More than 120,000 workers across the State will be pushed into higher tax bands next January, with the largest burden to be borne by middle-income earners.
As incomes continue to rise, almost 65,000 workers will find themselves paying income tax at the higher rate of 40 per cent next January, unless the Government makes an adjustment in this October’s budget, according to new figures from the Revenue Commissioners.
Not only that, but a further 57,600 workers will also find themselves paying income tax for the first time as they are pushed into the standard-rate band, with the number of income tax exempt workers shrinking.
Published on Friday, the Revenue has given estimates on the numbers paying tax – and how much tax they’ll pay come January – ahead of October’s budget.
The figures show that if no change is made on October 9th, then a further 64,200 workers will start paying tax at a rate of 40 per cent on some of their income for the first time.
This push will mean that top tax rate workers would then account for 22 per cent of all taxpayers, up from 21 per cent in 2017 and 20 per cent in 2016, as the burden on middle-income earners, or the so-called squeezed middle, intensifies.
Almost 20,000 of these higher-rate workers will also be pushed into the higher rate of universal social charge (USC), with income of €70,044.01 or more levied at a rate of 8 per cent.
Lower incomes
Income earners who have also previously avoided paying income tax, thanks to repeated efforts in recent years to keep as many as a million workers out of the tax net, will also find themselves paying income tax for perhaps the first time come January.
The figures show that income increases mean that 1.186 million workers will pay tax at the standard rate in 2019, up by 57,600 from 1.128 million in 2018. In addition, almost 70,000 additional workers will also pay USC at the 4.75 per cent rate.
As a result of wage inflation, the number of income earners outside of the tax net could drop, down by 14,600 to some 941,600, with income tax exempt workers then accounting for 35 per cent of taxpayers.
This compares with 37 per cent last year, and is a sharp decrease on the 45 per cent of income earners who paid no tax in 2010.
Budget 2019
But of course workers may see their taxes actually decline next January depending on what strategy the Government opts to take on October 9th. With only about €800 million or so to spend on the day, it’s unlikely to herald a significant decrease in the tax burden.
Some of the options – and the costs – are outlined in the Revenue's report. Should Minister for Finance Paschal Donohoe look to keep more people out of the 40 per cent tax net, for example, he could widen the tax bands, and adjust them for inflation. Ireland's tax regime has frequently been criticised for bringing workers into the higher-rate tax net at a much lower income than other developed countries.
Increasing the level at which people first enter the top-rate tax band by €1,000 from an income of €34,550 to €35,550 would cost the exchequer €213 million on a full-year basis, or €316 million if the Government opts for an adjustment of €1,500. Pushing it up by just €100 per worker would cost just €22 million.
Increasing tax credits could also keep workers out of tax bands; increasing the single person’s credit by €100, for example, would cost €92 million in a full year.
A more costly approach would be to cut the actual rates of taxation. A 1 per cent cut to the 40 per cent rate, for example, would cost €348 million on a full-year basis, or €660 million if the 20 per cent rate is cut back to 19 per cent.
Revenue raisers
To pay for any reductions in personal taxation, Mr Donohoe could consider revenue-raising measures elsewhere. For example, bringing stamp duty on house sales up from 1 per cent to 1.5 per cent would bring in €84 million, the Revenue’s report shows, while bringing the 9 per cent rate of VAT up to 10 per cent would bring in a further €133 million.
There could also be potential additional revenue from the mooted change in how property tax is to be calculated. A €100 increase in each property across the country, for example, would bring in €181 million a year.
