Key Post Tax Institute comparison of Irish income tax rates with other countries

Brendan Burgess

Brendan Burgess

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How does this compare with other countries?

The Tax Institute did a comparison. It shows very clearly
  • The lower paid in Ireland pay very little tax compared other countries
  • The middle paid e.g. someone earning €35,783 pays lowish levels of taxes
  • Someone earning around €75,000 pays about the average - not too high or too low
  • The higher paid pay higher rates compared to other countries
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Brendan,

As you say, people cherry pick statistics.

Compare the TASC and Taxation Institute figures for single individuals at €150,000 and €175,000.

The Taxation Institute figures include Income Tax and USC only and arrive at an effective rate on €150,000 of 44.75%.

The TASC figures include Income Tax, USC and PRSI and arrive at an effective rate on €175,000 of 41.5%.

The difference is that the TASC figures are based on Revenue's distribution statistics for income tax and USC, which take account all reliefs actually granted, including for instance, health expenses, AVCs, etc. I am not sure how it calculated PRSI.

By contrast, the Taxation Institute figures are purely notional based on the grant of just the Single Personal and PAYE credits - in other words, it is ignoring any other tax reliefs claimed, thus exaggerating the effective rate.
 
Thanks Sop

I couldn't find a link to the background and assumptions of the Tax Institute's figures.

Would you have the link?

There are arguments in favour of both approaches. The key consideration for the Tax Institute's figures would be that they use the same approach when looking at the figures from other countries.


Brendan
 
Brendan,

Looking at the Taxation Institute figures again, they do appear to include PRSI for the highest 3 income groups in its report, but as a blanket 4%, ignoring people in those groups who for one reason or other may be exempt.

However, how it arrived at its effective rates is self-evident.

Just take the different income groups the Taxation Institute uses, work out the taxable income and subtract only the Single Personal & PAYE Credits. Then add on the USC charge and PRSI at 4% where appropriate. It is nothing more than that.

In order to agree with the Taxation Institute’s conclusion, one would then have to accept that all of the countries they mention have the same range of other tax reliefs and exemptions as Ireland.
 
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Hi Sop

I thought that this deserved a thread of its own.

I have amended the post in the main thread to say :
The Tax Institute did a comparison. It shows very clearly for single employees, using the theoretical tax rates:

  • The lower paid in Ireland pay very little tax compared other countries
  • The middle paid e.g. someone earning €35,783 pays lowish levels of taxes
  • Someone earning around €75,000 pays about the average - not too high or too low
  • The higher paid pay higher rates compared to other countries
Which of these conclusions are not valid?

The lower paid pay only 4.88% tax in Ireland. Your caveat could make it only lower, but not much lower, I suspect. Therefore that conclusion holds.

"The higher paid pay higher rates compared to other countries"

"the Taxation Institute figures are purely notional based on the grant of just the Single Personal and PAYE credits - in other words, it is ignoring any other tax reliefs claimed, thus exaggerating the effective rate."

But presumably they do this for the other countries as well? Are Irish tax reliefs for medical expenses and pensions much higher than in other countries?

But let's err on the conservative side. If we take the TASC figures as more reliable, say it's 40%. So the conclusion would be that "single employed individuals pay around the same levels of taxes on incomes as in other comparable countries"?

The Irish tax system strongly rewards marriage and children (through child benefit). So I suspect that tax rates for married people with children are probably lower in Ireland. We have negative tax rates on the lower paid and probably lower than average on the higher paid?
 
Note that there are no income tax benefits directly linked to children in Ireland.

There are in other countries.

We have the Home Carers tax credit = 810 pa, but not linked to no. of children.
 
Hi Protocol

In these comparisons, universal payments such as child benefits are treated as negative income taxes.

Brendan
 
Sophrosyne said:
In order to agree with the Taxation Institute’s conclusion, one would then have to accept that all of the countries they mention have the same range of other tax reliefs and exemptions as Ireland.
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Well having Switzerland in there is total nonsense! We pay our taxes at Federal (country - very little), State (county - a little) and Parish/Community (the most) and since each parish sets it's own rates, they very greatly depending on the wealth of the parish and when I say greatly, it can be perhaps up to 20+% difference. And then just to mix it up a bit more, there are three ways to calculate income!
 
Hi Jim

Very interesting point, so if it were possible to adjust for these, Switzerland would rise up the rankings so all you could really say about an Irish single employee earning €150,000 is that they pay more than they would in the United States, but about the same as anywhere else.



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Thanks Brendan, very interesting. It certainly paints a picture that we have quite a progressive income taxation system here, with those on the lower end getting a break whilst those on the top bearing the lion's share of taxes paid.
 
Jim2007 said:
Well having Switzerland in there is total nonsense! We pay our taxes at Federal (country - very little), State (county - a little) and Parish/Community (the most) and since each parish sets it's own rates, they very greatly depending on the wealth of the parish and when I say greatly, it can be perhaps up to 20+% difference. And then just to mix it up a bit more, there are three ways to calculate income!
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Exactly!

The same could be said of Spain, Italy, Finland, Sweden, Denmark or any other country in which their regions or municipalities can vary the tax rate.

This is before even looking at variances in tax reliefs!
 
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