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Thursday December 08, 2016 22:13 by pbp - People Before Profit
The Irish Times headline recently ran a headline, ‘Imposing French-style wealth tax would only yield €22m.
UCD sociologist Kieran Allen asked for a right to reply but received no response to his request. Here is his exposure of how journalism sometimes functions as propaganda.
The story is based on an ESRI Working Paper entitled ‘Scenarios and Distributional Implications of a Household Wealth Tax in Ireland’. The Irish Times lifts one or two figures from the paper but fails to give any context or critically examine the report.
The study draws its data from a Central Statistics Office publication, ‘Household Finance and Consumption Survey, 2013’ 2013, however, was the year when the Irish economy was still caught in the after-effects of the crash. Since then there has been a recovery in wealth.
The data from the CSO is based on self-reporting. They took a sample of 10,552 households and asked them to provide detailed information. The response rate was just 51.5%. and this reduced the validity of the data.
The rich are even more likely to hide their assets from an interviewer. The CSO recognised this problem and gave a health warning, stating that,
‘ It is well known from research in this area that it can be very difficult to get accurate data from very wealthy household, not least because they can sometimes be physically difficult to locate or contact. While these are obviously a small percentage of household, they tend to hold significant percentages of the wealth and their absence or otherwise affect the average and aggregate data’
This health warning is not explicitly referenced in the ESRI report.
The data the ESRI used excluded key sources of wealth. Its focus was exclusively on household wealth and it ignored the wealth held by publicly traded companies
On the basis of these largely unacknowledged limitations of the Household Finance and Consumption Survey, the ESRI came up with a figure of the net worth of Irish households of just €378 billion. The ESRI authors then claims that this figure represents ‘the maximum potential wealth tax base’.
This is quite simply wrong. The purpose of the Household and Finance Survey was to identify the distribution of assets – it did not give a figure for the total assets held. It could not because of the limited nature of self-reporting in its sample.
The ESRI claimed that 47% of the €378 billion wealth base or €226 billion is derived – from the value of the ‘household main residence’, typically the family home. They also claimed that only 12% of the wealth base or just €60 billion comes from finance assets.
Yet the National Accounts of the CSO state that the total financial assets of Irish households in 2013 was € 323 billion. These refer to non-property assets such as shares or cash. In other words, the ESRI were way out.
The ESRI ran a number of scenarios of how a wealth tax might work. The main variations are the thresholds of which the tax kicks in – do they start at assets valued at €500,000 or a €1million; for example; the exemptions that might be granted; the annual tax rate.
The Irish Times story only quoted a few examples that serve its propaganda purpose.
There is a French model which uses a graduated rate of 0.5% to 1.5% on thresholds above €1 million which yields the relatively low €22 million figure. Or there is a Swiss system that imposes a 0.25% wealth tax on all assets above €49,824.
The Irish Times spin is that you can either have a wealth tax which targets a rich minority and you will only raise a very limited amount. Or you can tax the majority to capture any significant revenue.
However, there are many other variations which did not feature in the their story.
One is the Norwegian model. If this were applied to Ireland, the ESRI paper acknowledged that it would yield €774 million in tax – even though its wealth tax rate is set at only 0.85%. This would also only hit the top 12% of the richest in Irish society. They would have to make annual average payment of just €3,637 to help provide public services.
This is hardly an onerous burden. If a higher tax rate was used and if we assume a far larger wealth base than the limited one claimed in the ESRI paper, even more revenue would be raised.
Social welfare recipients are under a legal compulsion to reveal their meagre assets and, if they are being means tested, their social welfare payments are systematically reduced according to these declaration. The most interesting part of the ESRI paper is the statement that these imputed reductions correspond ‘to annual net wealth rates of 5.2% on net wealth above €20,000; 10.4% above €30,000 and 21.8% above 40,000’.
Just so we are absolutely clear on this, lets translate that again.
If you are on social welfare and you declare ownership of modest assets of €40,000 plus you will be penalised with a 21.8% reduction in your social welfare.
A genuine left government would transfer this type of punitive measure from the poor to the rich. The rich would at last be forced to make real declarations of their assets – not voluntary disclosures. A tax model would be set to target the top 10% and a policy of re-distribution of wealth would be established.
Given this approach, the readership of the Irish Times can be assured that the tax take from their friends wealthy would greatly exceed €22 million