The Sinn Fein manifesto

Feb 03, 2020

Last Tuesday’s publication of the Sinn Fein election manifesto was met with the usual howls of derision from their political opponents.  You’d be disappointed if it were otherwise.

The Sinn Fein manifesto is provoking extreme responses which was possibly its intention.  Its ideology is firmly rooted in socialist ideas which haven’t the same electoral support here as Labour has in the UK.  Their manifesto out-Corbyns Corbyn.  When he was running for election in the UK last year, Jeremy Corbyn only wanted a 50% percent income tax on the wealthy.  The authors of the Sinn Fein manifesto would probably see that as a half-hearted aspiration.  They want earnings over €140,000 to be taxed at a combined rate of 57%.  That’s 4% PRSI, 8% USC, 40% Income Tax and a 5% high income levy.

Just because a particular ideology might not sit well with a majority of the electorate does not mean that it is wrong.  Any form of taxation is essentially about redistribution.  It's about moving income from one cohort of society to another, or towards investing in and sustaining services which are available to all cohorts of society. 

Devising tax policy is tricky not because of having to set rates nor indeed because of having to decide which and whose money should be taxed.  What makes it tricky is the need to ensure that the policy can be sustained.  When the financial collapse a decade ago led to a collapse in property valuations, property transactions, and hence the tax yield from the construction and banking sectors, we learnt to our cost what happens when tax policy isn’t sustainable.

Politicians can set up the tax system in almost any way they want and be reasonably assured that it will work in year one.  It is not a secret how such tinkering can be achieved.  Each year the Revenue Commissioners publish a “ready reckoner”, explaining the impact to Exchequer receipts from increases and decreases to the various bands and rates of tax. 

It would for example be possible for a new Finance Minister to double the rate of Capital Gains Tax this year to 66%.  The ready reckoner says that every percentage point change affects the yield by €33m, so that in theory should generate an additional €1billion or so.  This could be used to eliminate local property tax and still have plenty of spare change to reduce the pensions age, so the minister can claim that the figures add up.  He or she might be right in 2020 but would certainly be wrong in 2021 or 2022.  People would look for ways around such a confiscatory tax, or simply defer sales of capital assets in the hope of better days. 

The biggest ticket tax item in the Sinn Fein manifesto, restricting retrospectively the tax allowances available to companies for intellectual property, is at best a cash flow advantage.  It is not a new or additional tax.  Their proposal for a high income levy will create what is known in the UK as the cruise ship point – when it’s no longer worth your while after tax to earn more and you may as well go on holiday.  A vacant site levy of 15% may well bring in an additional €100 million or so in the first year, but what happens when the levy starts to work and the number of vacant sites drops off?

For businesses, the mooted 15.75% rate of employer PRSI on incomes over €100,000 will create a pay ceiling beyond which few employers will venture.  And will companies be reassured of the commitment to the 12.5% rate in the Sinn Féin manifesto?  Their own Stormont Finance Minister Conor Murphy announced ten days ago that he is not actively pursuing a 12.5% rate for Northern Ireland, although he has the devolved power to do so.

Let’s set aside any objections on ideological grounds.  The problem with the tax proposals in the Sinn Fein manifesto is that they are not sustainable.  They would bring in additional money in year one, but not in years two three or four. 

All this is a pity because there is much in the Sinn Fein manifesto to like.  They have got the right idea for instance about carbon tax and the futility of increasing it without providing credible fuel usage alternatives. 

The current Sinn Fein election manifesto harks back to their manifesto in the run-up to the 2011 General election.  Ireland was a different place back then.  Unemployment was soaring, the national debt was mounting, tax receipts had fallen off a cliff and international creditors were calling many of the shots.  However the core ideas in the Sinn Fein manifesto are the same now as they were a decade ago – higher taxation on a small proportion of individuals, extensive tax reliefs for cohorts of workers on the lower income brackets, and a significant increase in public sector day-to-day spending. 

Ireland has moved on. The Sinn Fein manifesto needs to as well. 

 

Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland