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Tuesday 30 May 2017

Too few earners being asked to carry the ever-increasing burden of financing the State

The top 50pc of taxpayers now pay 96pc of all personal taxes (Stock picture)
The top 50pc of taxpayers now pay 96pc of all personal taxes (Stock picture)
Charlie Weston

Charlie Weston

In the last few days, the Government has begun rolling out increases in social welfare payments for 1.3 million people.

Payments, like the pension and the dole, are going up by €5 a week, in what will cost €301m.

Increases for pensioners are justified on the basis that they have lived through periods of hyper inflation, punishing income tax rates and sky-high mortgage interest rates. It will help them to live with dignity and independence.

But it is also hard to escape the conclusion that this is cynical pandering by politicians to older people, a cohort well known for turning out in high numbers at election time.

The rise in welfare payments comes as public sector unions are queuing up to demand "pay restoration", at a time when Bus Éireann and An Post are in precarious financial positions.

Nurses are seeking a 12pc pay rise, and it is hard to blame them after the deal gardaí got when they threatened mutiny.

And we are unable to control expenditure. We have fewer unemployed people than in the worst of the austerity years. But strangely, the amount paid in dole payments is now €700m higher than in 2008, according to the Department of Social Protection.

No wonder some advocate a cutting of dole payments, not raising them.

The overall number in employment may have surged back to the pre-crisis level of two million. But the question arises as to who is paying for all this largesse? And should we really be raising dole payments when it is becoming much easier to find a job?

The salient fact is that those who shout the loudest are not always those who are worst off.

A study by the Economic and Social Research Institute, the Geary Institute and Oxford University ('Economic stress and the great recession in Ireland') found middle-income groups have been proportionately most affected by the economic crash, and not the poor, as many claim.

The self-employed were hit particularly hard.

Middle-Ireland has been savaged by redundancies, pay cuts, higher charges, extortionate motor insurance increases, surging health insurance premiums, a disgraceful levy on private pensions, and banks that are price gouging.

But it is when it comes to personal income taxes (which includes the universal social contribution) that ordinary workers are being hit hardest. Because the reality is that an unfair burden for the funding of the State is falling on a shrinking number of income taxpayers.

The top 50pc of taxpayers now pay 96pc of all personal taxes.

The tax snare means that only those earning more than €30,000 are stumping up.

We have now reached the bizarre situation where close to 750,000 income earners pay no personal tax, a figure that includes USC.

That amounts to 30pc of workers, according to the Irish Tax Institute. So, three out of 10 workers pay no tax and no USC.

The burden on 1.27 million middle and higher-income workers is such that the total revenue from income tax is now €7bn more than it was during the Celtic Tiger.

In 2008, personal income taxes totalled €13.2bn. This year it is set to be €20.2bn.

Incidentally, the €7bn extra burden on middle and upper-income earners exactly equates to the interest bill on our national debt.

An easier way to look at the income tax burden is to take someone on €55,000, which is hardly riches.

Back in 2008, the total tax paid amounted to €14,340, according to the Irish Tax Institute.

This year the income (and USC) bill will come to €16,180.

That is nearly €2,000 more a year in income tax and USC.

What all of this means is that an increasing burden for the financing of the state is falling on fewer people, who are being asked to pay more.

Our convulsions about water charges, and the decision to postpone the revaluation date for the property tax until 2019, mean that our tax base is too narrow.

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There may be what economists call tax buoyancy when it comes to the exchequer returns at the moment, but just a handful of large companies pay 80pc of the corporate tax.

Irish Tax Institute (ITI) president Mark Barrett summed it up: "We must avoid a growing dependence on a small number of taxpayers. Regrettably on the personal tax side, as our research in recent months has shown, and also on the corporate tax side, this is a 'stand-out' characteristic in our tax system."

Finance Minister Michael Noonan has promised tax cuts for workers.

Sections of Irish society can be brilliant at playing economic victims. Often these have suffered less, relative to others.

The real financial pain is being suffered by the working squeezed middle, particularly those in the private sector and the self-employed.

It is high time Mr Noonan delivered, and eased the burden on those struggling in the tax snare.

Irish Independent

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