One-in-three earners to pay no income tax or USC after Budget
Almost one-in-three earners will end up paying no income tax or Universal Social Charge after the Budget. But higher income earners will still be hit with some of the highest taxes in Europe.
That's the assessment from the Irish Tax Institute, based on what it expects in next month's Budget.
As the economy surges ahead and the country records growth rates far in excess of the Eurozone average, tax experts are warning higher earners are being squeezed compared with their equivalents in other countries, and they claim an increasing number of people are being removed from the tax net.
The Irish Tax Institute said 28pc of earners here aren't paying any income tax or the Universal Social Charge, and that figure could rise as high as 31pc after the Budget.
The Institute estimates that 663,600 income earners are out of the tax base, and pointed out that the Government intends removing another 90,000 from the USC by increasing the threshold in Budget 2016.
The Institute claims Ireland's income tax system is one of the most progressive in the developed world, with those earning €18,000 paying less tax than fellow workers at the same income level in the likes of Germany, Sweden, the United States and UK. But it points out that as you move up the income ladder, the tax burden in Ireland is higher than in many of those countries.
For example, the Tax Institute estimates that on a salary of €35,800, the total tax paid in Ireland is €7,343 - €207 higher than in the UK and €1,063 higher than in the US.
And moving to an income of €75,000 will see you pay €796 more in tax than you would in Sweden, €1,237 more than in Spain and a massive €6,126 and €9,076 more than in the UK and US respectively.
Here, you hit the top marginal rate of tax earlier than many of our European neighbours at €33,800. The Institute points out that in the UK, in 2014, the threshold wasn't reached until €186,077. In the US, the higher rate kicked in at the equivalent of €306,172. And in France, it was on income over €151,956
Cora O'Brien, Irish Tax Institute policy director, said the Government needs to take a closer look at the tax treatment of those on higher wages.
"We think that talent is important and it's on the agenda of other countries, like Ireland, that are looking at talent," she said.
"If you want to focus on talent and you want to get talent to drive an innovation agenda, then we are out of line.
The Tax Institute is also flagging up the tax burden on the self-employed, many of whom generate jobs in the recovering economy.
Once a self-employed person earns more than €100,000, they pay a 3pc surcharge on income above that level. A PAYE tax credit of €1,650 is available to all employees, but not to the self employed.
PRSI is also paid by the self employed at a rate of 4pc once they go over €5,000, whereas this figure is €18,304 for a PAYE employee, the Institute said.
The Institute said a self- employed single person on an income of €17,500 pays five times more tax and PRSI as an employee on the same income. The body has suggested that the Government could introduce a tax credit for the self employed, but this is estimated to cost the Exchequer €470 million.
A mildly expansionary Budget is planned next month of between €1.2bn and €1.5bn, evenly split between tax cuts and spending increases. That would leave up to €750 million available for tax cuts.
The Irish Tax Institute estimates that a 1pc cut in the rate of USC from 7pc to 6pc, would cost the Exchequer around €364m, and potentially double that if you were to cut it by 2pc.
Micheál Collins of the Nevin Economic Research Institute says we are out of kilter with other countries because we collect a lot of our taxes via the income tax system whereas other countries have a broader system.
"Do small changes in the rate of tax that are paid between countries alter the way in which people behave or move around?" he asked.
"Small changes aren't going to have an effect.
"People make more comprehensive decisions as to where they live and the taxation system is only one small element of a much bigger picture."