Middle-income workers paying €2,000 more in tax since 2008
Middle-income earners are paying vastly more income tax than they did before austerity measures kicked in, research has found. This is despite the personal tax burden coming down in recent budgets.
A typical earner on €55,000 is paying over €2,000 more in income taxes than in 2008, research carried out by the Irish Tax Institute for the Irish Independent has found.
This has prompted calls for the Government to focus on cutting personal taxes in the Budget, which is now expected to be on Tuesday, October 11.
President of the Irish Tax Institute Mary Honohan said middle-income earners were now paying more tax than in 2008, before the economy collapsed.
"The personal tax burden has started to come down in recent budgets but middle-income and higher-income earners still pay more tax than they did seven years ago before austerity measures kicked in," she said.
An analysis of personal taxes shows that an earner on €55,000 is paying an effective tax rate of 30pc. This is up from 26pc in 2008.
Back then, those earning €55,000 were paying tax, pay-related social insurance (PRSI) and levies totalling €14,300.
By 2012, the tax and PRSI, together with the introduction of the universal social contribution (USC), meant the tax take rose to almost €17,500.
This year, the total tax take is close to €16,500. That's still €2,118 more in income tax, PRSI and USC than the worker on €55,000 paid eight years ago.
There are now two million workers. Overall, workers are now paying €5bn a year extra in income tax alone since the boom.
However, some 36pc of earners pay no income tax. And around 29pc of earners avoid paying USC, according to Department of Finance figures.
Last month, the International Monetary Fund (IMF) said Ireland's income tax system was hurting middle-income earners.
It also criticised welfare traps, which make it more attractive to stay on benefits, rather than take up work.
International comparisons show that a single earner here on €55,000 pays more income-based taxes that those in Spain, Sweden, the UK and the US on the same wages.
Workers in Germany, the Netherlands and France on this income level pay more income tax, but benefits like childcare are more generous in these countries, tax experts argue.
Ms Honohan said the big problem was that workers move from the 20pc tax rate to the 40pc at relatively low levels of income in this country.
"It's the big jump in our income tax rates from 20pc to 40pc that is causing the big squeeze for the middle earners," she said.
"A move from just €33,800 to €33,801 means the taxpayer's income tax rate doubles in one fell swoop."
She said it was vital that Budget 2017 continues to bring personal tax rates down, whatever the mechanism.
Brian Keegan, director of taxation at Chartered Accountants Ireland, said the Programme for Government stated that any reductions in the USC in next month's Budget would be part-funded by leaving income tax credits and tax allowances unchanged.
A tax credit is an amount of money that you do not have to pay in income tax.
Mr Keegan said a targeted approach using tax credits and allowances was the best way to ease the burden on the squeezed middle. He added: "Yet, rather than adopt a more flexible approach to the use of tax credits, the signals are that the opposite will be the case."
With just €300m expected to be allocated to tax cuts, there is set to be little room for significant reductions.
A spokesman for Finance Minister Michael Noonan said he would continue to look at reducing the USC in the upcoming Budget, adding: "And middle and low-income earners will be the focus for that."