Inequality maintained

The poorest families in the state hand over one fifth of their weekly income to the Government through indirect taxation, while top earners part with just 10 per cent of their earnings.

With Ireland's indirect taxation rate recorded as one of the highest in Europe, 10 percentage points higher than the EU average, everyone is paying more for goods and services, but lower income families lose 20.8 per cent of their weekly income in this way while top earners lose just 9.6 per cent.

These findings arise from a study currently underway by the Economic and Social Research Institute (ESRI) and Farrell Grant Sparks on behalf of the Combat Poverty Agency, entitled The Distributional Impact of Ireland's Indirect Tax System.

"Our research is showing that the indirect tax system takes a proportionately greater amount from those on lower incomes compared to the top earners", said Alan Barrett, co-author of the report.

There was a degree of scepticism among some members of government when a recent EU survey revealed one in 10 people are living in poverty in Ireland and almost a quarter of the population are at risk of poverty. These findings are not so far-fetched when considered in light of this current research.

Low income tax rates may result in healthier-looking paychecks, but indirect taxation takes a significant toll on a family's weekly income, with the lower income earners shouldering most of the burden.

VAT on goods and services, excise duty on items like alcohol, petrol and tobacco and stamp duties on property, accounted for €16 billion of the €33 billion take in tax receipts for 2004. Income tax accounted for only 10 billion.

"Poor people don't necessarily have a job or they may be on very low incomes, so there is no point talking about how tax breaks and tax credits benefit them in the budget", said Barrett. "We need to shine the light on the hidden costs of indirect taxation".

The Government has made much of the fact that the benefits of recent budgets have been skewed more towards lower income groups. But 12 out of the last 15 budgets have favoured top income earners, according to ESRI analysis.

Last year, the Irish Congress of Trade Unions (ICTU) launched an attack on the Irish tax system saying: "Our tax system is fundamentally unjust ... It is biased against those on low and middle incomes and it does not raise enough tax overall to pay for modern public services."

It cites a survey done by the Department of Finance Tax Strategy Group showing that out of the top 400 earners in Ireland, 29 of these people pay no tax at all, 88 paid under a 30 per cent tax rate, 231 paid between 30 and 44 per cent.

"These high earners managed to avoid paying taxes – totally in many cases – by engaging in legal avoidance schemes such as owning racehorses, or owning property", wrote Paul Sweeney from ICTU.

Brian Cowen, the Minister for Finance, is accused by the opposition parties of being half-hearted in closing down tax avoidance loopholes. In the December budget, he promised to launch a detailed review of tax exemptions and incentives. The process of organising this has just begun as the Department is now looking at appointing consultants to carry out this review.

In responding to the EU findings on poverty, Seamus Brennan, Minister for Social and Family Affairs said that €12.2 billion will be spent on social welfare, amounting to one in every three euro spent by the state this year. But if the ESRI claims are true, it means that much of this will be recycled back into the exchequer in the form of indirect taxation, while the top earners use the tax system to ensure that just 9.6 per cent of their income is absorbed in this way.

Economists have argued that the tax and welfare system is the key to a more equal society. Studies have shown that Ireland continues to be one of the most unequal countries in the world because of its inequitable tax system, according to ICTU.