Monday, February 10, 2020

A radical Irish government would have to hike taxes

OECD data — ignore Luxembourg in this chart as over 40% of its labour force live beyond its borders — click image for bigger scale 

The prospect of the first leftist government in Ireland since 1922 is exciting for supporters of Sinn Féin after its surge in support in the Irish general election that was held at the weekend. However, to be radical in the key areas of both housing and health, it would have to raise taxes more than it has provided for in its election manifesto.

There is ample room to do so. However, just soaking the rich would not work.

Eurostat reported last October that the tax-to-GDP ratio varies significantly between member states, with the highest share of taxes and social contributions in percentage of GDP in 2018 being recorded in France (48.4%), Belgium (47.2%) and Denmark (45.9%), followed by Sweden (44.4%), Austria (42.8%), Finland (42.4%) and Italy (42.0%).

"At the opposite end of the scale, Ireland (23.0%) and Romania (27.1%), ahead of Bulgaria (29.9%), Lithuania (30.5%) and Latvia (31.4%) registered the lowest ratios."

Replacing the tax-avoidance distorted denominator with the Modified Gross National Income for 2018 gives an Irish tax ratio of 37%.

On government spending in 2018, OECD data show (see chart on top) in USD per capita: Norway ($31,000); Denmark ($29,000); Austria ($28,000); Belgium and Sweden  ($27,000); Finland and France ($26,000); Iceland, Netherlands and Germany ($24,000); Ireland ($22,000); Italy ($20,000) and UK at ($19,000).    

The Nordic countries are often cited for the standard of their public services but they are paid for by income taxes that extend down the earnings pyramid, coupled with high consumption taxes.

In recent decades Sweden has abolished many of its capital taxes including property taxes.

Last week I noted that in Ireland the top 1% (incomes over €200,000) pay over a quarter of income tax and USC (Universal Social Charge), while those earning over €100,000 (the top 7%) pay half, according to the Irish Tax Institute.

Tax avoidance windfalls that have boosted Irish corporation tax receipts since 2015 may well evaporate in coming years requiring new tax sources. 

Ireland has a public debt of over €200bn. The net public debt percentage of Modified GNI is 90%. This compares with net public debt ratios to GDP (gross domestic product): Sweden 5%; Denmark 13%; Finland 24% and Norway has a massive sovereign wealth fund.  

Sweden like Ireland faces a housing crisis and construction prices there are the highest in the EU. It is approximately 70% more expensive to build housing in Sweden than the European average.

While Ireland's population has increased more than a half-million in the past 10 years, Sweden's population has risen by one million people over the last 10 years, from 9.25m to 10.23m and it is projected to increase to over 11m within the next 10 years.

According to, The State of Housing in the EU 2019,  1) Stockholm has a rental crisis and Sweden provides no social housing 2)  "The highest proportion of social housing in Denmark is situated in suburban areas. Social housing makes up about  20% of the housing market in the capital Copenhagen, and 28% in the second-largest city, Aarhus. Currently, there is a shortage of social housing in the City of Copenhagen and the waiting lists for housing units are long 3) Social housing accounts for 12% of Finland's housing stock and dwellings per 1,000 inhabitants are above 600, which is high.

Conclusion

To make a significant difference in housing and health a new government would have to be ready to ramp up investments. It would also need to take on vested interests.

Related

Irish Housing Facts: Portugal has highest dwellings per 1,000 inhabitants

Taxing High Incomes: A Comparison of 41 Countries