Tax hikes 'will exile well paid' - Lenihan
'Just one high earner's tax keeps 132 lower paid workers out of tax net'
THE Minister for Finance, Brian Lenihan, has been warned by his officials that if he increases taxes in the Budget next month, high earners are likely to flee the country.
In a taxation briefing document seen by the Sunday Independent, Department of Finance officials say that emigration of even a "very small number" of high earners would have a "disastrous effect" on the income-tax base "desperately required" to fund public services.
The document contains the startling consequence of the emigration of just one worker who earns €119,081 a year -- "we would likely have to take an additional 132 workers into the tax net".
It states: "This means that for the joy of inflicting more pain on one of the highest income earners, we run the risk of having to tax an additional 132 of the lowest-income earners."
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The briefing paper, drawn up as Mr Lenihan prepares next month's Budget, exposes what the Department of Finance sees as the flaw in the Irish Congress of Trade Unions' (Ictu) plan for national recovery -- specifically Ictu's call to "Tax the rich".
Last week Ictu said the tax system was "unfair" because "millionaires can legally pay far less tax than working people". Ictu said the tax system needed to be "rebuilt" and that the "wealthy" needed to "pay their share".
However, an analysis by the Department of Finance reveals that next year, 143,000 people -- 6.5 per cent of the workforce -- will earn over €100,000 a year, and pay 47.93 per cent of all income tax.
The analysis also shows that next year almost 1.8 million people -- 80 per cent of the workforce -- will earn under €50,000 a year, and pay 18 per cent of all income tax.
Public sector unions are resisting a cut to their 300,000 members' pay and pensions in favour of increasing income tax, including the imposition of a new tax rate of 54 per cent on the "wealthy".
Workers in the public sector earn on average 25 per cent more than their equivalent in the private sector, according to studies prepared by both the Economic and Social Research Institute and the Central Statistics Office.
Siptu General President Jack O'Connor has gone further than the Ictu proposal. To protect the pay and pensions of public sector members, Mr O'Connor has suggested a new tax rate of around 60 per cent on workers earning over €100,000.
However, the Department of Finance briefing document, which has the headline "taxation statistics brief", outlines in stark detail the potential risks to specific tax changes facing Mr Lenihan.
It states: "The higher that marginal tax rates are increased, the more likely we are to lose high-income earners. The consequence of losing one worker from the top 1 per cent of income earners means that we would likely have to take an additional 132 workers into the tax net."
It adds: "It must be remembered that the highest income earners tend to be highly skilled and also highly mobile, thus they are likely to move abroad if severe levels of taxation are imposed on them.
"Given the mobility of such income earners, it is imprudent to rely too heavily on these income earners.
"Emigration of a very small number of such income earners would have a disastrous effect on the income-tax base that is desperately required to fund public services."
The document also states that a "structural change" has taken place over the last number of years in relation to the incidence of income tax on families in Ireland. For example, in the tax year 1999/2000, the top 4 per cent of income earners paid 33 per cent of the total yield.
In 2010, it is estimated that the percentage will have increased by 15 points to 48 per cent.
In the tax year 1999/2000, 82 per cent of those on lower incomes contributed 33 per cent of the yield. In 2010, it is estimated that their contribution will have decreased by 15 points to 18 per cent.
"Look at it another way," the document states, "in 2010, it is estimated those with incomes up to and including the average industrial wage will contribute about 6 per cent to the income tax yield. This compares with 13.5 per cent in the tax year 1999/2000."
- Jody Corcoran
Originally published in
