Monday 26 September 2016

IMF attacks Irish tax system that hurts middle class

Squeeze on middle 'discourages women from working and creates welfare traps'

Published 29/07/2016 | 02:30

Christine Lagarde, managing director of the International Monetary Fund. Photo: AP
Christine Lagarde, managing director of the International Monetary Fund. Photo: AP

Ireland's income tax system hurts middle-income earners, creates welfare traps and puts high-skilled foreign workers off coming here, the International Monetary Fund (IMF) has said.

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Hitting middle-income families hardest in the tax system also undermines female participation in the workforce, the fund added, in a strongly worded criticism.

In its latest post-programme report, the IMF said that while previous budgets had reduced the high rate of marginal tax to below 50pc, the tax base had been narrowed as the threshold for the Universal Social Charge (USC) had been increased.

"This places a large tax burden on middle-income households, undermines female labour force participation, creates welfare traps, and discourages high-skilled worker migration," the report said.

The Government has promised to do more to ease the tax burden on middle-income earners, which is out of kilter with the UK. Finance Minister Michael Noonan has said he favoured scrapping the USC over time, especially for lower income earners.

However, the IMF has warned against the trend of taking lower-income workers out of the tax net altogether, because it leaves those left in the net carrying too much of the total tax burden.

Irish Independent

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