WORKERS should be allowed to earn more money before they have to pay the top rate of income tax, experts have argued.
There have been so many changes in the income tax system that this country is now uncompetitive when trying to fight for foreign investment.
There have been 18 changes to the system in the past eight austerity budgets, the Irish Tax Institute said.
The changes include the introduction of the universal social charge, restrictions on the tax relief for medical expenses, the abolition of mortgage interest relief for most homeowners, changes to PRSI, and a reduction the tax credits.
President of the Institute Andrew Gallagher said his organisation wants the Government to set out a timetable for reducing the marginal personal tax rate below 50pc in next month's Budget.
But it pointed out that it will be difficult to cut the top income tax rate of 41pc without bigger benefits going to higher income earners.
A single person starts paying the top 41pc tax rate when their income goes above €32,801.
They also have to pay PRSI of 4pc, and the universal social charge of up to 7pc. This means the marginal rate - the tax rate on higher levels of pay - is 52pc.
In the UK, workers do not hit the higher tax rate until they earn more than €179,921. The marginal rate there is 47pc.
In the US, the higher income tax rate kicks in from €297,294. And in France it is on income over €559,296.
The Government would have to increase the tax bands to ensure less income is taxed at the higher rate.
It would cost €340m to change the system so that a single person does not start paying the higher 41pc rate until their income is over €35,000.
The institute said that a change like this would benefit most earners equally.
There would be an annual gain of €462 for a worker on €35,783 the same for someone on €75,000, and the same for a worker on €150,000.
Martin Lambe of the institute, which represents tax practitioners, said there was a need to lower the top rate of tax, to ensure executives from foreign firms were prepared to locate here.
This was mentioned last week by Taoiseach Enda Kenny, but such a move would benefit higher earners more because they earn more.
Cutting the 41pc rate to 40pc would leave a worker on €35,735 better off by €30 a year.
But a worker on €75,000 would be better off by €422 a year, the tax institute said.
The huge number of different changes made in eight austerity budgets since October 2008 have seen an extra €2bn in income taxes sucked out of the earnings of workers.
And the extra income tax is being paid by 200,000 fewer workers since the collapse hit.
Mr Gallagher said: "This is €2bn more than it was at the start of the difficult budgets, despite the number of people in employment dropping by 200,000 people in that period.
"The Exchequer is now more reliant on income taxes paid by fewer people in work, and Ireland has less people working but paying more tax on more of their income."
He said there have also been changes to PRSI rules which broadened the base of taxable income and eliminated the income ceiling for employees.
In addition, there were reductions in the main tax credits, a lowering of the personal tax credit and the changes to the PAYE tax credit.
There are now 1.9 million taxpayers, down from 2.1 million in 2007.
The institute also said that self-employed taxpayers - many of whom generate jobs in the economy - should not be paying higher marginal tax rates than employees.
It called on the Government to let the 10pc USC rate on self-employed individuals to expire at the end of the year, as planned. This would reduce the USC charged on the self-employed to 7pc, the same rate as most other taxpayers.
It pointed out that self-employed people are job creators, and should not have to bear a higher income tax level than employees.