Andy: It’s Wealth, as Much As Income, That Is a Taxing Issue

If you have a job at one of Ireland’s top 20 companies, then your salary grew by an average of 2.5 percent in the last financial year. The average pay package of chief executives of those companies rose by 5.25 percent over the same period.

The figures, produced by the Irish Times, suggest the earnings disparity between the titans of industry and worker drones is growing less sharply than in either the US or the UK.

But it is still growing.

Does it matter though? After all, a 2.5 percent pay increase is better than nothing, so why worry that those at the top are doing even better? (The 2.5 percent figure mirrors the estimate from the Irish Business and Employers Confederation for wage rises for the economy as a whole.)

Well, it does matter when Irish rents rose by more than 12 percent in the year to June 2018 (by more than 13 percent in Dublin) – despite the posited, but loopholey, 4 percent cap on rent increases in some areas. A modest pay increase counts for little when the cost of keeping a roof over your head is rising by a multiple of it.

It’s not just employees affected by these trends. Students are too. (The categories may overlap sometimes.)

Daft.ie reports that most students are being priced out of expensive new student accommodation complexes, which are only affordable to the richest students, and are having to compete for inadequate supply of affordable rental properties with everyone else.

The Irish League of Credit Unions reports an unsurprising increase in the proportion of third-level students living at home to avoid those spiralling rental costs.

Most parents’ cost burdens – including debt accrual, and the doubtless large psychological costs of their children “failing to launch” – are still rising to help finance their children’s education.

However, for some people there are ways of avoiding, or at least mitigating, these problems. I know of a man from rural Ireland who has recently bought a two-bed apartment in central Dublin for his two children who are about to go to college in Dublin.

It is a big up-front cost – over €350,000 – but assuming the kids concerned would otherwise have been paying rent for at least 3 years, he can only lose money if the property value plummets. The likelihood is he will save both the dead-weight rent costs and turn a substantial profit at the end, and fair play to him.

But what the example illustrates is that you can cope with modestly growing incomes and costs, like rent, that are rising more quickly, if you have wealth amassed in the form of savings, property or some other vehicle. Share options, say, if you’re among the aforementioned chief executives.

Yet wealth features surprisingly little in most debates about Irish economic and budgetary policy where the focus tends to be on whether income taxes should be raised or lowered.

But wealth, which is a largely fixed stock whereas income is a variable flow, matters a great deal. A new report by Tom McDonnell (full disclosure: a friend of mine) of the Nevin Economic Research Institute makes an important intervention here.

He argues that, “There is a strong case for broadening the tax base to include an annual wealth tax.” At present, the only wealth taxed here is in the form of property.

McDonnell’s extremely modest proposal is for a low-rate tax that would impact only between 1 and 2 percent of households, and yet still generate a yield of at least €250 million a year.

This may seem like a limited return. But just think what it could do to help tackle, say, the immediate problem of homelessness.

And there are wider ethical issues at play here. Much wealth may be earned, but much is also inherited: why should those lucky enough to be born into wealthy families, through no genius of their own, not be expected to make a greater contribution to the wider welfare of society?