Low taxes not behind boom, says ICTU

Ireland's low-tax model needs to be re-examined if the Exchequer is to have enough cash to meet social and investment needs in…

Ireland's low-tax model needs to be re-examined if the Exchequer is to have enough cash to meet social and investment needs in the years ahead, according to Mr David Begg, ICTU general secretary.

The argument that low tax was behind the "Celtic Tiger" model is wrong, finds a new study published by the congress yesterday. It points out that the bulk of the cuts came after the boom period.

The crisis of the late 1980s required a readjustment of spending and tax to avoid a financial crisis, believes Mr Begg.

However, speaking at the launch of the tax study yesterday, he argued that "the balance has gone too far".

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Mr Begg said that there was a need to change the focus and use the current favourable demographic position to our advantage in terms of planning for future service provision in key areas such as health.

ICTU has an established position that corporation profit tax should be at the same level as the standard corporation tax rate - currently 20 per cent. It believes that EU pressure makes the current 12.5 per cent rate unsustainable in the long term.

The congress also wants to see a range of corporate and personal tax-breaks closed off to broaden the tax base.

Even if this is done, Mr Begg says that, looking to the medium term, we have to ask whether "we are on the right trajectory".

He said he suspects that further generalised increases in the tax base may be needed in future to pay for public services for an ageing population and for investment in social and economic infrastructure.

The ICTU has participated in social partnership since the late-1980s, a model that has seen substantial tax-breaks for employees in return for pay moderation for much of the period.

There was a need to re-examine this general approach, Mr Begg said, including the level of tax and funding of services in the medium term.

"Some of these things are very hard for people in politics to say," he added.

IBEC, the employers' organisation, said it was surprised at the congress's comments, as "the Irish economy has demonstrated the positive effects of reducing taxation".

Any mature debate would demonstrate that the low tax regime has been central to encourage enterprise "and any increase would put jobs and future investment at risk", according to an IBEC statement.

To stimulate debate in this area, the ICTU has published a document entitled Tax Cuts did not create the Celtic Tiger, written by its economist, Mr Paul Sweeney.

It argues that the promotion of the "myth" that low taxes created the economic boom "is part of a wider, conservative political agenda which, in essence, seeks to limit the role of the State and maintain the benefits reaped by a small minority during the Celtic Tiger years".

The main period of tax cuts was after 2000, following the peak of the "Tiger", the report says.

"Tax cuts did not generate the boom. Tax cuts were the result of the boom," it concludes.

None of the academic assessments of the creation of the boom have cited lower tax as a main contributor, according to Mr Sweeney.

The report identifies the key players in asserting that lower taxes have been the key to our economic success as the former minister for finance, Mr McCreevy, the Tánaiste, Ms Harney, the Minister for Justice, Mr McDowell, "and a number of financial and stockbroker economists".

Cliff Taylor

Cliff Taylor

Cliff Taylor is an Irish Times writer and Managing Editor