Irish Economy

A little quiz on Ireland’s income tax

28 Jul 2009

"Somewhat bizarrely, though, I feel the prospect of people paying this in tax could spark riots in the streets!"

– A 2012 version of this blog post, one including VAT and other unavoidable taxes, is available here

Income taxes are, with VAT receipts, the biggest generators of tax receipts in Ireland. It is likely that in 2009, income taxes will contribute between 35% and 40% of total tax receipts, a figure of perhaps €12.5bn. Given the importance of income tax, then, it’s vitally important that the taxpayer understand what the system is and what it isn’t. In that spirit, I examined Revenue Commissioner figures on who pays what in income tax in Ireland. It was an eye-opening experience!

In that spirit, here is a quick quiz, three questions, about Ireland’s income tax system. I would have only got one of these right beforehand…

Does the average millionaire pay a higher or lower tax rate than the average worker?

View Results

Loading ... Loading ...

What proportion of workers pay less than 10% on average in tax?

View Results

Loading ... Loading ...

What is the average rate of tax paid by the worker on the median income?

View Results

Loading ... Loading ...

And, just to see where we think we should be, one more quick question:

What should be the average rate of tax paid by the worker on the median income?

View Results

Loading ... Loading ...

And now, to reveal the answers, with some interesting facts about Ireland’s income tax system along the way:

  • Ireland’s top 0.5% of earners, the 11,714 people who earned more than €275,000 in a year, paid almost 18% of all income tax, over €2bn in total. Their average tax rate was 27.5%.
  • Almost 770,000 people earned less than €17,000. Understandably, given tax credits, these workers paid a tiny amount of tax, €20m in total. Their average tax rate was about 0.5%.
  • It’s in the middle, though, where things seem to go all screwy. The median earner, earning about €25,000, paid just 4% in income tax! As I argued before, we seem to have got ourselves into a situation where the typical Irish worker pays hardly any income tax and yet seems to think they are heavily taxed.

So, to go back to the quiz above, the answers are:

  1. Option 4 – the average millionaire pays six times the income tax rate of the average worker. There’s one thing the system ain’t and that’s regressive!
  2. Option 5 – amazingly, two thirds of the 2.2m people paying income tax in Ireland paid an average rate of less than 10%.
  3. Option 1 – as per above, the median earner pays about 4% in income tax in Ireland, compared to 20% in the OECD.

I look forward to seeing what the answers to the final question are. My own belief is that we should be aiming for about 15%. This would make us fiscally sustainable, while keeping us an attractive place for labour in the OECD. Somewhat bizarrely, though, I feel the prospect of people paying as little as 15% of their income in tax could also spark riots in the streets!

The income levy has at least brought everyone up a notch or two, something which seems necessary, when looking at the average tax rates paid compared to other countries. This should be formalized in the December budget, by lowering the tax-free allowances and increasing the standard and marginal rates by 1%.

To close, here are the average tax rates paid by different income groups, according to the Revenue Commissioners 2008 report.

Average rate of tax paid, by income level

Average rate of tax paid, by income level

Tags: , ,

38 Comments

  1. geckko said on July 28, 2009 | Permalink

    Excellent. 3 out of 3 for me!

    Of course the final question is conditional on how much centrally provided goods and services should or can be provided. That is also where you get some of the strangest contradictions, e.g. Socialists would argue for high (50%+) of national income be spent by government, but likely to want virtually no tax paid by median earners.

    Also, don’t forget indirect taxes.

  2. Ronan Lyons said on July 28, 2009 | Permalink

    Hi Geckko, congrats on the 100% score! Good points, too.

    While things like income-specific savings rates are probably too much to hope for, I will do my best to find a basket of goods broken down by income group – that would at least allow some further refinement of total tax paid (rather than just income tax).

    R

  3. Naoise said on July 29, 2009 | Permalink

    11,714 people earn over €275,000 – how many of them work in RTE?!

  4. Stephen.kinsella@gma said on July 30, 2009 | Permalink

    “Great Britain should,” wrote Adam Smith in The Wealth of Nations, “…endeavour to accommodate her future views and designs to the real mediocrity of her circumstances.”

    Think the shoe fits in Ireland’s case?

  5. Paul said on July 30, 2009 | Permalink

    ronan, Can you post or reference the data that you used for your various calculations. clearly if the median earner on €25K is only paying 4% income tax, that’s only a €1,000 in tax. we need to have 10 million “median people” employed to cover the rest of the income tax take. clearly that’s not the case so it would be great to be able to discuss median, averages etc. btw, i don’t think this affects the thrust of your main point. thanks

  6. Ronan Lyons said on July 30, 2009 | Permalink

    Hi Paul, thanks for comment and for pulling me up on not linking my source! The report is available here: http://www.revenue.ie/en/about/publications/statistical/2008/statistical-report-2008.html (the Income Distribution Statistics).
    A quick explanation which may help you in your calculations – the focus was on the median (i.e. the middle person in the country) rather than the mean, for precisely the reasons you outline. The mean, i.e. the total income tax take divided by the number of taxpayers, is going to be dragged up by the few people paying lots of tax.
    R

  7. Tony said on July 30, 2009 | Permalink

    Hi Ronan,
    Although I realise you are trying to make a simple observation re. our income tax base, I think we need to also consider consumption taxes. Since many of these are likely to be more heavilly skewed towards consumption by the lower deciles (fags, alcohol, petrol), I wonder how the combined figures would look?

    Such figures may suggest the higher earners are not so heavilly taxed as income alone would suggest, while perhaps those below the median are more hard done by…?

  8. Conor McCabe said on July 31, 2009 | Permalink

    Hi Ronan, enjoyed your post. And thanks for putting up the link to the Income Distribution Stats. they’re very interesting. Cheers for that.

    This is the first time I’ve looked at these stats, so I apologise in advance for what is probably a silly point. But it seems to me that if you were going to look at income tax, then table 16 would have been a better one to use, no? All the other tables carry information which relates to all income earners, regardless of whether their income is taxable or not. With table 16, though, the information is confined solely to those with taxable income. And on table 16, the income earners who pay the largest % of tax in terms of aggregates of income and income tax, are those earning gross €40,000 to €50,000 a year. Even then, table 16 doesn’t factor in mortgage relief, which is taxed at source, and so table 15 has to be brought into the equation – basically, in terms of the aggregates, those getting mortgage relief are going to affect the figures of those who aren’t.

    Listen, it’s my first time to look at those stats, so I’m putting my hands up already. But certainly, that’s where I would start, because although table 16 carries variables within it, they are not to the same measure as table one with regard to taxable income and income tax. and I have to go back myself and look as to why the % for income tax is higher for the top earners in table 1 than in table 16. btw, I don’t think table 16 changes the thrust of your argument.

  9. Conor McCabe said on July 31, 2009 | Permalink

    Listen, ignore that comment above. I’ve had a look at the figures again and I got them wrong. the €40,000-€50,000 wage bracket isn’t paying the largest %, it’s still those over €250,000 on table 16.

    Cheers for the link, though, the figures are quite interesting.

  10. Aebhric Mc Gibney said on August 5, 2009 | Permalink

    Nice update Ronan. it’s been a while since I’ve looked at them but the OECD average production worker figures show that a family on the average manufacturing wage (single earner) is a net recipient from the State when Child Benefit is taken into account. We have the third lowest average tax rate above such luminaries as Mexico. The burden of taxation is disproprtionately on expedniture taxes at the sake of low capital (and particularly property) taxes.

  11. Ronan Lyons said on August 5, 2009 | Permalink

    Hi Aebhric, thanks for the comment. You’re absolutely right – I posted on that very topic a couple of months ago: http://www.ronanlyons.com/2009/04/27/are-irish-workers-undertaxed/
    These facts are not well enough known, hence the general perception that we live in a high tax economy!
    R

  12. Pat Brown said on October 1, 2009 | Permalink

    Dear Ronan,
    I enjoy your site very much ,congratulations.
    I would like to point out that the raising of any TAXES by any State is a rather precarious affair – but especially Income Tax – where monies given over to the State coffers ,are considered as a personal & direct contribution by the individual concerned.
    Of all the TAXES – this is by far , the most emotive – and for the State – it must be seen
    - just like Caesar’s wife – as being above reproach. This is NOT the case in Ireland -
    where a elitist group of 6,000 so called citizens -
    pay ZERO in income TAX to the State – yet still claim Irish citizenship & full membership of our little country.
    Our Revenue Chairperson Josephine Feehily has told the Dail Public Accounts Committee on 19th Feb 2009 that there are indeed almost 6,000 so called citizens who pay ZERO Income Tax – TAX EXILES – and at least 440 fall into the bracket of being ‘ Super Rich ‘. She did not comment on the income status of the other 5,500 – but one can only draw the obvious conclusion that a majority would fall into the category of earning in excess of 275,000 Euros p.a. – which is hardly a huge amount – by todays standards. Applying this information – to the Income Tax Revenue Chart would suggest instead of 1,367 citizens – who earn more than 275,000 Euros p.a –
    inputing 11.27% to the total – we would have a much greater number – probably 3 – 4,000 contributing say well in excess of 25 % to the total Tax take.
    When the government applies itself to that thorny & highly contentious matter – it can then deal with Mr Joe Average & his friend Mrs Eileen Mean and their Income Tax contributions. Otherwise – look out for sparks .
    Lots of luck. Pat.

  13. Liam Griffin said on November 17, 2009 | Permalink

    Hi Ronan
    I rolled along with the common perceptions even though I pay damn all tax myself.I thought I was being smart claiming all the right allowences.It appears my friends and neighbours have been missrepresenting their own tax liabilities

  14. anonymoussquirrel said on December 10, 2009 | Permalink

    I don’t know where you and Revenue Commissioners get you’re data from I earn 47k and pay 27% in real incom taxes

  15. Ronan Lyons said on December 10, 2009 | Permalink

    @anonymoussquirrel
    Let’s assume for the moment that you’re not married, so that we can get your effective tax rate up as high as it can go.
    The first €36,400 of your income is taxed at 20%, so that’s €7,280 on to your tax bill. From this we have to subtract €1,830 in tax credits and another €1,830 in PAYE credits, so your tax bill so far is €3,620, or just a rate of under 10%. For your overall effective rate to be 27%, the government would need to be taxing you 71% of your remaining €11,600, which they’re clearly not.

    In fact, they’re taxing you 41% on that last quarter of your income, which means your effective income tax rate is 17%, not 27%. As is outlined in the post, the latest figures we have are pre-income levy, so you can add on another 1% – that brings you up to 18%. (If you’re married, your rate will be even lower.)

    Thanks for the comment and for giving me the opportunity to explain the breakdown in a little more detail,
    R

  16. Mr Vain said on June 6, 2010 | Permalink

    I would like to respond to Mr Pat Browns comment above about tax exiles.

    Citizens of a country pay tax to the state they live in. In return the state provides them with a service, roads to drive on, Gardai for security, Fire brigades, hospitals for medical emergencies, schools for education of your children etc.

    All these services have to be paid for. If you live and work in Ireland you avail of these services in your day to day living here.

    But of course not all Irish citizens who live and work abroad pay tax to Ireland. That is because they don’t avail of these services.

    To become a tax exile your income has to derive from outside the state, i.e. your work is in another country, and you are limited to 140 days in Ireland every year on average.

    Mr Brown does not understand that it is wrong to charge people tax if they don’t avail of the services of the state.

    Otherwise we should start taxing tourists.

    Mr Browns comment is representative of ignorant pogrom communist mentality which does a disservice to this site.

    Mr Brown, if you don’t understand what you are talking about then shut up and stop embarrassing yourself.

  17. phrage said on July 2, 2010 | Permalink

    your questions and conclusions are deceitful

  18. Ronan Lyons said on July 2, 2010 | Permalink

    @phrage
    Thanks for taking the time to comment – in what way are they deceitful?

  19. John O'Connor said on July 26, 2010 | Permalink

    Ronan,
    The above article is excellent, but misrepresents the contribution of low paid workers to the state.

    Rather than looking at personal Income Tax, a more pertinent measure is the contribution to state coffers from all direct sources relating to the job.

    I have looked at this in more detail at http://blog.redoaktaxrefunds.ie/lies-damn-lies-and-politicians-quoting-eurostat/

  20. Christopher Smith said on September 22, 2010 | Permalink

    Where are those figures are coming? These calculations are simply wrong!
    It states that somebody earning 50K pays only 15% tax.
    My gross income(just normal wage – no bonuses or any perks paid at my workplace) is 4K/month and I only get net total of little bit less than 3K/month paid out.
    No matter how you calculate “I’m paying tax at 25% rate”! (I don’t care if some of it called PRSI and Income Levy – they are all taxes at the end of the day).

  21. Ronan Lyons said on September 22, 2010 | Permalink

    Hi Christopher,
    A couple of quick points. Firstly, this is a 2008 Revenue Commissioners report based on 2006 income returns. Core rates of income tax have not changed since then, but income levies have of course increased. So you can certainly make the case that your 15% is now 17%. Secondly, PRSI is, unfortunately, not a tax, it’s compulsory form of insurance (like car insurance), which explains the bulk of the gap between 17% and 25%.

    If you can show that the calculations are wrong, Revenue Commissioners will be very interested as they’ll have lots of back tax to collect from all of us!

    R

  22. Weary PAYE taxpayer said on October 25, 2010 | Permalink

    These figures look off – I’m earning 75K and I’m paying 38% of that in tax. Is there a massive tax break I’m missing out on? (Single non property owner with no children).

  23. Ronan Lyons said on October 25, 2010 | Permalink

    Hi WPT,
    I think the link between your own experience and the national average is PRSI and income levies. This Rev Com report is purely about income tax (i.e. money into a general pool that gets spent on whatever the government likes/is voted in to spend it on), and does not include PSRI (i.e. a premium on insurance against unemployment and some other things private sector markets won’t insure). As it’s from 2006, it doesn’t include income or health levies.

    The OECD report referenced in one of the blog posts linked in this post does highlight, though, that Ireland taxes its single-earner-no-kid households much closer in line with other countries than its other household types.

    Thanks for the comments,

    Ronan.

  24. Tom Grey said on November 25, 2010 | Permalink

    Still a fine chart — you might think of adding a right hand side %of taxpayers showing the long tail and the few people in the high brackets.

  25. Ronan Lyons said on November 26, 2010 | Permalink

    Hi Tom,
    Thanks – if I can get those stats off the Revenue Commissioners, I will put it in!
    Ronan.

  26. Brendan said on February 28, 2011 | Permalink

    Updated numbers here:

    http://budget.gov.ie/budgets/2011/Documents/Part%20C%20-%20Annexes%20to%20SBM%20FINAL.pdf

    2008 was the lowest tax year in recent times (and would guess possibly ever), at the high end, taxes are up 6-7%, middle range 3-4% or so.

  27. joesoap@public.ie said on July 17, 2011 | Permalink

    Ronan> PRSI is, unfortunately, not a tax, it’s compulsory form of insurance (like car insurance)

    Its very dissapointing to see a respected economist like yourself NOT realise that PRSI is of course a tax, both Employee PRSI and (to many the hidden) Employer PRSI.

    Ronan, I realise that if you have 100 economists in a room you may get 100 different opinions, but it would be useful if 100 of Ireland’s leading economists plus some ‘ordinary Joe Soaps would get together for a weekend and ‘democratcially’ bash out what is and isnt true or valid.

    There is no point if each economist has his own opinion, which is as useful to anyone as the proverbial saying, everyone has one!

  28. fergaloh said on December 9, 2011 | Permalink

    Ronan, I suggest you live on 25k for a while and then get excited about your low rate of tax.
    Making flat comparisons with other states ignores relative costs of living.

  29. fergaloh said on December 9, 2011 | Permalink

    Quick example of relative costs –
    Luxembourg, a monthly bus pass for the city costs EUR 22.5, a national bus pass costs EUR 45

    Dublin Bus monthly bus ramble pass costs EUR 110

  30. Ronan Lyons said on December 9, 2011 | Permalink

    @Fergaloh
    While the comparison does not account for the extent of public services and the cost of living, I would make the following two points:
    (a) comparisons of the cost of living do suggest that Ireland is about 10-15% more expensive, but this is more than compensated by the tax differential
    (b) the extent of public services in Ireland generally compares more favourably than most people in Ireland think [Ireland's health service for example is in line with the EU median] – if people want even better public services, they will have to pay more in tax

    While I appreciate you taking the time to comment, I avoid personalising comments myself and like those commenting here to try and do the same – you have no idea how much or little I earn [I earn nothing from this blog, for example, but it does cost me time and money].

    Thanks,

    Ronan.

  31. Phiz Hicks said on December 9, 2011 | Permalink

    So these revenue figures capture the total income of everyone in Ireland, from the beggars on O’Connell Street to Denis O’Brien? I reckon they’re just a “garbage in, garbage out” statistic. You lot might be good at economics but that’s like being good at astrology.

  32. michael said on December 16, 2011 | Permalink

    Your figures are hard to understand. I am self employed and earning about 85k, I have calculated that I have paid 63% tax and thats just at a cursory glance at wages and spending, I am certain it would be higher if I really got into it.
    I included
    income tax,PRSI,Levy’s,second home, VAT, Car Duty,Tax on fuel only !!

  33. Ronan Lyons said on December 20, 2011 | Permalink

    Hi Michael,
    I fear you are being a bit disingenuous. The post is explicitly about income tax (direct income tax), not services such as insurance (PRSI) or compensating your fellow citizens for the costs you impose on them (car and fuel duties). As you are self-employed, you may also enjoy a wide range of benefits that other workers don’t, such as your company owning various assets of which you have exclusive use (saving you VAT) or paying for your expenses (thus the cost comes out of your gross salary, not your net salary).
    Thanks for your comment, though.
    R

  34. michael said on December 21, 2011 | Permalink

    You are correct I was being a bit diningenuous, you see I am fed up of hearing economists and politicians on about the comparitively low tax we pay when in fact the opposite is true. Whats the pont in talking about income tax and not looking at spending tax, if you do its only maths and means nothing.However You will find one of these politicians using your figures to suit their own ends next when they lie!

  35. DMC said on January 10, 2012 | Permalink

    Hi Ronan,

    Interesting analysis. I refer to your post to anonymoussquirrel, your figures seem wrong unless I’m missing something fundamental.

    36,400 – 3660 = 32740 @ 20% = 6548 and not the 3620 you mentioned so your circa10% is actually more like circa17% before factoring in your last quarter 11,600 @ 41% and also you haven’t factored in PRSI and or USC. Hmmmmmmmmm.

  36. Mike C said on January 11, 2012 | Permalink

    Much food for thought in your analysis Ronan. While I understand your point about PRSI,it is involuntary and based on income and feels very much like a tax unless one claims benefits (dental, maternity, etc.)

    @DMC – Ronan’s sums look fine to me: you need to distinguish between allowances and tax credits: the latter are credits against tax on income and are deducted from the notional tax liability as shown in Ronan’s calculations i.e the sum is (36,400*20%)-3660 = 3620.

  37. Leeser said on April 25, 2012 | Permalink

    Hi Ronan,

    While factually correct about income tax, would it be possible to calculate the actual average net pay that people take home (ignoring voluntary pension contributions etc). So Gross pay – Income tax – PRSI-USC. Then a comparison of net income/gross income would show different statistics…

    As you said the other main income for the government is VAT, which comes from the Net Pay, i.e. tax on already taxed income…

    What matters to most people is the net pay they come out with.

  38. Ronan Lyons said on April 25, 2012 | Permalink

    Hi Leeser,
    Hopefully you’ll find all the answers here:
    http://www.ronanlyons.com/2012/04/10/who-pays-tax-in-ireland-the-little-quiz-revisited/

24 Trackbacks

  1. [...] this, and given the success of my income tax quiz (over 400 responses and counting), I decided it might be time to let the people have their say, one [...]

  2. [...] [...]

  3. [...] Two things stand out from the Revenue figures. First, contrary to what many appear to think, the tax rate structure is highly progressive. Those with income below €20,000 pay almost no income tax, the person on the average income of about €35,000 pay an average tax rate of about nine percent, while those with incomes above €100,000 pay over twenty seven percent. This point about progressivity has been well made before by Ronan Lyons. [...]

  4. [...] pointed out by Ronan Lyons- say here- we already have a highly progressive tax system, with the median earner paying a mere 4% tax Karl [...]

  5. [...] [...]

  6. [...] that the median earner only pays 4% tax rate this is fair, for analysis of Irish taxation see Ronan Lyons- Tax quiz and Are Irish workers undertaxed? cYp __________________ "Yawn , am I alive yet [...]

  7. [...] [...]

  8. [...] 5. The structure of the taxation system is also important. No-one is arguing that we can, let alone should, return to 2006 when stamp duties and capital taxes provided 16% of our revenues, but there is a danger in over-reliance on income taxes, which seems to be the only lever under discussion. Income taxes typically have provided about 30% of the Government’s tax revenues. Next year, they will provide much closer to 40% (actually 37.5%). In absolute terms, the picture is not as alarming. The Government expects to take in €12bn in income tax next year, compared to €11.4bn in 2005. However, the income tax system is incredibly over-reliant on those with high incomes, while two thirds of earners paying hardly anything in tax. [...]

  9. [...] [...]

  10. [...] Checck out these links. They make for interesting reading and explain things better than I do. A little quiz on Ireland’s income tax | Ronan Lyons Budget 2011 and the eight things on Ireland’s fiscal to-do list | Ronan [...]

  11. [...] off most taxpayers through PRSI and the income and health levies. Try this little exercise: A little quiz on Ireland’s income tax | Ronan Lyons or look at this graph for the OECD average income tax take and compare Ireland's take to the US, [...]

  12. [...] [...]

  13. [...] Ronan Lyons has an interesting tax quiz based on 2006 Revenue figures and his analysis of them. A little quiz on Ireland’s income tax | Ronan Lyons Statistical Report [...]

  14. [...] pay nothing in income taxes and others on the lower to middle incomes by little in income tax. A little quiz on Ireland’s income tax | Ronan Lyons If people want to be taxed like Germany, then they should remember German tax rates are as [...]

  15. [...] median earner pays a mere 4% income tax A little quiz on Ireland’s income tax | Ronan Lyons Offering to protect them is just pure vote grabbing [...]

  16. [...] someone earns a high salary, they also pay a lot of tax. According to Ronan Lyons, the top 0.5% of earners (11,714 people) paid more than €2 billion in income tax (almost 18% of [...]

  17. [...] rates in the OECD, we also take very little tax off the majority of workers. For example, the middle earner in 2006 paid about 4% income tax. The OECD calculates an all-in tax on wages each year. In Ireland, it went from 10% to negative [...]

  18. [...] they affect you personally? The poor are going to pay much more for this crisis than you will. A little quiz on Ireland’s income tax | Ronan Lyons This is bull ************************, as things are now people who earn less than 17,000 pay [...]

  19. [...] benefit from the state). Do you think it is fair to extend the differential even more? Source: A little quiz on Ireland’s income tax | Ronan Lyons [...]

  20. [...] [...]

  21. [...] would be a big culture shock for the vast majority of earners. Two years ago, I wrote about how the median earner in the country in 2006, earning €25,000, paid just 4% in income tax, compared to 20% in most other developed countries. By 2008, the median earner was taking home [...]

  22. [...] would be a big culture shock for the vast majority of earners. Two years ago, I wrote about how the median earner in the country in 2006, earning €25,000, paid just 4% in income tax, compared to 20% in most other developed countries. By 2008, the median earner was taking home [...]

  23. [...] three years ago, I posted a little quiz on Ireland’s income tax. There were four questions – on what percentage of income was taken in tax for the typical [...]

  24. [...] [...]

Post a Comment

Your email is never published nor shared. Required fields are marked *

*
*

Categories

Tags

Subscribe

Ronan Lyons Posts RSS feed

Receive RSS updates of Posts and Comments.

Subscribe to Email Updates

Subscribe to Email updates.