Dramatic tax and welfare changes would have a better chance of acceptance if they had cross-party support, writes NOEL WHELAN.
DURING THE last Dáil some terrific work was done by the Oireachtas Committee on Communications, Marine and Natural Resources which contributed substantially to the emergence of a broad national consensus around the issue of energy security.
The members of the committee, which was chaired by Fianna Fáil backbencher Noel O’Flynn, included the relevant frontbench spokespeople from the main opposition parties. In late 2005 and early 2006 it held a series of interesting hearings on energy policy.
Among those who travelled to Dublin to give evidence were the European Union commissioner for energy and the vice-chair of a Danish parliamentary committee which had designed a cross-party approach to energy policy in that country.
In June 2006 the committee published its final report. It was not only a strong denunciation of existing policy but also contained a detailed analysis of the scale of the energy difficulties Ireland would face and a series of 38 specific recommendations for a new national energy policy.
The then minister for energy, Noel Dempsey, appeared regularly before the committee and began a process of implementing most of its recommendations which has been followed up by his successor Eamon Ryan who was also a prominent member of the O’Flynn committee.
In the current Dáil similar good work has been done by a committee chaired by Fine Gael Senator Paschal Donohoe exploring the fallout from the first Lisbon referendum and by the all-party committee on children’s rights chaired by Mary O’Rourke.
The work of these committees has been marked by genuine cross-party co-operation in the interest of finding an agreed solution to particularly complex problems.
The fledgling political consensus on tackling the current difficulties in the public finances should be consolidated by establishing a similar all-party committee.
Now that the income tax levy has been implemented and the public sector pension levy is essentially in place, focus has moved to whether and when there should be further tax increases.
In circumstances where the gap in the public finances is set to be wider than even the revised Department of Finance predictions published in December, the idea of a mini-budget to introduce a crude increase in the top tax rate has its superficial attractions. However, a rushed single item mini-budget is not what is now needed.
This country’s next budget needs to be a major event not a mini one. We need nothing short of a total overhaul of our tax and welfare system in order to lay a basis for the scale of expenditure and revenue changes which are now necessary.
Reform of the personal tax credit and PRSI systems is required as well as an increase in income tax rates. We also need to dramatically expand our tax base with new taxes on asset wealth and on carbon generation. These will have to include some sort of domestic levy on the basis of residential property value and/or the carbon footprint of each household.
Simultaneous reform of the welfare system is also necessary. A way must be found to reduce the amount paid to each individual recipient (perhaps by gradually freezing social welfare rates) as well as significantly reducing the categories of persons entitled to some benefits by either means-testing or taxing allowances like child benefit.
The Commission on Taxation has already undertaken a lot of work on tax system reform. This 18-person expert group has been working for almost a year and is currently scheduled to publish its final report in September.
However, any actual tax changes that will follow will be implemented by Cabinet decisions and by legislation enacted by the Dáil. The commission’s report now needs to be expedited but simultaneous work is needed to lay the political groundwork for the overhaul of the tax and welfare system.
The Government could implement the necessary tax and welfare changes on its own if it so wished. This week the Government had a working majority of 10 in Dáil votes on the pensions levy legislation. Its majority is actually safer now than it was last autumn when a combination of backbench dissent, Independent revolts and convulsions within the Green Party threatened its stability.
There are nonetheless good reasons why the Government should test Fine Gael and Labour’s offer of a cross-party approach. However, instead of doing this in secret talks in Government Buildings as some commentators suggest, the cross-party consensus on tax and welfare reform should be negotiated or built in the open at a cross-party Oireachtas committee established for that purpose.
This committee should be asked to complete it works within a month or so. Some prominent backbencher like Michael Noonan or Mary O’Rourke could chair or co-chair it. It should summon the Commission on Taxation and other experts to testify on the various proposals and ask the social partners to make presentations. It should be given direct access to officials in the Department of Finance and the Revenue Commissioners. It would serve to open up our overly secretive budget-making process.
The Government could start the ball rolling by tabling its own discussion document and the Opposition would then be required to publish alternative proposals, if any.
If consensus were to emerge at such a committee then the necessary tax and welfare reforms are more likely to attract popular acceptance. If not then the Government should move quickly to make the decisions on its own.