taxconf

So you’re a Chief Financial Officer or a tax advisor and you see That The Irish Times is trying to sell you tickets to a conference entitled “Corporate Tax. Are we Predator or Prey?”.    I reckon that two things will put you off right from the start.

Firstly, the conference title is provocative, and is very much in line with The Irish Times’ house view (which mirrors ICTU’s view) that a business-oriented low-tax system is in itself suspect.  So if you make your living by advising companies on how to reduce their tax bills, you would have to be prepared, while attending this conference, to be treated as if you were a smear of dog poo on somebody’s shoe.

Secondly, somebody with a sense of humour has lined up Fintan O’Toole as a speaker.  This strikes me as akin to having Donald Trump speak at a feminist conference, or The Iona Institute inviting Richard Dawkins to address their annual conference.  For O’Toole is your typical left-wing bubble-dwelling artsy social warrior, who regards all profit as either undistributed wages or a mortal sin.  That doesn’t prevent him being an excellent writer, by the way; it just means that when he writes about business or economics or taxation, he is completely out of his depth and the result is risible.

This is hardly surprising, as FO’T is literary editor of The Irish Times. Not the business editor, not the economics editor, not a taxation specialist, in fact not anybody with any expertise on these important subjects.  I can think of dozens of left-wingers who know more about economics and taxation that Fintan, any of whom would be capable of offering a useful contribution to this Corporate Tax Summit.  But The Irish Times insider gets the gig.

As I have said previously, The Irish Times wouldn’t habitually commission an economist or an accountant to write controversial articles on, say, literary novels or the theatre, where these are outside their sphere of competence.  So why does it regularly publish economically illiterate articles on finance, economics and taxation matters, written by a social and arts commentator?

Recent typical pronouncements by FO’T on Corporation Tax can be seen here and here. So if you pay good money to attend this conference, don’t say you weren’t warned.

 

Adrian Bourke, the brother of ex-president Mary Robinson, will presumably make a nice capital gain from the sale of his Ballina premises to Mayo County Council.  It’s supposed to be bought for €665,000 and be used as Ireland’s first presidential library, housing his sister’s papers.  However  recent reports suggest that the sale has stalled for reasons unknown.

In fact the whole project has come under fire recently, with RTE’s Prime Time last week raising various questions about whether this is a good use of public money, and historian Diarmuid Ferriter writing “If Robinson wants to encourage research into her career, or assessments of her legacy, she should follow the practice of her predecessors and donate her papers to the National Library, the National Archives or one of the national universities, without any need for tax credits or valuations by auctioneers and with no excessively expensive, publicly funded vanity centre.”  Ouch.

And Michael McDowell has raised similar concerns in his most recent Sunday Business Post contribution:  “Are all former office-holders to benefit by tax holidays based on donating their papers, documents and memorabilia to publicly funded ‘libraries’ in future? Or is this to be a one-off?   In my judgment, the Ballina scheme should be called off before it does further damage to Irish public life. And before it needlessly damages the presidency – not to mention damage to her own place in our history.”  Double ouch.

I’m tempted to ask why it has taken so long for these worthies to train their gaze on this project, which is being funded by the public purse to the tune of about €5 million.  Yours truly was a lot quicker into the fray, asking a few pertinent questions 11 months ago.

Mrs Robinson has also been in the news recently as she is selling her home in Mayo. The plug for the house in the Irish Times reveals that “Former president Mary Robinson and husband Nick are selling their Co Mayo home for €2.75 million. Massbrook, a 113 acre estate on the shores of Lough Conn, is located about 20 minutes from Mrs Robinson’s childhood home of Ballina, and has served as the couple’s primary Irish base since they purchased it in 1994.”

Those of you who (unlike me) are familiar with tax matters will be aware that the sale of one’s principal private residence is exempt from Capital Gains Tax (CGT).  However, the relevant legislation, section 604 of the Taxes Consolidation Act 1997, provides that the exemption only applies to the residence plus its “garden or grounds up to an area (exclusive of the site of the dwelling house) not exceeding one acre“, so Mrs Robinson is presumably looking at a CGT bill, calculated at 33% of any gain she and her husband make on 112 of the 113 acres.  Based on an apportionment of the sale price being asked, I’m guessing that the gain might be in excess of €1 million, since the 1994 purchase price allowed as an offset would have been quite small.

However as the State has given her a tax credit of €2 million for “donating” her archive, she will not have to worry about handing over any of the sale proceeds to the Revenue Commissioners.  She will also presumably have plenty of tax credit left over to cover other tax liabilities – such as her Presidential pension, for instance?  On the other hand, wouldn’t it be great if she could let her brother share in the tax credit, so as to cover the profit he will make on the sale of his premises in Ballina?

 

 

 

More economic nonsense from the Society of the Irish Motor Industry, reported in the Irish Times:

The motor trade is seeking a new incentive scheme, based on trade-ins rather than scrapped cars, to boost new-car sales next year. Work is under way on a submission to the Government seeking the introduction of a “swappage scheme”, in which motorists who trade in cars more than five years old would receive rebates of the order of €2,000 on the vehicle-registration tax due on the new cars.

The aim, according to Alan Nolan director general of the Society of the Irish Motor Industry, is to kick-start new-car sales and so increase the Government’s tax income.

“The Government’s tax take from the motor sector in 2007 was close to €1.8 billion. This has slipped to about €500 million. Meanwhile, employment in the sector has fallen from 50,000 to roughly 34,000. By boosting the sale of new cars we not only reduce the average age of the fleet but increase the tax take for the Government and secure thousands of jobs,” he says.

As I have noted before, this is the siren song of special-interest groups trying to derail proper financial governance, and promote their own causes at the expense of everybody else’s, just like Bastiat’s candlestick makers.

To quote Colm McCarthy from June 2011:

A good example of the futility of this line of thinking was the car scrappage scheme, recently phased out. This scheme directly subsidised imports, doubtless saved a few jobs in car showrooms temporarily but would have had its greatest impact in France, Germany and Italy, where they make the cars. A subsidy on foreign holidays would stimulate a few extra jobs in travel agencies too, but is hardly the most promising job-creation strategy. The car scrappage scheme was a similar mistake.

And here he is again from March 2010

Car Scrappage: Car sales have collapsed and some car dealers have gone out of business. The same has happened with €1,000 handbags, and some handbag retailers are struggling. Ireland manufactures neither cars nor handbags. The Car Scrappage Scheme will spend taxpayer money to sustain, temporarily, the retail distribution network for an imported consumer durable. Why not a Handbag Scrappage Scheme? This scheme is plain daft for Ireland. …… These ‘Something Must be Done’ schemes provide harmless entertainment for economists, fodder for the 24-hour news cycle and a playpen for lobbyists. But they contribute nothing to sustainable employment, cost the Exchequer money and hinder the necessary post-Bubble adjustment.   In contrast, the Economics of Doing Nothing is that this is often the best policy, and the cheapest.

SIMI’s proposed new incentive scheme is a blatant and brazen attempt to feather their own nest at the expense of everybody else’s.  The trouble is that few politicians are clued in enough to see this reality.

Just whose side is ICTU on?

6 December, 2012

A letter was published in today’s (London) Financial Times from Paul Sweeney, Chief Economist with the Irish Congress of Trade Unions.  Ostensibly it was an attempted rebuttal of a provocative opinion piece called “the best reform of Corporation Tax would be its abolition” which the FT had the temerity to publish last Tuesday.  The writer of the article was Michael Devereux of the Oxford University Centre for Business Taxation.

If Sweeney had restricted himself to the central issue dealt with by Devereux, that would have been fine.  But he goes on to say “Ireland, Luxembourg and Holland, which exploit so-called “tax competition” to reduce taxes for corporations and rich people, must be persuaded to co-operate with other states in the EU if the single market is ever to be a level playing field for all businesses…..The dividing line between “business friendly” and “the public  good” was crossed years ago in the area of corporation tax. The imbalance of taxation, which weighs heavily on citizens and lightly on multinationals,  has been set by the agents of multinationals, their professional advisers and, in turn, their professional bodies, taxation “institutes” and commissioned “research” ”.

It is (to put it mildly) disappointing to find ICTU trying to undermine our 12.5% Corporation Tax rate in such a manner.  At a time of crisis in our national finances, some might even call it treasonable.

A Property Tax for Ireland

30 August, 2012

Incredibly, the Government has not yet decided how the looming domestic property tax (to be levied in 2013) is to be calculated.  Talk about sticking one’s head in the sand. It’s not going away, you know.

One of the big issues is that a straight value-based tax on the whole property would impact severely on urban residents, particularly those in Dublin.  I can imagine a heated urban-rural divide in the cabinet on this point, and that government TDs for Dublin constituencies are scared silly of the retribution that would follow on doorsteps and in the next election.

Back in 2010, I suggested  that the best way to structure a self-assessed annual property tax would be to use the aggregate of two measures:  (a)  based on house size, at a rate of €5 per square metre plus  (b) based on site value, at a rate of 0.2%; against the total calculated in this manner allow a credit for each property of €500.

This theme has been taken up by a letter-writer in today’s Irish Times.  A Mr Neil McDonnell writes that “Assuming the last Central Statistics Office national average house price of €247,000, the average property tax would be €1,235 per year. Reducing the valuation element of the tax to a quarter of a per cent, and levying a tax of three to four euro per square metre of floor area, would yield roughly the same revenue, without discrimination between rural and urban housing”

This approach has the advantage of not disproportionately taxing urban dwellers while, as another letter-writer today points out, discouraging “the building of houses larger than needed by normal families at a time when we are being pressured to reduce our carbon footprints”.

My suggestion of a credit of €500 against the calculated aggregate tax reflects my feeling that a high degree of progressivity is required to make the tax politically and socially acceptable.  It also recognises that people are already paying waste and water charges which are (or will be) largely fixed.  The credit can always be whittled away over the course of time, yielding extra revenue.

I just wish the government would show itself capable of making a decision and getting on with it.   It’s over three years since John McManus wrote the following (about the Government’s reaction to the publication of the McCarthy Report): “… despite the hard lessons of the recent past, we are engaging in the same sort of gutless dysfunction politics that got us into this mess….We still have a political class that is by and large congenitally unwilling and unable to devise and implement policy, and bizarrely doesn’t really think that such is the job of Government.”

Plus ça change….

You may think that I am on occasion anti-public sector in my pronouncements (actually I’m not; I just think that Irish public sector management is lazy and inefficient and provides poor leadership).  Anyway, compared to the guy quoted below, I am a pussycat.

Dr J C Lester argues that only (net) taxpayers should be allowed to vote, thus ruling out state sector employees!

Why should people who are not taxpayers be allowed to vote money away from those who are? If we must have state services, it should at least be for those who pay for them to vote for which services they want and how much they wish to pay. To allow those providing, or living off, the services to vote is like allowing a shopkeeper to vote on what you must buy from him, or a beggar to vote on what you must give him….

… Consider state distribution of tax-money. We can see that this must create two social categories: those who are net taxpayers and those who are net tax recipients. Only the net taxpayers can be said to provide the state with tax-funds. The net tax recipients are paid out of taxation, plus any payments in newly created state-currency (which effectively taxes those who hold money). So to the extent that people are in the pay of the state they cannot be genuine taxpayers. A proof of this is that if their jobs were abolished the state would have more money to spend elsewhere, unlike those jobs in the genuinely taxpaying sector.

The writer, Jan Lester, is a leading member of the Libertarian Alliance.  The public sector seems to be a prevalent theme of writing on the LA website.  Its home page currently has a lead article by D.J. Webb called “Living off our Taxes”, of which the introduction gives a flavour:

There is nothing more frustrating than having to pay tax and national insurance so that public-sectors workers can earn more than you. People in the private sector face greater job insecurity and have less lavishly funded pension arrangements, where such arrangements even exist, and yet they are the golden goose that has to be repeated slaughtered in order that state workers can have secure and higher-paid jobs with astonishingly generous pension provision.

In case you were wondering, Webb was writing about the United Kingdom, not Ireland.  But, let’s be honest, he could have been writing about Ireland.

It’s an established part of the Irish economic and political cycle.  Just when we are starting to see Christmas goods appear in the shops (in October, damn it), then we also start to hear the plaintive and deceptive tones of the special-interest groups trying to bend the ear of the Minister for Finance, and promote their own causes at the expense of everybody else’s.

There is a pattern to these transparently self-serving submissions.  Reduce (or more likely these days, don’t increase) the tax on this activity or that product, they say, and the effect will be a wonderful growth in jobs and prosperity, which will more than offset the tax foregone.  Alternatively, NGOs and quangos fire off a fusillade of demands that this allowance or that subvention should not only not be reduced but that, because their constituents are uniquely vulnerable, it should be increased (with wholly beneficial effects on the economy, of course).

And newspapers and other media blandly regurgitate the related press release without adding some proper analysis.

I am reminded of the famous candlestick makers’ petition revealed to us by Frédéric Bastiat (1801-1850) wherein they asked the French government “to pass a law requiring the closing of all windows, dormers, skylights, inside and outside shutters, curtains, casements, bull’s-eyes, deadlights, and blinds — in short, all openings, holes, chinks, and fissures through which the light of the sun is wont to enter houses, to the detriment of the fair industries with which, we are proud to say, we have endowed the country, a country that cannot, without betraying ingratitude, abandon us today to so unequal a combat”.

And how did our resourceful candlestick makers justify their demands? By pointing to the wonderful effects such a law would have on economic activity:

First, if you shut off as much as possible all access to natural light, and thereby create a need for artificial light, what industry in France will not ultimately be encouraged?

If France consumes more tallow, there will have to be more cattle and sheep, and, consequently, we shall see an increase in cleared fields, meat, wool, leather, and especially manure, the basis of all agricultural wealth.

If France consumes more oil, we shall see an expansion in the cultivation of the poppy, the olive, and rapeseed. These rich yet soil-exhausting plants will come at just the right time to enable us to put to profitable use the increased fertility that the breeding of cattle will impart to the land.

Our moors will be covered with resinous trees. Numerous swarms of bees will gather from our mountains the perfumed treasures that today waste their fragrance, like the flowers from which they emanate. Thus, there is not one branch of agriculture that would not undergo a great expansion.

The same holds true of shipping. Thousands of vessels will engage in whaling, and in a short time we shall have a fleet capable of upholding the honour of France and of gratifying the patriotic aspirations of the undersigned petitioners, chandlers, etc.

But what shall we say of the specialities of Parisian manufacture? Henceforth you will behold gilding, bronze, and crystal in candlesticks, in lamps, in chandeliers, in candelabra sparkling in spacious emporia compared with which those of today are but stalls.

There is no needy resin-collector on the heights of his sand dunes, no poor miner in the depths of his black pit, who will not receive higher wages and enjoy increased prosperity.

It needs but a little reflection, gentlemen, to be convinced that there is perhaps not one Frenchman, from the wealthy stockholder of the Anzin Company to the humblest vendor of matches, whose condition would not be improved by the success of our petition.

A wily bunch, these French candlestick makers.  But our own special-interest groups are more than a match for them.  I can already hear the thundering hooves as they launch their cavalry at the poor Minister, armed with blustering press releases and practised in tugging at our heart-strings.  Pass the popcorn.