Irish Mail on Sunday April 22, 2012
There are two key assumptions underlying the Governmentâ€™s decision to impose water charges. The first is that the investment will yield a real return and the second is that, as a revenue raising exercise, charges are fairer and economically more effective than the alternatives such as higher income and wealth taxes.
Installing meters will not, of itself, create any wealth. The meters will be imported and the employment gains could be equally achieved through other capital investment programmes that would certainly yield a real return. There is a wide range of possibilities from insulating homes to improving flood defences. But the obvious alternative would be to use the money that will be spent on installing meters, on improving the current water supply infrastructure, plugging many existing leaks and providing for future needs.
Itâ€™s not that we are short of water.Â Britain has a population ten times larger, a land mass only three times larger and far less rainfall. It gets by.Â With a little investment we should have potable water to spare for the foreseeable future. But the only possible gain to be derived from water meters will be reduced consumption.
But will that produce sufficient savings to even cover the costs of installing the meters, yet alone yield a real return?Â I very much doubt it. Instead of paying for water through general taxation, weâ€™ll be paying through water charges. We will certainly end up paying more for less. Weâ€™ll be using less water but having to bear the extra cost of the meters, their installation and maintenance, and the bill collection scheme.
Incidentally, the sophisticated domestic bill system operated by Bord Gais, which will be running the new water board, is part of its energy retail division thatâ€™s up for privatisation.
Part of the rational, according to Taoiseach Enda Kenny, is to broaden the tax base and lessen the need for extra taxes on income.Â To a well-orchestrated chorus, he regularly repeats his opposition to what he describes as taxes on work as if there is general agreement that income taxes are the worst possible alternative.
But the truth is that we are still not a heavily taxed society. There is ample scope for taking more in tax from high-income earners and from the wealthy without eliciting adverse economic consequences.
According to provisional figures released by the Revenue Commissioners income taxes took only 14.4% of our gross income last year. That was up from 13% in 2010.
Thatâ€™s an average across the board and, of course, many paid a far higher proportion of their income in tax. But many paid less. The tax system is progressive so that the higher your income, the higher the percentage taken in tax.Â But at the top of the pile, there were 117 taxpayers who declared incomes in excess of â‚¬2 million last year. Their total income was over a billion â€“ an average of â‚¬8.6 million each â€“ and on average they paid only 34% in tax. The 519 taxpayers on annual incomes of between â‚¬1 million and â‚¬2 million paid 27%.
Those opposed to higher income taxes ignore these effective tax rates, preferring to zone in on the top marginal tax rate of 52% which doesnâ€™t take account of basic tax credits or the many still generous concessions available particularly to higher earners.
Many taxpayers pay tax at 52% but only on the very top slice of their income. Itâ€™s made up of 41% tax, 4% PRSI and 7% Universal Social Charge.Â But nobody pays anything close to that on his or her total income.
Those with incomes of between â‚¬40,000 and â‚¬50,000 paid 11.6% of their incomes in tax. The effective tax rate rose to 20% for those on incomes of between â‚¬90,000 and â‚¬100,000 and to 25% for those on between â‚¬150,000 and â‚¬175,000.
The continuing, erroneous, claims that we are a high taxed society are likely to do more harm to the economy, than any extra taxes on high income and wealth ever would. Historically we are paying far less tax now than we have done in the past. The tax take is currently about 38% of national income, well down on the peak of 45% hit in 1983 when incomes above â‚¬10,000 were taxed at 65%.
That compares with 48% in Denmark, 43% in Belgium and Italy and 46% in Spain.
Theyâ€™re global tax figures but the claim that higher income taxes would put us at a severe competitive disadvantage in attracting foreign investment. Tax and social welfare costs are very low on Irish employers compared with their EU counterparts.
One way of measuring this competitive advantage is to compare how much it costs an employer to provide a worker with take-home pay of â‚¬100. The OECD has done the comparison for single workers on the average wage.
It Ireland it cost â‚¬143, the lowest among the EU countries. The comparative figure for Belgium is â‚¬224. Itâ€™s â‚¬196 in France and Germany, and â‚¬165 in Spain.
Neither of the assumptions being used to justify water charges holds water.