IBEC's claim that Ireland is a high income tax country

[Brendan Burgess]

IBEC published a report yesterday

Debunking Irish income tax myths

[FONT=&quot]Key findings on taxation of income in Ireland (Page 1) [/FONT]

[FONT=&quot]1. Ireland is not a low income tax country: [/FONT][FONT=&quot]Despite regular claims to the contrary, Ireland is not by any measure a low income tax country. Since 2010 Ireland has experienced a sharp jump in taxation of personal incomes as a percentage of national income, rising from 8.7% to 11.6%, well above the EU average of 9.5%.[/FONT] [FONT=&quot]This rise has seen Ireland become the 5[/FONT][FONT=&quot]th [/FONT][FONT=&quot]highest tax jurisdiction for personal incomes in the EU. Our tax rate on[/FONT] [FONT=&quot]personal incomes is now the equivalent of over 3 bn in personal income taxation above the EU average, in proportionate terms.[/FONT]




[FONT=&quot]4. Is Ireland a low tax country? (Page 14) [/FONT]

[FONT=&quot]It has been claimed that Ireland is a low income tax country compared to our neighbours. In Section 2 we showed that Ireland as a proportion of both GDP and GNP levies more income taxation than most European countries[/FONT] [FONT=&quot]and well above the EU average. The analysis in the following section shows that the aggregate is only part of the story. For average or below average earners Ireland is indeed a low income tax country. For those earning from just under 40,000 per annum (120% above the average wage), however, Ireland has levels of income tax which are well above the OECD average.[/FONT]

[FONT=&quot]At first glance, Eurostat's tax figures seem to support the idea of Ireland as a low tax country. Ireland s revenue from personal income tax and social contributions amounted to 23 billion in 2012. That is an equivalent of 17.3% of GNP; five percentage points below the EU average (22.42%).[/FONT]

[FONT=&quot]This comparison, however, is distorted by the fact that social contributions (PRSI) in Ireland are much lower than in other comparable countries. Cross-country comparisons of social contributions are complicated and not very enlightening given that the social contributions entitle individuals to different levels of provision in different jurisdictions. For example, many benefits, including pensions and healthcare, derived from social insurance in some countries are provided by the private sector in others. The best example of this is the UK where social contributions at 7.8% of GNP are higher than in Ireland 5.3%. Social contributions in the UK, however, fund the NHS system; as a result less than 10% of adults in the UK have private health insurance. In Ireland social contributions are marginally lower but 45% of the adult population have private medical insurance meaning the cost is eventually borne by companies and households elsewhere in the system and the cost to an employee is effectively the same. These kinds of anomalies exist throughout the social insurance system in Europe and mean that international comparisons involving social insurance are next to meaningless.[/FONT]

[FONT=&quot]A much more meaningful picture evolves if we compare direct income taxation differences between jurisdictions. In Ireland the share of income tax in 2012 of GDP was 9.5% and 11.6% of GNP. Looking at the core income tax in an international context demonstrates that Ireland cannot be regarded as a low income tax country. Ireland[/FONT] [FONT=&quot]has the 5[/FONT][FONT=&quot]th [/FONT][FONT=&quot]highest income tax ratio relative to GDP in the EU. Only Sweden, Belgium, Italy and Austria have[/FONT]
[FONT=&quot]higher ratios of income tax[/FONT]


[FONT=&quot]
[/FONT]

 

[Brendan Burgess]

It seems clear to me and to IBEC that Ireland is a low tax country for people on lower incomes and on average incomes.

It seems clear to me, but not to IBEC, that Ireland is an average tax country for higher earners.

So the headline conclusion "Ireland is not a low income tax country" is misleading and contradictory to the rest of the report.

This bit seems very poorly thought out

[FONT=&quot]At first glance, Eurostat's tax figures seem to support the idea of Ireland as a low tax country. ...[/FONT]

[FONT=&quot]This comparison, however, is distorted by the fact that social contributions (PRSI) in Ireland are much lower than in other comparable countries. Cross-country comparisons of social contributions are complicated and not very enlightening given that the social contributions entitle individuals to different levels of provision in different jurisdictions.[/FONT]

IBEC seems to be excluding prsi from their calculations because the benefits of prsi are lower in Ireland. This makes no sense to me.

They should conclude "Ireland is a low tax country and the benefits are lower" and not "Ireland is a high tax country". Which is more or less the same analysis which the left wing commentators have reached.

 

[Protocol]

Please note that the NHS in the UK is not financed by social insurance.

It is tax-financed.


PRSI / NI in the UK, the same as in Ireland, does not fund healthcare.

It funds social benefits.

 

[Brendan Burgess]

I don't know enough about the interaction of GNP and personal incomes. Could the following situation arise?

|Country A|Country B
GNP|100|100
Personal incomes|50|80
Effective income tax rate| 20%|15%
Tax|10|12
Tax as % of GNP|10%|12%

So Country A has a higher than average effective income tax rate, but has a lower tax as a % of GNP.

 

[Brendan Burgess]

According to IBEC

[FONT="]Social contributions in the UK, however, fund the NHS system;[/FONT]

Please note that the NHS in the UK is not financed by social insurance.

It is tax-financed.

PRSI / NI in the UK, the same as in Ireland, does not fund healthcare.

It funds social benefits.

Hi Protocol

While that is interesting, is it important?

Are "PRSI" and "income tax" and, for that matter, "USC" not all just different names for income tax?

There is nothing pay related about PRSI any more.

The Key Point which TASC would make, is that we have low taxes and low public services. IBEC seems to be confused and saying that we don't have low taxes, because we have to pay for our own health insurance, which is not a logical argument.

 

[Protocol]

No, it's not particularly important for this discussion.

Yes, USC is an income tax.

 

[ashambles]

While it complicates everything, I think it's important to remember how defective our PRSI is when comparing with other countries. Does a comparable employee elsewhere need to pay as much into a private pension as we do on top of PRSI, what's the unemployment insurance look like.

In many countries the main difference between social insurance and normal income tax is there will be an element of capping to social insurance, also there's a link between what you pay in and what you get out. For instance in France I think you can as a private employee receive a pension of up to half your final salary to a limit of around 35,000 euro.

If Irish health insurance was run the same way as PRSI instead of a policy costing 1k, it'd be charged at 2% of income regardless of how high your income.