{"id":214203,"date":"2025-12-28T07:50:09","date_gmt":"2025-12-28T07:50:09","guid":{"rendered":"https:\/\/www.newsbeep.com\/ie\/214203\/"},"modified":"2025-12-28T07:50:09","modified_gmt":"2025-12-28T07:50:09","slug":"how-the-government-backed-itself-into-a-corner-on-income-tax-the-irish-times","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/ie\/214203\/","title":{"rendered":"How the Government backed itself into a corner on income tax \u2013 The Irish Times"},"content":{"rendered":"

Income tax<\/a> is a vexed subject. Most people believe one of two things: they are unfairly burdened or those at the top don\u2019t pay enough. <\/p>\n

The fact that most wealth here is tied up in property complicates matters. You might be earning a lot but shelling out a lot on rent or you might be earning very little but sitting on a valuable property asset. <\/p>\n

Perhaps the one point that everyone agrees on is that we don\u2019t get the public services to justify the relatively high taxes imposed on us. The D\u00e1il bike shed<\/a> controversy tapped into this sense of injustice. <\/p>\n

The higher 40 per cent income tax rate here is not and never has been the problem. Even when combined with universal social charge (USC), it\u2019s broadly comparable (and in many cases lower) than the top rates applied in other countries. <\/p>\n

The main source of rancour here is the low entry point to paying the higher rate, currently a modest \u20ac44,000, a level of annual income that is significantly lower than the State\u2019s median wage (\u20ac59,000).<\/p>\n

Austria charges a top rate of 55 per cent but only on income above \u20ac1 million; France charges 45 per cent but only on income above \u20ac160,336; Germany charges 45 per cent on income above \u20ac274,613; the UK (excluding Scotland) charges 45 per cent on income above \u00a3125,140.<\/p>\n

When you lump on USC and PRSI, Irish taxpayers pay personal tax (comprising income tax, USC and PRSI) at marginal rates of 48.5 per cent on salaries above \u20ac44,000 and 52 per cent on salaries above \u20ac70,000. <\/p>\n

Self-employed taxpayers pay marginal rates of 55 per cent on income above \u20ac100,000.<\/p>\n

There are several reports highlighting the lopsided nature of Ireland\u2019s income tax system now gathering dust in the Department of Finance.<\/p>\n

The latest, called Fiscal Vulnerabilities \u2013 Expanding costs, Narrowing Base<\/a>, was published alongside the department\u2019s latest exchequer returns and noted that the top 10 per cent of income earners here now generate 40 per cent of income tax receipts and 60 per cent of USC contributions.<\/p>\n

The converse is that earners in the bottom 50 per cent of income distribution generate just 10 per cent of income tax receipts and 5 per cent of USC.<\/p>\n

Even more striking is that about one-third of all income earners \u2013 equating to 1.2 million tax units (which can be an individual or a couple) \u2013 are effectively outside of the income tax net courtesy of the State\u2019s generous system of tax credits.<\/p>\n

There\u2019s really no real fix to this problem without causing a political earthquake, hence the inertia in Leinster House. <\/p>\n

Looping in more of those 1.2 million earners currently outside the tax net means hitting more people in low-paying service jobs who are most likely to be struggling to pay high rents as it is. <\/p>\n

[\u00a0Ireland\u2019s record-breaking tax month likely driven by big tech rather than pharmaOpens in new window<\/a>\u00a0]<\/p>\n

Placing an additional burden on the so-called squeezed middle \u2013 who already feel set upon because of the low entry point to the top rate of income tax and because of high prices generally \u2013 is politically untenable. <\/p>\n

And tapping high earners further could prove economically deleterious. Already European countries are involved in a game of high-stakes arbitrage to try to lure high-net-worth individuals to their jurisdictions through various tax-reduction schemes. <\/p>\n

About 2,600 executives from overseas are said to be availing of Ireland\u2019s Special Assignee Relief Programme (Sarp).<\/p>\n

The problem is that income tax systems across rich countries are no longer able to pay for the public services that depend on them.<\/p>\n

This is because services have become expensive and economies are producing more and more low-paying and therefore low-tax-generating jobs.<\/p>\n

To square the circle, another form of government revenue is required. Shifting the burden of taxation away from labour to property has been advocated as one possible, if unpopular, solution.<\/p>\n

Advocates say labour is more productive and therefore more beneficial to society than property and should be afforded a better roll of the tax dice. <\/p>\n

In its 2022 report, the Commission on Taxation and Welfare<\/a> advocated just such a shift in emphasis. <\/p>\n

It noted that taxes on wealth and property here were too low and should be increased to broaden the tax base and protect the tax system from future challenges.<\/p>\n

In England, the average council tax per dwelling will be \u00a31,770 (\u20ac2,220) this year. Contrast this with here where the average local property tax<\/a> (LPT) liability is just more than \u20ac300.<\/p>\n

The new LPT valuations, which will determine the amount of LPT households are liable to pay out to 2030, have also been structured to soften the impact of rising property values through wider valuation bands and a lower basic tax rate.<\/p>\n

This means homeowners will see only modest rises in LPT despite the near 30 per cent jump in houses prices since 2021 (the last valuation period) and the revenue generated from the tax will remain low.<\/p>\n

Unlike its counterparts in the UK and France, the Government here can afford to effectively sit on its hands in the face of a suboptimal income tax system and a low revenue-generating property tax system because of windfall corporation taxes<\/a>, which paper over the cracks in the other two. <\/p>\n

This is a potential vulnerability given that the Department of Finance<\/a> and its former minister Paschal Donohoe<\/a> have warned many times in recent years that our booming corporation tax take might not be sustainable.<\/p>\n","protected":false},"excerpt":{"rendered":"Income tax is a vexed subject. Most people believe one of two things: they are unfairly burdened or…\n","protected":false},"author":2,"featured_media":390,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[72,97501,24463,61,17691,60,33320,774,5066],"class_list":["post-214203","post","type-post","status-publish","format-standard","has-post-thumbnail","category-business","tag-business","tag-commission-on-taxation-and-welfare","tag-corporation-tax","tag-ie","tag-income-tax","tag-ireland","tag-local-property-tax","tag-paschal-donohoe","tag-tax"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts\/214203","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/comments?post=214203"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts\/214203\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/media\/390"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/media?parent=214203"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/categories?post=214203"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/tags?post=214203"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}