The Income Tax take in Ireland compared to other countries

The Irish Times covers an OECD report which compares the tax take in Ireland compared to other countries.

The tax take is defined as the income tax and social security take as percentage of gross income:

For a single worker on the average wage:

Germany 42%
Denmark 42%
France 27%
US 24%
UK 24%
Greece 16%
Ireland 16%

I have verified these figures for Ireland based on an average salary of 27,000.

Brendan

Re: The Income Tax take in Ireland compared to other countri

I guess these figures are fairly meaningless in the absence of a similar comparison of indirect taxation.

tax WEDGE

Note that these figures refer to the tax wedge, which is different from the overall tax burden.

Say you get paid 100 gross. It might cost the employer 10.75% PRSI so the cost to them is 110.75. After you pay income tax and PRSI you bring home 80.

The tax wedge is (110.75 - 80) as a percentage of 100.

The tax wedge is all the income tax and PRSI paid by employees and employers, as a fraction of the gross wage.

Employer's PRSI is up to 40% in other countries, and employees PRSI can be 20% easily. For example, German pension contribution (employee and employer) are 22% alone.

In Ireland employers pay a low 10.75% and workers pay 4%, with an allowance and an exemption. However, in return, our pensions are not generous, just €167 per week, and are not indexed to wages. This means many people have extra occupational or private pensions. Whereas in return for the 22% contribution, the German pensions are 55%-65% of wages.

Similarly, the high PRSI in other countries pays for free or subsidised healthcare. Here, some heathcare is free or subsidised.

By the way, how would people feel about paying 22% of wages in mandatory pension contributions???

Protocol

Re: tax WEDGE

By the way, how would people feel about paying 22% of wages in mandatory pension contributions???

Click to expand...

I do it If I could be confident that some future government didn't change my payout just as I was about to retire. i.e. Go through life expecting a payout of 60% of salary, end up with 40%.

I couldn't be confident of this so I'll stick with looking after myself.

-Rd

Re: tax WEDGE

I assumed that Protocol envisaged a context in which employees were obliged to make a certain level (e.g. 22%) of pension contributions but that the choice of pension investment vehicle was up to them (e.g. occupational scheme, PRSA, personal pension plan/RAC etc.) rather than the Government investing this on our behalf? Maybe I was wrong. I can see mandatory pension contributions becoming an even more pressing issue for debate in coming years.

pensions

Wel, what I was referring to was the current typical situation on the continent:

unfunded
Pay-As-You-go
High, and increasing, contribution rates
Employer and employees contribute
State schemes, with State guarantees

So a typical German worker has a 22% of wage contribution (split between employer and employee). In return, the pension is linked to wages, say 60% of final wage.

Unlike here, where we pay just 4% PRSI, but get a flat (not linked to pay) pension of €167 per week.

The result of the continental systems is that there aren't much private pensions or pure occupational schemes. Sure why would you need them if the first pillar will provide you with a generous pension.

BUT, these schemes are unfunded, and have huge future liabilites, and so will be under pressure to cut benefits, and/or increase contribution rates.

Re: tax WEDGE

I agree that the figures on their own are meaningless. Our PAYE and PRSI may be low but Ireland has one of the highest VAT rates in the EU.

It's also worth remembering that we pay for our low taxes in other ways. If you have an accident you have to seek a huge compensation payout because the State isn't going to come to your rescue. This has a knock-on effect on insurance premiums, which are higher than elsewhere.

Re: tax WEDGE

BUT, these schemes are unfunded, and have huge future liabilites, and so will be under pressure to cut benefits, and/or increase contribution rates.

Click to expand...

Therein lies the problem. We've seen it with companies abandoning their defined benefits schemes. Governments would do exactly the same thing.

As a rule I favour individuals keeping as much money as possible and looking after themselves. The state can't be trusted to care for people.

If you earn 50,000 a year and the state says "give me 11,000 a year, and I'll look after you when you retire".

You will look at the homeless, the elderly, the sick, those with mental illness, prisioners, asylum seekers, etc, and you'll say "NO thanks, I see how you look after people. I'll keep my 11,000 a year and look after myself"

-Rd