- Ireland is an above average income tax economy with a social insurance (SI) model of low rates but high redistribution. Core taxation (that which funds services such as health and education) in Ireland is slightly above the European average, 9th out of 28 countries. We do, however, pay less SI than average. Simple comparisons as a proportion of GDP do not reflect the stark structural difference between different models of SI. Higher social contributions in other European countries benefit those who pay into them directly. They are not redistributive and are in some cases, for example Sweden’s pension system, regressive. The Irish system levies lower rates overall but redistributes those benefits to poorer households.
- Ireland government spending adjusted for demographics is above the European average. The absolute sum of the difference between Irish government expenditure and that of other EU countries is accounted for by lower expenditure on pensions. This is because Ireland has by far the youngest population in Europe. Ireland spends above the European average on health and working age benefits. However, we spend below the EU average in education and investment.
- Tax on work has increased significantly in recent years and is economically damaging. Income taxation in Ireland, at 40% of total taxation, is the 5th highest in the EU. This is far from ideal. There is a weight of evidence which shows that excess labour taxation slows economic growth through its negative effects on productivity and labour market incentives.
- Ireland’s higher marginal income tax rates at average incomes are a big labour market issue. About 50% of Irish workers’ pay the top marginal rate of income tax. This means that while only 12.4% of UK workers face losing more than 50c from a €1 pay increase through tax and benefit withdrawals; the corresponding figure in Ireland is 39%. This is causing serious issues for Irish employers in rewarding and incentivising workers.
- Ireland’s tax base is excessively narrow with only the top three household income deciles net contributors to the state. Under Ireland’s tax credit system 32% of all income tax cases end up paying neither income tax nor USC. This compares poorly with our nearest neighbour the UK, where only 11% of income earners are exempt from income taxation. Abolishing the USC would exacerbate this and would be a mistake when a solution to the state’s looming pension’s crisis is needed.
Monday, 15 February 2016
- Rethinking the tax debate.pdf - 623 Kbytes