THE FRENCH MINISTER of Finance under King Louis XIV, Jean-Baptiste Colbert, put it famously well when he said that “The art of taxation consists in so plucking the goose as to obtain the largest amount of feathers with the least possible amount of hissing.”
Income tax is the largest source of revenue for the state, yielding €10.8 billion so far this year, fully a third of all money raised by the Exchequer. Historically, however, it is one of the youngest taxes levied on a population. Originally income taxes were raised as an emergency measure to fund the fighting of wars, with the first income tax in Britain introduced in 1799 to fund the Napoleonic Wars. The tax was abolished in 1816, a year after the Battle of Waterloo; and tax records were burned publicly by popular demand.
The United States got its first income tax in 1861 to help fund the civil war, but the modern version of the federal tax wasn’t introduced until 1913. Following Colbert’s theory, the tax code in the US is said to now have more pages than the Bible but contains no good news.
Pay As You Earn (PAYE) income tax is an adherent to Colbert’s famous maxim, taking the tax slowly over the year rather than in one big lump as the self employed and taxpayers in other countries, such as the US, do. Perhaps it’s correlation more than causation, but it’s worth noting that people who write one cheque to the government for the full annual amount after putting their tax money aside for the year tend to be more anti-tax than those who receive their income with the taxes already levied.
In any event, it’s often difficult to sit down and look at the full picture of what the government takes and then spends your money on. In the UK the Conservative Chancellor of the Exchequer, George Osborne, is introducing a statement to be sent to each and every taxpayer outlining how much of their money was spent on what by the government. Such proposals haven’t met much success in Ireland, but PublicPolicy.ie has put together a rather interesting calculator that does much the same job.
We collect more income tax now than we did before the Celtic Tiger breathed its last, despite there being far fewer at work. The average salary is around €36,000 per year, and a PAYE worker will pay €7,850 in income tax; an effective rate of 21.8 per cent. It’s interesting to look at how the government spends that money on a personal level. You can work out your own tax figure and think about it, but we’ll use here the example of the average.
It’s perhaps an indignity to consider that €49.22 goes towards paying the Revenue Commissioners themselves; more than the €41.06 the average earner spends on prisons or the €47.81 on capital spending for construction of new schools.
We mostly all have a TV License, and if not we’ll be paying the €160 per year Broadcast Charge pretty soon. It may or may not surprise one to know then that an additional €31 of income tax is spent on broadcasting. The government is fond of double taxation like that. €164.08 goes on land transport – the roads and so on – atop all the money levied in motor taxes, from vehicle registration and excise and VAT atop fuel.
You may recall government ministers chiding us for expecting a service for free when raising objections to paying water charges. Except, Water Services account for €42.16 of the average earners tax bill already. One doubts if it will be offset against the impending charge.
The average earner is paying €0.79 for the pleasure of keeping open the Public Appointments Service, which is odd considering that there’s meant to be a recruitment freeze on. Still, less than a euro sounds reasonable… Until you consider that the fire service is only getting €0.71 to run its fire trucks and ambulances, which are very much in demand.
Social protection is the largest single area of spending, eating up €2,603.09 of the total tax bill. The state pension is costing €808.55 and income and employment supports €818.52, while illness, disability and carers’ allowances are costing €415.86
It’s interesting to consider how much one is paying into social protection versus what one might take out over a lifetime. Keeping to constant prices, a person who stays in and around the average salary over a 55 year working lifetime will contribute a little under €44,500 to the state pension via income tax, enough to fund under four years of pension payouts. Of course, atop income tax there is 4 per cent PRSI and employers contribute a further 10.75 per cent to the social fund.
Still, it is interesting to consider in this context the debate that we might have to pay more for our retirement in the future. There are more people collecting money from the welfare state today than there are people working to pay income taxes to fund it.
Health is the next largest bill, €1,807.25 of the total tax take. Individuals who have private health insurance that is being driven up in cost by a government insisting that they pay “full market rate” should they find themselves in a public hospital have good cause to point to their income tax bill and say they’re already paying quite a bit for the bed, thank you very much.
Third largest among the segments of government spending is education, at €1,108.45 per year. Spending on education has come down by €228 million so far this year compared to last, smart economy howareya.
The fourth largest spending head costs €1,029.79; far ahead of the next largest area, security, at €391.44; or the next again, economic supports at €272.66
This grand that the average earner is dropping is on servicing the national debt. Some 23 per cent of that €208 billion in government debt is due to the bank bailouts, with the interest there about equatable to what one is spending on infrastructure. Most of the rest of the interest bill is on debts accrued to run the deficits in recent years, highlighting just how crippling the failure to really address government spending – which is down only 2 per cent this year versus 2007 – is to our economy.
The interest bill will increase next year, and the year after, and the year after that. It is dead money that every taxpayer is saddled with paying for the pleasure of political expediency in refusing to deal with our crisis properly over the past five years. That thousand euros is what you’re contributing to the vain and usually futile political campaigns of our ruling class to keep their poll numbers from sliding too far into the abyss.
Tax is not an option. It is the price we pay to live in a civilized society. It is also easy to say that you would cut something that is unimportant to you but vital to another. Nevertheless, it is worthwhile taking the conversation about government spending away from the abstract of millions and billions and down to the level of more individual contributions.
I recommend that you take a look at the PublicPolicy.ie calculator and use it to help frame some of your thinking as we enter the terminal weeks before budget day. It would also be nice if the government itself would provide us with such details of how it spends our money, rather than having to rely on a private think tank to do the work.
Aaron McKenna is a businessman and a columnist for TheJournal.ie. He is also involved in activism in his local area. You can find out more about him at aaronmckenna.com or follow him on Twitter @aaronmckenna. To read more columns by Aaron click here.
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