Economists may argue about the appropriateness of tax reductions in the current economic climate. Certainly the trend in individual tax rates in Ireland is downwards. With a record number of returning emigrants and foreign workers entering Ireland, a hot topic of conversation for many is how does the Irish taxpayer fare out by comparison to his overseas counterpart.
Using income levels of £30,000 (€38,092) and £60,000, for both a single person and a married couple with three children (one spouse working), a comparison of the Irish tax burden with five other European countries, the US and Canada, is revealing.
Married couple: For a married couple with one spouse working, on an income of £30,000, Ireland comes second, behind the US, in highest after-tax incomes. This couple currently pays about 19 per cent of their income in tax/PRSI. A similar couple in Britain would pay approximately 25 per cent.
Interestingly, if the amount that the Government "gives back" in the form of child benefit was added in, this Irish couple would come out on top. On a £60,000 income, Ireland drops to fourth place, with the couple paying approximately 34 per cent of their income in tax/PRSI, behind the US (24 per cent), the UK (30 per cent) and France (31 per cent).
Post Budget, income taken by tax/PRSI will drop to about 15.4 per cent on £30,000 and to about 30.3 per cent on £60,000 (based on a hypothetical 12month tax year with corresponding PRSI deductions. The coming tax year will last nine months, as it changes to a calendar year from January 2002).
Five years ago, this Irish couple would have seen almost 32 per cent of a £30,000 income disappear in tax/PRSI, and 41 per cent of a £60,000 income.
Single person: Before the Budget changes, the single taxpayer earning £30,000 takes home about 67.3 per cent of his income after deduction of tax/PRSI. Five years ago, he would only have kept 58 per cent.
He comes out ahead of his counterparts in the euro zone and the Czech Republic, and his take-home pay is only about £15 per month less than a similar taxpayer in Vancouver, Canada. But this single worker lags significantly behind the UK, where he would keep approximately 7.3 per cent more of his gross income, and the US, where his take-home pay would be about 8.3 per cent more than in Ireland.
A similar picture emerges for a single tax payer on £60,000 where, before the Budget tax reductions, Ireland stays fourth in this league. Post Budget, his take-home pay will rise from about 60.5 per cent to about 63.6 per cent. Interestingly, the UK has announced that its tax rates and allowance charges will be in line with inflation from next April.
Other taxes: When people talk about comparative tax burdens, invariably they focus on income taxes. But many countries impose other annual taxes, such as property and wealth taxes.
Remuneration package: The structure of a remuneration package can also impact on the individual's overall tax burden. For example, an increasing number of employers are attempting to increase their employee's after-tax income through tax-favoured share incentives such as approved-profit-sharing schemes.
Cost of living: Remuneration levels are also affected by the prevailing economic climate in a country and Irish wage inflation is rising. A returning emigrant or overseas worker coming to Ireland should try to estimate gross income and then determine what sort of lifestyle they could afford here.
Social security entitlements: While employee social security contribution levels are lower in Ireland than in many European jurisdictions, the benefits payable in other countries are generally higher and often include an entitlement to a generous state-funded pension scheme.
The trend: The trend emerging is that, with the exception of the UK, Ireland generally compares well with the rest of Europe. But the US taxpayer still comes out ahead of many of his global counterparts in terms of after-tax income.
Mark Carter is with the Global HR Solutions group in PricewaterhouseCoopers. After-tax comparisons produced by RESOURCE, which facilitates cost projections for more than 120 countries. Further information at www.pwcglobal.com/ie
