This blog was first drafted as the authors speaking notes for a forum ‘The Fiscal Social Contract: How Taxation can be Applied as a Tool for Social Good in Irish Society’, February 20, 2023 Royal Irish Academy.
Organisers of a Royal Irish Academy forum on taxation policy recently reflected how, ‘in the face of permacrises, there is an opportunity to rethink fiscal policy to ensure a social contract that delivers’. In my forthcoming book, Creating an ecosocial welfare future (Policy Press, May 2023), I explore how global inequality and social degradation, two sides of the same coin, need to be addressed simultaneously to meet the now existential challenge of survival, particularly of the most vulnerable. This means reimagining the fiscal and social contract and the principle of reciprocity underlying it to meet the scale of the challenge. This requires openness and institutional or policy imagination as principles informing an ecosocial future (Unger 2009, Graeber and Wengrow 2021).
Arguments for increased revenue
The 2009 Commission on Taxation (CT) was established in the heat of the Great Financial Crisis and had in its terms of reference an explicit objective of a low tax economy and a principle of revenue neutrality. Such a revenue neutral policy locked Ireland into an unimaginative approach to meeting future societal challenges and limited Irish social development and cohesion. The more recent 2022 Commission on Tax and Welfare (CTW) adopted a net revenue raising approach making it clear that not only does Ireland have to increase revenue but that there are revenue policy choices that are consistent with sustainability – fiscal, social and environmental. This is most welcome.
However, the Government’s initial response to the 2022 CTW suggests that the older cognitive lock remains in place meaning a lack of social or environmental vision about the role of taxation in an ecosocial future that integrates social and environmental objectives in one policy tool, including in taxation tools. Ireland clearly needs to earn more revenue from taxation to fund public services and such revenue can be raised in line with social cohesion, intergenerational equity, carbon neutrality and ‘just transition’. Tax tools identified by CTW include:
- Broadening the tax base; taxing forms of wealth/income not currently being taxed; reducing reliefs or limiting, or removing, exemptions.
- Moving taxation away from taxes on labour towards taxes on capital, wealth and consumption.
- Ensuring taxation policy is consistent with carbon reduction and just transition.
- Increases in Capital Gains Tax (CGT), Capital Acquisitions Tax (CAT), taxes on land and property, site value taxes and taxes on inheritances/gifts.
Demand for a fiscal social contract
The Government’s adherence to a low tax model of political economy is not shared by two thirds of Irish citizens who not only support policies that reduce inequality but agree that the Government should increase taxes and use surplus to invest in public services (Muller and Regan, 2021, TASC, 2015). Fiscal consensus requires that citizens better understand the correlation between taxation and public services and can trust that revenue will be used to develop quality public services. Recent Citizens’ Assemblies on climate and gender equality showed commitment to increased taxes to generate funding for specific policy objectives including care.
Oxfam (2023) reflect that in recent global history, taxation of the richest was far higher. It finds that contemporary proposals to tax the rich and make billionaires pay their fair share are supported, not least because such taxes can reduce power and other class, racial and gender inequalities. The ECB and the IMF now share this analysis as do many of the richest. In 2022, 100 millionaires and billionaires signed the ‘In tax we trust’ petition for more tax on wealth. This is about choices. Nothing is inevitable.
Values informing a social settlement
The underlying principles of the 2022 CTW were sustainability, reciprocity, adequacy, equity and efficiency. All are needed to guide policy. The principle of reciprocity is particularly important in understanding the role of taxation in the context of a fiscal social contract, and a new ecosocial settlement. The CTW (2022) understand taxation and welfare systems as core elements of the social and fiscal contract. The principle of reciprocity informs how we pay for what we receive, and contribute to a greater good into a common pool we can all rely on and benefit from. There are many arguments for tax to be a social good. In human rights terms states are obliged to maximise available resources to progressively realise human rights. In a fiscal social contract ‘individual rights’ are yielded to Government for the sake of the collective interest. In the context of contemporary social challenges, we need to reformulate our understanding of the social contract less about individual rights and more on mutual interdependence and collective reciprocity.
This means reimagining of the social settlement (Coote, 2022) to meet the scale of social and environmental challenges we now face globally. We need to avoid narrow understandings of reciprocity (focused on ‘give and take’ or ‘individual rights and mutual obligations’), and work with wider interpretations about how taxation and welfare can contribute to a moral or care-centred economy which incorporates our global world, its people, nature and the planet.
Towards Fair Reciprocity
Central to human sociability, reciprocity as a principle implies freely receiving and caring for each other, even when strangers (Graeber and Wengrow, 2021, p 516); humanity and relationships flourish when people give as much as they receive. The pandemic experience highlighted how many thrive in reciprocal lives, doing things, including care, freely (Hickel, 2021; Solnit, 2016, p xv). Institutions and networks such as tax and welfare support our innovation and transformation, and are building blocks for nurturing values (Leicester, 2020, p 108).
Thinking differently about a social contract that promotes collective over individual freedom means seeing reciprocity as a collective concept, and promoting moral rationality and our mutual interdependence while thinking outside the box about the value of independence. This is consistent with underlying values of many world religions and belief systems including but not only Christianity which cautions against misuse of privilege and wealth, and against destructive selfishness (Linney, 2023).
White (2010) offers the concept of fair reciprocity as a guiding principle for policy, not only in the case of conditions for welfare eligibility but also against accumulation of wealth and a justification for a tax on inheritance, land value and wealth. He justifies the principle of contribution arguing that as long as expectations to contribute are reasonable, reciprocity is consistent with social rights. In this context, contributions are interpreted widely and include unpaid work including care work.
Widening the tax base
There is no doubt that combatting global warming and fundamentally overhauling infrastructure will be costly to both governments and citizens and will need to be funded by taxation, borrowing and diverting spending on alternatives. Central to the challenge is reimagining the funding of welfare without an underpinning assumption of economic growth. Taxation policy is located within power and political choices. While challenging, funding ecosocial welfare is affordable and realistic, particularly if we tax wealth and related high value consumption and limit corporate tax evasion. Wealth, in all its forms, also remains a source of inherited inequality (Pierson, 2021). Wealth taxation is both a mechanism for (re)distribution but also for revenue, replacing the taxes on labour that may be lost in the context of a shift to a post-growth economy and society (Fitzpatrick, 2014; Piketty, 2014; Pierson, 2021).
A new ecosocial future
A new ecosocial welfare future requires a reimagining of work, time, care, income and participation (Hirvilammi and Koch 2020, Gough 2017). It requires us to think differently about how tax policy can contribute to these goals; and can be used as a tool to address income and wealth inequality as drivers of carbon emissions. Revenue raising activities can fund a new ecosocial and non-productive approach to valuing social participation and forms of work not traditionally valued, including reciprocal care and nurturing our collective wellbeing.
Identifying how tax and welfare policy can better support our interdependent lives requires a focus on our collective rather than individual freedoms. Thinking in less binary and less individualistic ways helps us to understand real freedom as our ability to enhance collective wellbeing. This can also mean freedom from the market (Konczal, 2021), and tax policy can be appraised in this way. Prioritising collective solidarity over individual freedom allows us to approach social and climate justice as a collective endeavour based on our mutual interdependence and leads us towards universal basic services over tax reliefs that support private market provision.
Reciprocity, understood in this way, is not a burden but a necessary enabling function which helps us to live the best life that we can. The same can be said of taxation. Commitment to the care of others and our ecology has never been entirely voluntary and institutions have been historically necessary to nurture reciprocity and cooperation (Folbre, 2021, p 163). We need to see taxation as a valuable social institution and expression of reciprocity.
 The principle of adequacy and its practical realisation in institutional mechanisms for generous benchmarks and appropriate indexation mechanisms are vital for equality, as are proposals for individualisation of tax and welfare, essential for advancing women’s economic independence and gender equality