Friday 19 January 2018

Who is paying the most tax and is it enough?

When you include consumer taxes, the poorest pay relatively more tax than the rich.

A new report has found that the poor pay relatively more tax than the rich
A new report has found that the poor pay relatively more tax than the rich

James Fitzsimons

According to the latest report from the Nevin Economic Research Institute (NERI) the poorest and the richest households are paying the most tax. It claims the income tax system is progressive, but indirect tax, such as VAT and excise, are not and they hit the poorest and most vulnerable harder than the rest. Maybe we should look at the wider tax system and not just focus on income tax alone when sharing out the spoils in the next Budget.

NERI suggests that while the rich and middle-income groups pay the most income tax, those on low incomes pay proportionately more indirect tax than the rest, and Euro for Euro, based on data taken from the CSO's last household survey, the lowest 10pc are paying over 30pc of their income in tax. It might be a spending tax but it is harsh. It seems unreasonable if NERI is right. You might ask what does it all mean and where are they going with this, and that's what we are going to look at.

The report divides households into seven parts based on income. The bottom third, fourth and fifth deciles contribute the least percentage of income in tax when indirect tax is included. Those in the seventh decile based on income, pay roughly the same fraction in direct tax (income tax) as they do in indirect tax such as VAT, excise and levies. If tax cuts are coming, and they are, NERI says the poorer households would benefit more, if indirect taxes are cut instead of income tax, particularly for the bottom 10pc.

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