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Saturday 20 September 2014

'Wipeout' of high earners shifts tax burden to middle

Sam Griffin

Published 28/07/2014 | 02:30

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John Fitzgerald, Economic and Social Research Institute
John Fitzgerald, Economic and Social Research Institute

THE dramatic drop in the number of higher-earners during the economic crash has resulted in middle-income earners having to carry the burden of income tax, a report has found.

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The Economic and Social Research Institute (ESRI) says the reduction in the number of high-earners, as well as efforts by successive governments to protect social welfare, has resulted in the gap between rich and poor narrowing.

Between 2007 and 2011 the number of taxpayers with incomes over €100,000 a year fell by 14.7pc, according to the Distribution of Income and the Public Finances report by Prof John Fitzgerald, which is released today.

The total intake for the State from those earning over €100,000 fell by almost 27pc, while income from those earning over €275,000 fell by almost 40pc in this period.

Prof Fitzgerald said the decision by successive governments to ensure the welfare state remained "broadly unchanged", coupled with higher earners being "wiped out", had led to increased taxes for middle income earners and homes earning less than €100,000.

The report says a "combination of factors" had resulted in the drop in the number of high-earners, including increases in unemployment levels and the collapse of the property market.

"The number of high incomes fell very significantly. "Given that they had to find a lot more tax revenue, where else do you find it but with the bulk of the population," he said.

"This means that somebody else has got to pay and in this case it was those in the middle-income range."

The decision to protect the welfare system differs from policies adopted in other EU countries where income inequality increased as a result of the financial crisis, he added.

"The Irish experience and that of Portugal (who adopted a similar policy) stand out as being exceptional; public policy more than reversed the effects of market forces on the distribution of income, resulting in greater equality in the distribution of incomes," the report reveals.

Income inequality in France, Spain and the UK increased or remained the same during the period measured.

Overall, the report estimates an 8pc drop in disposable income per head - falling from €22,800 in 2008 to around €20,900 in 2014. But the report also states a "significant number of people" in lower to middle income categories are also suffering financial distress as a result of the housing crisis.

Irish Independent

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