. Child care, Free GP services, subsidised elder care, and insurance against use of defective building materials, are examples of responsibilities being shifted onto the shoulders of the general taxpayer in recent years.
We are also about to substantially increase our armed services, and to increase benefits for those affected by the energy cost squeeze.
Do we have an agreed basis for prioritizing these expenditures? I do not think so.
Should a Commission have provided politicians with advice on how to prioritize spending, before advocating tax increases? Yes, I think it should.
A more balanced approach by the Commission would have started with a rigorous analysis of present and future spending commitments, on the basis of explicit criteria.
Such an approach might not necessarily have meant the rejection of the Commission’s tax proposals, but it would have made them more understandable. Ideally, the Commission should have identified different levels of government spending relative to GDP, and what each would have meant in service and taxation levels.
Unfortunately the tight time limit set for the Commission would not have allowed the time to do an exercise like this.
In fairness to the Commission, it does suggest that our ageing population will mean increases in present levels of health and pension spending. It says adapting to climate change will cost a lot of money. Corporation tax revenues will fall from their presently artificially high levels.
The Commission report contains a number of unpalatable proposals .
Below are some examples
- It says a tourist tax should be imposed on accommodation.
- PRSI should be extended to incomes below 352 euros per week.
- Pensioners should pay PRSI.
- Capital Gains tax should apply to gains made on the sale of family homes.
- The Local Property Tax on houses should be increased and a higher rate of tax applied to second homes.
- The lower rate of VAT should be increased and zero rate VAT restricted.
- Parking spaces should be taxed and road use charges introduced.
- It advocates this on the basis of what it calls the principle of equity.
- It defines equity as treating people in similar situations similarly.
DEPENDNENT CHILDREN IGNORED
But it favours the infamous principle of “individualisation” in the income the tax code, which does the exact opposite. A taxpayer on 50000 euros a year with a dependent spouse and 5 dependent children is not in the same position as a single person on 50000 euros a year. But under individualisation they would be treated for income tax purposes as if they were in a similar position.
SEVERE PROPOSALS FOR AGRICULTURE WILL REDUCE THE VALUE OF LAND
Turning to Agriculture, all land, including agricultural land remote from towns, should be subject to a Site Value Tax according to the Commission. This Site Value Tax would eventually be merged with Commercial Rates.
Obviously agricultural land. that had little prospect of being needed for housing or roads , would be valued and taxed at a lower level than agricultural land near a town. .
But land that had the POSSIBILTY of being needed for housing, might go up in value and thus in tax liability, even though the housing development might never take place .
This proposal amounts to a reintroduction a centrally administer red form of agricultural rates.
Let us not forget that the Site Value tax would have to be paid out of after tax income, by borrowing or by selling of land or stock.
I can see a Site Value Tax becoming the subject of a lot of litigation between landowners, the Valuation office and the Revenue.
The Commission gives no idea of the likely rate of Site Value Tax….would it be 1%, 2%, or 0.5% per annum? How might the rates be altered and by whom?
It is impossible to assess the social effect to this proposal without having answers to these questions.
As well as paying the is annual Site Value Tax, the Commission recommends that holders of agricultural land pay substantially more Capital Acquisitions Tax (CAT) on the transfer of the farm to their children.
The CAT exemption limits for transfers to children would be reduced. Again the Commission does not say by how much .
Again the “experts” on the Commission leave that unpalatable task to the politicians!
The present system, whereby agricultural land is valued at less than market value when it is being passed to a child, whose main assets after the inheritance are agricultural land, is also to be curtailed.
The inheriting child would have to be active in the business to qualify for the relief.
Again, this additional CAT would have to be paid by the inheriting child by borrowing, by selling property, or out of income saved and not spent in past years.
The combined effect of these proposals, affecting farms, would reduce the value of agricultural land in Ireland quite substantially. The suggested restrictions on livestock production in the interest of reducing methane emissions will push land values down further.
It is unlikely that recommendations of this Commission will be acted upon in the near future. The government has enough on its mind.
But they will be used in negotiations for the formation of future government. They may also be turned to if a Minister for Finance finds herself short in a particular year.
Given that the farming community had no input at all to the Commission, their representatives should go through the report with a fine comb to be ready for the arguments of the future.