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McCreevy Speaks Out Against High Taxes

by Ulrika Lomas, for, London

13 February 2007

Speaking on Friday at the Irish Taxation Institute/Revenue Commissioners Joint Conference, Internal Market Commissioner, Charlie McCreevy outlined his position on taxation within the European Union, suggesting that 'higher taxes feed fatter government'.

He told those attending the conference in Kilkenny that:

"As you know, taxation doesn’t fall directly within my own specific field of responsibility in Brussels but, inevitably, I retain a strong interest in the subject and as a member of the Lisbon Group of Commissioners on competitiveness, it is a topic that comes up in discussion."

"The work you do is critical to economic growth and competitiveness. In addition to your traditional role in tax collection and compliance, I have noted too with interest your important work in Irish and European tax policy affairs."

"I would like this evening to address some of the broader, more political topics and specifically to talk about why I believe that low taxation and tax competition act as a spur to overall economic growth and efficiency."

He continued:

"Some see taxation as a means of making society more equal. Of levelling down. Of limiting the upside rewards that go with taking risk or working hard. I don’t. I see it as necessary to help those who can’t help themselves and to provide services or infrastructure that is necessary for economic development but that the market alone can’t economically provide. I don’t see taxation as meritorious in its own right."

"I believe taxes – of all kinds - should be kept as low as possible and that the pressure to get them down should be relentless. I believe also, where there is a choice on how to levy taxes, preference should be given to levying them on spending. Taxes on income are taxes on effort, work and entrepreneurship. Taxes on capital are taxes on investment and risk taking. But it is effort, work, entrepreneurship, investment and risk taking that we need to continue to grow our economic base."

"And it is that growth that generates the incremental tax revenues that finance sustainable improvements in welfare."

"It was when taxes on income were raised and the thresholds at which they became payable were lowered that Ireland’s economy and public finances came close to basket case status. When capital taxes on wealth creation and entrepreneurship proliferated non-compliance proliferated with it, and wealth and jobs were driven out. In fact the tax revenues that some of those taxes generated were barely adequate to cover the cost of collecting them."

The Internal Market Commissioner went on to announce that:

"I am glad to see...that over the past two years there has been some momentum for tax reform in at least parts of highly taxed Europe. Initial steps to reduce the burden have been taken. The benefits are beginning to show. Recovery is in evidence and the relevant domestic stock markets have picked up."

"Recovery may have been uncertain at first but now there is clear evidence of a worthwhile and balanced recovery in investment, consumption, exports, jobs AND in the public finances. In some places it can be hard to get the message across. But it is clear that other things being equal investment will flow to where after tax returns are highest, and jobs will be created where investment is highest. The effective tax rate is clearly an important element in determining the net return on investment."

"But getting taxes down is not easy because so much of public spending is deeply embedded. Generally, it requires hard choices. When you look at the composition of public spending in any country, you see that the vast majority of it is on health, social welfare, education, housing, and transportation. And when you look at the administrative cost of running the public sector, the vast majority of it is in the form of pay. Reducing social provision is anathema to any government. As to reducing bureaucracy, there are so many rigidities in the system that without real incentives, strong leadership, and carefully cultivated cultural change it can be very difficult."

Mr McCreevy reiterated the stance, expressed by the Irish Department of Finance this week, regarding tax harmonization within the European Union, and concluded by announcing that:

" I know that the Institute of Taxation and its 5,500 members are centrally involved in advancing a fair, competitive tax system. In your day-to-day role as tax advisers you are aware of the positive impact low tax measures can have. This is why your continued input and contribution is to be welcomed and respected. Your role in education, your contribution to national and European debate, be it at budget time, or indeed on topics like the CCCTB, mark you out as a key contributor."

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