Ireland’s low tax revenue compared to peer countries is accounted for by relatively low levels of tax paid by those at the lower end of the income spectrum, according to a study published today by the Economic and Social Research Institute.
Those on higher incomes in Ireland pay proportionately similar amounts of tax to their better-off counterparts in high-tax countries such as Germany and the Nordics. As such, the research finds that there is "rather limited scope for tax increases on incomes above €100,000 to contribute to a substantial upward shift in the tax ratio".
Policy choices
More specifically, it notes that a new income tax band of 48 per cent for those earning more than €100,000 would raise just 0.3 per cent of gross national product.
The paper is designed to provide research material on Government policy choices ahead of the budget. Its analysis reveals that higher income earners face the third-highest marginal effective tax rate among the 15 richer EU states included in the study.
By contrast, those on lower incomes are among the most lightly taxed in the group of 15 countries.
“This indicates that higher earners face a higher disincentive to earn more, through increased work hours or work effort,” the report states.
Ireland’s highest combined tax rates on personal income – at 55 per cent for the self-employed earning more than €100,000 and 52 per cent for all others – are the sixth- and seventh-highest respectively among the 15 countries.
Luxembourg is lowest at 43 per cent, while Belgium is highest at 59 per cent.
Marginal rates
Ireland is the only State apart from Belgium where the highest marginal rates kick in at average income levels. In the UK, the highest rate applies only when income is more than four times the average, while in Spain it is as high as 12 times the average.
The study criticises subjecting self-employed people to a higher marginal tax rate than those in salaried employment.
The paper also finds that those in the top 20 per cent of earners here pay more tax than their British counterparts, while the remaining 80 per cent are more lightly taxed than the same grouping in Britain.
The study concludes: “If Irish income taxes were to approach European levels, it is likely that marginal tax rates in low to middle-income ranges would have to rise.”
