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Ireland Must Consider Tax Increases, Economist Warns

Posted on May 12, 2020

Irish politicians need to consider tax increases to help Ireland’s economy recover from the effects of COVID-19 over the next five years, according to the chair of the Irish Fiscal Advisory Council.

Sebastian Barnes, the council's chair and a head of division at the OECD Economics Department, said in an interview on RTÉ Radio 1’s "Morning Ireland" program that Irish politicians will be faced with difficult tax choices as the new government considers various economic recovery plans. He added that tax increases should not be ruled out because it is important for Ireland to maintain a strong, fair, and efficient tax base. “It would be a really good idea at this stage, given the pressures on public finances, to have a really good look at the tax system and make sure it works as well as it should,” Barnes said.

In a draft joint framework document published April 15, Fianna Fáil and Fine Gael invited other parties to unite with them to form a new coalition government. They set out 10 goals, such as universal healthcare, a new green deal, and an economic recovery package, which includes a freeze on income tax and universal social charge increases. The parties said that those issues, as well as other, related issues, must be addressed by a new government to help the country rebuild once the danger of the pandemic has abated.

However, Barnes highlighted how important Ireland’s income tax revenue, which accounts for up to one-third of the tax base, is to its economic stability. He said that political parties, including Fianna Fáil and Fine Gael, should consider a full range of choices when dealing with Ireland's economic recovery, especially given the politicians’ plans to deliver ambitious new programs.

Barnes said that the immediate priority is for the Irish government to continue supporting businesses and promoting jobs by providing liquidity support. He noted that even after the confinement measures have been lifted, demand will be very low and unemployment will be high. Therefore, Barnes recommended that any tax increases should be delayed until later on in the COVID-19 recovery process.

Barnes told Tax Notes that “taking options off the table now means any future fiscal adjustment might have to depend too heavily on other areas of tax or spending. It also increases the temptation to take more fiscal risks down the line by borrowing to avoid unpalatable choices.”

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