The trade union-funded Nevin Institute has questioned the public consensus on taxation in two myth-busting blog posts. Its director Tom Healy says the problem with budget day is that “the questions are predetermined,” with the Government deciding how to use so-called ‘fiscal space’ as though it were picking from a menu of options.

The entire focus is on tax cuts versus spending increases, and only ever in relation to the marginal 1% surplus available. As Healy puts it: “Heaven forbid anyone should mention tax increases or seek to reframe the entire discussion”

Every year, on budget day, we miss an opportunity to ask the really pertinent questions. “How well do we spend what we spend and what level of overall spending?” Or what is needed to provide the level of public services we want? The whole budgetary process is built on a false foundation of faux ‘common-sense’ thinking that rules out radical, root-and-branch change as a matter of course.

It is with this in mind that Healy systematically attacks some of the ‘common-sense’ beliefs widely held on tax:

Myth 1: We all pay too much tax. The reality: “For single persons, on the average, the Republic of Ireland had the second lowest rate of taxation on income among EU member states for which the OECD provided information”.

Myth 2: Ireland is not competitive when it comes to income tax, especially on average and above average incomes. The reality: “The average effective tax rate moves up sharply from just over 20% for a single person in the Republic of Ireland earning €34,178 per annum to just over 36% at an income of €68,356.

“At 36%, the Republic of Ireland is about mid-ways on the OECD comparison. Many successful and high-productivity countries such as Germany, Belgium, the Netherlands, Finland and Sweden have higher rates of taxation on income”.

Myth 3: The way to win the hearts of lower paid workers is to give them tax cuts. The reality: “At 3.7% of gross income, relatively low paid workers in the Republic of Ireland pay very little tax on income”. In other words, there is little room for further cuts.”

Myth 4: Ireland has the most progressive tax system in the world. The reality: “No account of taken of indirect taxes when making this claim.”

Myth 5: The recession crucified us all with high taxes. Now is the time for payback so we can get back to where we were. The reality: “The great recession of 2008-2010, and the accompanying fiscal crisis in Ireland, did lead to various tax-increasing measures but these were greatly outweighed by spending cuts. However, the tax raising measures neutralised some of the damage done through untimely and unnecessary personal income tax cuts in the period 1998-2007.”

Myth 6: Everyone else is cutting taxes, so should we. The reality: “Average tax rates have been remarkably stable in most countries, except the Republic of Ireland where rates fell during the years of the boom after 2001 and increased during the fiscal crisis following 2008. Average tax rates remain below those in comparator English-speaking countries.”

Myth 7: High tax rates will drive investors and highly skilled workers away. The reality: “The main problem with this line of argument is that it tends to focus on cash income after tax deductions. When regard is had to the social wage, as well as the cost of living defined broadly to include the cost of renting or buying a home, then the picture is more complex.”

Healy concludes: “The Republic of Ireland is a low-tax country no matter what way you measure it.” It is important to remember, however, that “this is undoubtedly linked to the fact that the Republic of Ireland has a relatively poor social wage.”

Read Tom Healy’s blog posts here and here.