THE GERMAN ECONOMIST Peter Bofinger has said that countries like Ireland, the United States and Japan should follow Germany’s lead in order to make their way out of the debt crisis.
Writing in Der Spiegel he said that the problem in our country is that taxes are too low, that taxes should be slowly raised, and that the rich should pay more.
Bofinger identified Ireland as one of the OECD countries with the largest deficits, and said that the problems in balancing the books lie squarely in revenue. He said that government revenues only amount to about one third of GDP, which puts them at the bottom of the OECD scale, when countries with higher taxes have the lowest budget deficits.
Germany’s public revenues account for about 43 per cent of GDP, and Bofinger – who is a member of the government appointed economic panel known as the ‘Five Wise Men’ – said that Ireland should at least strive to reach this level.
According to the economist Ireland’s budget deficit (as a percentage of GDP) would go from a current level of -10.1 to -2.3 if revenue levels were the same as Germany’s.
Bofinger said that those who “benefited most from the – in retrospect undesirable – developments of the boom years” should now be made to pay higher taxes. He said that both income tax and capital gains tax changes could help to boost the government coffers.
Last month, a proposal to raise taxes in Germany for those earning more than €100,000 was shot down by coalition partners FDP. A spokesperson for FDP said:
Tax rises for the aspiring middle class of our country are nothing but a brake on social advancement by means of tax law.
Bloomberg reports that the German government has agreed in principle to grant tax relief for low and middle-income earners from 2013. The Free Democratic Party won 14.6 per cent of the vote in the election in 2009 on the back of campaign promises of lower taxes.
Ireland’s low corporate tax rate has attracted criticism from Germany and France in recent months, however a lowering of the rate is now off the agenda.
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