Wednesday, October 17, 2007

Funding local government.

Michael Taft has been doing a series on how to raise taxes. One of the points he makes is that the tax take for local government is too low. To me the problem is local government.

Local government should be great it should be local people fixing issues on the ground with local know how, but it is not . For the simple reason that Ireland is Ireland. No on has any qualms about approaching a local cllr to ride rough shot over the local development. Can’t get your house built here, no prob have a word with the local rep. Now it might offer a model of politicians working for their constituenents which maybe a good thing, but it does go against any attempts for detailed planning. Also looking at the tribunels a lot of the issues come from the local councillors. In a small country where everyone is willing to do a mate a good turn. Local government just gets fecked.

But if we are going to have it, do we tax at a local level. I live in the UK and as such have to pay council tax. Council tax is paid based on the perceived value of your home, which is dictated by where you live. Thing is people’s income is not broken down by where they live, With the boom in construction many places many people now live in homes of great value which they could not buy if they had to buy them on their present incomes. So by treating area’s as uniform earnings area’s you are penalising many people for not selling up.

Tax should be progressive, the more you earn the more you should pay. This is one of the reasons I dislike VAT and carbon tax. They hit the poor the hardest in an ideal world all tax would be raised based on earnings. But we do not live in a ideal world. If we dropped VAT totally then how many retailers would reduce their prices to un VAT levels?

But if we do care about progressive tax, then we need not to introduce a council tax. Most forms of council tax be they local VAT rates or flat fees evolve regressive taxation Not something we should be pursuing. And if the solution is a local income tax. Why not just take it from income tax anyway.


Eamonn said...

The general principle behind tax is that a person is charged based on their ability to pay.The standard means of determining that ability is to look at how much a person earns. In your case Simon, you're ability to pay council tax in the UK is determined by where you live.

You're claiming here that that is a problematic means of accessment and I would tend to agree with you. However, i believe that it is the case that looking at how much money a person makes is equally problematic and can also give rise to unfairness.

Bottom line, there's no perfect way of determining how much tax you should pay and where you live is as good an indicator as any imho, as its a reflection of how much you earn.

Tomaltach said...

VAT is not a progressive tax - neither is it a strongly regressive tax. A regressive tax is one where the effective tax rate decreases as the amount or measure of the thing being taxed increases. Say a poll tax or fixed water charges. No mater how much you earn, spend or use, the amount paid is the same.

VAT can be argued to be a proportional tax. So the more you spend the more tax you pay. Rich people spend way more, so they pay more VAT. If they save, those savings one day will be spent - and again VAT will be levied.
There are of course ways around some of this and probably the best way to put it is that VAT is a mildly regressive Tax.

You mentioned local income taxes, and asked why bother since there are income taxes anyway. Well. No. In the US there are state and city income taxes. In France there are local income and property taxes. The idea is they vary depending on the needs of the region. And there is a definite link between what people pay and what they 'enjoy' in their own area by way of services. This puts more responsiblity on local government to get things right. It also means that certain areas may face higher charges - if you lived in a mountainous region which needs frequenct clearing of snow or whatever. Or a city with higher water charges because the source is far away. But these matters could be evened out by way of a federal /state by exceptional subsidies to make the playing field more level. It wouldn't mean that taxes are the same everywhere (that would defeat the purpose) but it would mean that no one would be unduly punished for living in an area with an unavoidably higher cost base.