Tuesday 20 July 2010

Irish Tax Credits

'Tax Credits' in the UK are probably the worst kind of benefit imaginable, whether because of the complexity, the means testing (and discincentives to earning more or forming a stable relationship) or the opportunities for fraud.

While hunting for something else I stumbled across the Irish tax credits system, which was introduced in 2000-1 when they revamped their tax system. They ditched the nonsensical 5 April tax year end and replaced the personal allowance with 'tax credits' instead (so it's the same name for something completely opposite to UK tax credits).

To cut a long story, a single employee is entitled to € 3,660 tax credits every year. Income tax is calculated on every cent of income with no personal allowance, but as long as the income tax bill is less than an individual's tax credit entitlement, no tax is deducted.

That works out at €70 per week. At a glance, the Irish welfare system appears to be as mad as in the UK, but €70 a week is pretty close to unemployment benefit in the UK so let's use that for the purposes of this discussion.

So let's imagine that unemployment benefit were €70 a week and tax credits for people in jobs were €70 a week - would there be any need for a means test? Would it not make sense - in the interests of administrative simplicity if nothing else - just to give every resident adult - whether working, unemployed or studying - €70 a week, straight into their bank account, and have done with it?

It strikes me that this would be two-thirds of the way towards a Citizen's Income-type welfare system.

Further, like every civilised country apart from the UK, Ireland has joint taxation of married couples, i.e. a transferable personal allowance, i.e. gives a double tax credit to a married couple (presumably they can allocate this between them to minimise the PAYE deducted) so their system does not discriminate against married couples either.

But if the €70 were paid straight into every adult's bank account whether married or not, it would be entirely unnecessary for a Citizen's Income scheme to distinguish between single, in a relationship and married or in civil partnership. Hooray! Yet more simplification!

5 comments:

Anonymous said...

I think I like it.

I have been thinking for some time of a system where the government provides every adult citizen essentially a minimum wage for food, accommodation and health.

That's their duty to us. If that is sufficient for some people then that's fine. If others want more then they can go and get it without penalty therefore those who don't want to work don't and they move out of the way for those that do want to work.

Taxation needs to be changed as well. Perhaps a tax on all money transferred through bank accounts (in and out) on every transaction and do away with cash and personal income tax.

Anyway its a work in progress but any system can't be worse than the one we have at the moment.

business plan said...

I thought Ireland was insolvent. Where are they getting the money for these socialist
programs?

Mark Wadsworth said...

Anon, ta. I'm with Milton Friedman on this, the least bad taxes are taxes on land values and a flat tax on incomes (in that order).

AntiCitizenOne said...

A flat tax on income is a bad idea(no negative externality from working), and it's especially immoral to directly use it to fund someone elses income(as it's a form of slavery).

AntiCitizenOne said...

That's why I call for a citizens DIVIDEND funded by the LVT.