Tax proposals will widen gap faced by poor

SO far at least the election campaign has been remarkably fair - the largest amount of dishonesty has been lavished on the most widely discussed area of policy - tax. Both sets of proposals are based on a very obvious fallacy - the notion that tax levels will be set by whoever is in government. In fact, since all the major parties now accept the idea of social partnership, tax levels will be - and to a large extent already have been - determined by negotiations with trade unions and employers.

The Partnership 2000 agreement already commits whoever is in government to £300 million of personal taxation cuts for each of the next three years. Simply adding another two years to that gives £1.5 billion in cuts in personal taxation the figure that both Fianna Fail and the Rainbow are offering. Everything else is a mere exercise in making a virtue out of necessity.

Why, in any case, should tax be the dominant issue in the campaign? For a start, the tax take in Ireland is not especially high. At about 37 per cent of Gross Domestic Product, it compares favourably with countries like Germany (39 per cent), France (44 per cent) and Denmark (SO per cent). It is lower than both the OECD and European Union averages (38 and 42 per cent respectively). And it will come down over the next decade for demographic reasons which have little to do with the election of the incoming government: the ratio of workers to non workers is about to fall by half.

Secondly, the collection of taxes is not very efficient - about £4 billion is missing from what ought to be generated from the existing tax base, and none of the parties is so far proposing to tackle this failure.

And thirdly and most importantly, neither set of tax proposals will do anything for the poorest 40 per cent of the population. Over a quarter of the people the Revenue Commissioners have on file pay no tax because their incomes are below the exemption limit. None of them would benefit from either the Fianna Fail or Rainbow proposals.

Nor, of course, would the unemployed.

One way to test the likely outcome of all of the tax proposals is to look at the experience of the last seven years, when each of the major parties has at some stage been in power.

In that period, the average earner has paid 5.4 per cent less of his or her income in tax. A worker on twice the average income, meanwhile, has paid 7.2 per cent less. In cash terms, the average worker was £708 better off, while the worker on twice the average wage was £1,891 better off. If their record is anything to go on, the tax proposals of all the main parties will widen the gap between the poor and the rest.

None of the tax proposals announced so far acknowledges the conclusions of the two major documents on the issue published in the last year. Both the expert group report on Integrating Tax and Social Welfare and the National Economic and Social Council's Strategy for the 21st Century suggest that the best way to ensure equity and efficiency is to move towards a system of tax credits. The next best option is to increase personal allowances at the standard rate.

Neither of the two main parties is proposing to move to tax credits. And neither of their proposals concentrates on the standard rate. Fianna Fail proposes to take five per cent off the top rate. Fine Gael is also proposing to cut the top rate - by three per cent. Its proposals do at least concentrate on allowances, which is the main thrust of the independent policy reports.

So far, only one TD - Eric Byrne of Democratic Left - has had the courage to point out that the plethora of tax proposals has "relegated jobs to the bottom of the political agenda, deciding instead that tax cuts for the well paid will be the battleground on which this election is fought". His criticism, of course, was aimed at Fianna Fail and the Progressive Democrats. He forgot to say that Fine Gael's proposals have had the same effect.