Hi Ronan, I agree with the general point of simplification. Also I agree with a property tax. Maybe an increased inheritance tax might be easier to administer, while having similar effects.
Ireland’s top 0.5% of earners … paid almost 18% of all income tax
How much of this is just due to Ireland’s unequal distribution of income? In 2006 Ireland had above average Gini coefficient, after tax. So its fair to say we must have been even more unequal before tax.
If you know where to find data on taxation paid by each income group could you please post it. It think lots of people would be interested. Also I have some data on top wage shares up to the year 2000, but do you know of anything more recent?
Hi Kevin,
Thanks for that – is that based on metered water or a flat water charge?
Hi Rory,
Thanks for your comment. Ireland is mildly more unequal than the typical developed country (regardless of the general hype about us being the most unequal!). In the typical developed country, top earners are probably taxed twice as much as average earners (in the region of 40% versus 20%). In Ireland, it’s seven times the rate! We need to balance a progressive system with the need to preserve Ireland’s competitiveness. I’ve already heard from insiders that our digital media cluster in Dublin 4 is losing top managers to other countries with less punitive marginal rates. And if we can’t attract managers, we won’t attract other jobs.
I agree with a number of your points, especially the call for a simple and transparent tax system. I also think it is useful for the debate on property tax to move to a more technical level, where the ‘how’ questions of implementation are teased out. Deducting at source for PAYE workers is a good idea; annual tax bills are painful. What do you think of TASC’s suggestion of a system of deferred payments for people on low incomes or those (on any income) whose housing costs plus childcare costs are more than half their net income? People who defer would pay when they sell or transfer the property.
I just want to add a point of information and one gripe.
TASC’s proposals don’t claim to have no deflationary impact, but we have chosen a mixture of taxes – notably property tax – which international studies show is less deflationary than other taxes. Plus our propsals for investment in the economy are an effort to counter-balance the deflationary impact which is inevitable from more or less any tax or cuts.
“it is frankly not sustainable that one can earn €18,300 a year without making any contribution to the society you live in.”
This is untrue and condescending. Everyone pays tax. An ERSI study showed that people on low incomes pay 20 per cent of their income in VAT and Excise. This is a contribution to society. We have to look at the effect of the tax system as a whole when measuring progressivity, not just income tax.
Moreover, many people on very modest incomes – like carers – make a significant contribution to society; which has a real cash value, in addition to its obvious moral worth.
Hi Nat,
Apologies about the deflationary claim – and agreed on property tax. I think the suggestion re deferred payments is interesting. I would need to tease it out myself to see its implications but paying when selling seems a good way to avoid tax evasion.
Apologies if I sounded condescending but I would still disagree on the contribution point. If you want to include indirect taxation, then the problem we have compared to our peers remains. Variation in indirect taxation (VAT) is much smaller than in direct (income) tax, and VAT is typically 20% across most EU/OECD countries. So what we have is the typical worker in the OECD making a contribution of 40% of their income (20% in income tax and 20% in VAT) in tax, but the typical worker in Ireland contributing just 25% (5% in income tax, 20% in VAT).
I’m not a fan of the race to pull the “carer’s card” fastest – it’s become the Irish public discourse counterpart to mentioning Nazis in schools debating. One could also point out that male strippers, whoopy cushion sellers or some other supposedly “frivolous” occupations might have modest incomes. I totally agree with you on the social contribution of carers. But a blanket amnesty on income tax for anyone who might earn like a carer is a blunt tool.
This of course brings up a much wider issue of the relationship between social/public expenditure and social/public benefit. Board Snip is necessary only in a public service where this is absolutely no connection between what comes in and what goes out. I’ve plenty of thoughts on this (and have a chapter on this topic coming out next year), but it’s not a transformation we can perform in 5 years, rather one we need to phase in over 10-15 years.
Thanks for the comment,
Ronan.
Rory O'Farrell
,
Hi Ronan,
sorry, I meant tax figures for other countries. Regarding inequality (before tax) in terms of top income shares, I would say that Ireland is in line with English speaking countries, but out of line with Western Europe. My data only goes to 2000 though, but I don’t see why it would have become more equal since.
George Campbell
,
Ronan
Property tax
Ronan why do go for of a tax on land which is not the approach Nat takes in the TASC proposals?
George
James
,
Hello Ronan,
A couple of brief points.
Water charges are only water charges if they are offset by an equivalent reduction in income tax. Since this is not going to (nor should not) happen, water charges are tax. Let’s call that one as it is. Proponents of water charges correctly state that we should pay for our water, but we do – that’s partially why we pay income tax.
Property tax: bringing in your proposed sliding scale tax is wholly unfair to those who chose not to purchase a second-hand house since 2004. Many people decided or were not able to afford a second-hand property and chose a new house in order to avoid stamp duty. They should not now have to pay the stamp duty equivalent, as you suggest.
Otherwise, good comments. We need to cut the fluff and call our taxes for what they are, and include all citizens who can afford into the mix.
Firstly, typical paye income only employees contribute more than just Income Tax and VAT/excise. How about PRSI, Income and Health Levies. You can then add another ~6% to your totals for people earnings €15k-26k and make that 10% to lower paid people earning €26k above.
I would also be inclined to add in the employer prsi contribution (13.5%) to the analysis here as well as it forms part of the contribution directly attributable from an employees work to tax take. I say this despite the fact that employer social contributions in Ireland may lag those made in other Euro states, France certainly.
Secondly, you say that “A family with one earner on the average industrial wage was actually subsidised by the state”. Have you more on that as that raised an eyebrow.
@George
Two reasons I’d be against TASC’s proposal on property tax (for others: a 0.28% value tax on residential property):
(1) It’s a bad tax from the point of view of stability of income, incentives for home improvements, etc.
(2) It would not generate enough money, relative to what a good property tax should (i.e. compared to our OECD counterparts). A tax that blunt would have to be doubled or trebled to generate enough income.
@James
On water: In a perfect world yes. But when 1/3 of the money the government spends is not backed by any income at all, we don’t have that luxury. The choice is not between water charge or not, it is between water charge or higher income tax. (So I guess, in a way, you would be getting what you asked for…)
On grandfathering: point taken but I think for political acceptability/avoiding riots on the street, some account will have to be taken for stamp duty paid. There’s also an equity issue. A property tax is payment for amenities enjoyed by the residents. If you have paid stamp duty, at least you’ve made some contribution. If you haven’t, you’ve been enjoying roads and schools and water and so on scot-free. (Literally, as I’ve recently learnt that a scot is a payment!) Ultimately, this is a bargaining exercise: could I win you over with only offering tax credits for half of all stamp duty paid?
@John
Someone elsewhere brought up the employer PRSI issue. I think it’s an interesting one but my own view is that employer PRSI is a competitiveness issue (the wedge the employer faces) rather than a contribution issue (the point made above). Perhaps the forthcoming budget will sort this out for once and for all – my hope, though, is that they keep the concept of paying for a service (namely insurance against unemployment). The more things that go into an amorphous blob of central spending, the more difficult it becomes to manage our public finances.
You want people to pay 2000 per year but from what? people can’t afford property tax and they can’t sell their house either.
property tax is a great way of gouging the poor whether or not they have the money they still need to pay. and also making sure that only people with high incomes can continue living in a large house
Sorry for not responding to your question about the revenue from water charges more quickly.
My figures are based on the typical consumption in a residential property (excluding water that leaks away) and the exisitng metered charges to non-domestic customers.
If the government were to introduce a flat charge based on a true assessment of what people consume, then they would probably bring in around €400m per annum. That would be based on €500 pa for a family home and €300 pa for a 1 or 2 person property. It allows for social welfare waivers but not for a universal free allowance of water.
If they bring in water meters then there will be a small (10%) reduction in the net revenue; although the customer may end up paying as much or more for the cost of the metering and reading service.
In any event, €360m to €400m is a good estimate of what the government could bring in, with or without meters.
Oc course if they do bring in meters they will additionally save about €75m per annum on the water that would otherwise have been lost through customer-side leaks.
[…] The top .5% of income earners in Ireland pay approx 18% of all income tax and the top 6% pay 5-% of all income so they are paying more than their fare share….especially with nearly half the working population paying nothing apart from the levy…The highest rate of tax here is already higher than in nearly all OECD countries already. Irish lower paid workers are paying less tax than nearly every other European Country. We have the highest starting threshold for tax credits etc. How can Ireland tax and grow? Thoughts for Budget 2011 | Ronan Lyons […]
[…] Browse in Irish Economy « How can Ireland tax and grow? Thoughts for Budget 2011 […]
Kevin Barrett
,
Hi Ronan, just on a technical point, the PAYE tax credit for 2010 is €1830 not €18,300. Also I think the maximum marginal tax rate is 52%, 41% income tax, 5% health levy, and 6% income levy. This applies to anyone over €175k which puts us above the UK.
[…] a higher tax regime. Certainly, we can do with fixing our income tax credits – which seem particularly generous to lower earners compared to those elsewhere in Europe – but our income tax rates are, if anything probably too high, I’m sure […]
Ronan. The tax credit system that has evolved over the last few years not only resulted in a large number of people paying little or no income tax as they have median income earnings but also produced a disencentive for certain workers to increase their earnings. For example a part time office clerk earning €18,300pa pays no income tax,assuming that person was offered additional hours of work then they would only net 80cent in the euro (ignore prsi/health levies etc) on their marginal income assuming a 20% tax rate. Tne tax free thrshold of €18,300 only applies to PAYE workers as the self employed including proprietary directors do not get a PAYE credit. The self employed start paying income tax after earning €9150pa. Not to forget if you are self employed their is no ceiling on PRSI/health levies. many paye worker who were let go and started a business in 2009 got a shock when preparing their tax return to lesrn of the low tax free thrshold they had relative to PAYE workers.
Hi Cathal
You’re dead right – a good tax system would mess as little as possible with people’s incentives to work. Ireland has probably the greatest meddling with people’s incentives of any OECD country because of the gap between average all-in rates and the marginal rate on the next euro.
Thanks for the comment,
Ronan.
Ronan
,
Hi Ronan,
Fantastic site with some great points and clearly expressed. I have noticed that you are using the rest of the OECD countries as a yard stick which is conceptually correct but may not tell the real story,the cost of living is so much cheaper than in “rip off” Ireland…a phrase i hate, certainly there are legislation and policies that we can learn from them and implement, look at their concepts and adjust accordingly to make them work in ireland such as the property tax and reforming income tax which is badly needed.
I just feel that lowering the tax band to include those who cant afford to pay is unfair and i did find it condescending as did Nat O’Connor.I appreciate that you didnt mean to sound so harsh.I feel that yes, if we were working from a blank canvas that is the way to go, everybody should contribute accordingly but when the cost of living in this country is so high and given the amount of social welfare that is currently claimable, you are eradicating the incentive to work.
I work in a pub along with being a trainee accountant and i deal with the so called upper and lower classes of society on a daily basis, i see some friends on the dole getting €196 into their hand every week for doing nothing, the majority are 18-25, most with tradesman qualifications, they complain if they get a days work, we are ruining this generation, the days of the stereotypical hard working irish are dead and gone, we think we are too good to work in restaurants, pubs, cinemas etc, if you go up to dublin on a night out or evening shopping you can count the amount of irish people who serve you on one hand, we need the ” foreigners” because they have the hard working attitude we, the Irish were once renowned for.
On the other hand wealthy business men & women willing to pay huge fees just to get their tax bill down which they are right to,why not avail of these loopholes, its not their fault, the difference is at the top their are loopholes, at the bottom there is poverty and homelessness.Might sound exaggerative but these are real issues that we rarely hear about because they have lost their voice in society because depending on where u stand in society is how loud your voice is heard.
Can anyone explain to me how lowering the minimum wage which i believe 3% of the working population is on is going to lure anyone back to work when the current minimum wage clearly doesnt.
I apologise for the length of this rant!!..and im going to make my last point brief as it is the single biggest disgrace…too many needless td’s on crazy wages, they have the equivalent to a blank cheque with their expenses and mental pensions considering the current hardship everyone they represent faces at the moment, how can these people lead us out of our current climate when they have never heard or never will hear that dreaded beep beep beep at an ATM…they would probably mistake it for a ringtone on their new iphone paid for by every one of us commenting on this article!
Hi Ronan eile,
I think we’re in agreement. I don’t think reducing the minimum wage – without also reducing unemployment benefit – will improve the incentive to work. However, I wasn’t suggesting that in this blog post at all. I think it’s a competitiveness measure, not a fiscal one, so I am as confused as anyone about how it ended up in Budget discussions.
Anyway, one other point I’d make is that Ireland may be more expensive than other OECD countries but that is not a blank check to have whatever system we want. We’re about 10% more expensive than other OECD countries. So certainly we can be one tenth out of line… but any more than that and we are out even by your conditional argument.
Hope that makes sense,
Another very interesting and thought provoking post.
Just a question about the 0.5% top earners, indeed take the top earners over €150k.
For a start, wouldn’t it be true that State Employees (and there’s plenty who earn over this amount) don’t actually generate tax – they’re just paid an amount net of Tax, it doesn’t actually increase the tax take?
Secondly, if you were a company director, would you not just align your PAYE Tax at the point where it gets ineffective to pay yourself more and so just pay Dividends/Licence/Royalty or just stop?
Most of the big billionaires in the USA are paid quite small salaries in comparison to their wealth which is based on Shares and proceeds from.
@David
Good question. On the first point, the question becomes how to factor in the social benefit created by public service organisations. That is a long task ahead of us, though, so for the moment you are write in an accounting sense that public service (as distinct from semi-state) can be viewed as a cost. On the latter point, the key thing for the tax system is to be fair, i.e. not discriminate between capital and labour income, so it makes no sense to switch as described. I’m not sure how the current system stands in that regard.
Rory O'Farrell ,
Hi Ronan, I agree with the general point of simplification. Also I agree with a property tax. Maybe an increased inheritance tax might be easier to administer, while having similar effects.
Ireland’s top 0.5% of earners … paid almost 18% of all income tax
How much of this is just due to Ireland’s unequal distribution of income? In 2006 Ireland had above average Gini coefficient, after tax. So its fair to say we must have been even more unequal before tax.
If you know where to find data on taxation paid by each income group could you please post it. It think lots of people would be interested. Also I have some data on top wage shares up to the year 2000, but do you know of anything more recent?
Kevin Murray ,
Ronan
My figures suggest that water charges would raise about €400m per annum if levied on the same basis as the non-domestic sector.
KJM
Ronan Lyons ,
Hi Kevin,
Thanks for that – is that based on metered water or a flat water charge?
Hi Rory,
Thanks for your comment. Ireland is mildly more unequal than the typical developed country (regardless of the general hype about us being the most unequal!). In the typical developed country, top earners are probably taxed twice as much as average earners (in the region of 40% versus 20%). In Ireland, it’s seven times the rate! We need to balance a progressive system with the need to preserve Ireland’s competitiveness. I’ve already heard from insiders that our digital media cluster in Dublin 4 is losing top managers to other countries with less punitive marginal rates. And if we can’t attract managers, we won’t attract other jobs.
The link for the report is here:
http://www.revenue.ie/en/about/publications/statistical/2008/statistical-report-2008.html
Fingers crossed for more up to date figures soon!
R
Nat O'Connor, TASC, ,
Ronan,
I agree with a number of your points, especially the call for a simple and transparent tax system. I also think it is useful for the debate on property tax to move to a more technical level, where the ‘how’ questions of implementation are teased out. Deducting at source for PAYE workers is a good idea; annual tax bills are painful. What do you think of TASC’s suggestion of a system of deferred payments for people on low incomes or those (on any income) whose housing costs plus childcare costs are more than half their net income? People who defer would pay when they sell or transfer the property.
I just want to add a point of information and one gripe.
TASC’s proposals don’t claim to have no deflationary impact, but we have chosen a mixture of taxes – notably property tax – which international studies show is less deflationary than other taxes. Plus our propsals for investment in the economy are an effort to counter-balance the deflationary impact which is inevitable from more or less any tax or cuts.
“it is frankly not sustainable that one can earn €18,300 a year without making any contribution to the society you live in.”
This is untrue and condescending. Everyone pays tax. An ERSI study showed that people on low incomes pay 20 per cent of their income in VAT and Excise. This is a contribution to society. We have to look at the effect of the tax system as a whole when measuring progressivity, not just income tax.
Moreover, many people on very modest incomes – like carers – make a significant contribution to society; which has a real cash value, in addition to its obvious moral worth.
Nat
Ronan Lyons ,
Hi Nat,
Apologies about the deflationary claim – and agreed on property tax. I think the suggestion re deferred payments is interesting. I would need to tease it out myself to see its implications but paying when selling seems a good way to avoid tax evasion.
Apologies if I sounded condescending but I would still disagree on the contribution point. If you want to include indirect taxation, then the problem we have compared to our peers remains. Variation in indirect taxation (VAT) is much smaller than in direct (income) tax, and VAT is typically 20% across most EU/OECD countries. So what we have is the typical worker in the OECD making a contribution of 40% of their income (20% in income tax and 20% in VAT) in tax, but the typical worker in Ireland contributing just 25% (5% in income tax, 20% in VAT).
I’m not a fan of the race to pull the “carer’s card” fastest – it’s become the Irish public discourse counterpart to mentioning Nazis in schools debating. One could also point out that male strippers, whoopy cushion sellers or some other supposedly “frivolous” occupations might have modest incomes. I totally agree with you on the social contribution of carers. But a blanket amnesty on income tax for anyone who might earn like a carer is a blunt tool.
This of course brings up a much wider issue of the relationship between social/public expenditure and social/public benefit. Board Snip is necessary only in a public service where this is absolutely no connection between what comes in and what goes out. I’ve plenty of thoughts on this (and have a chapter on this topic coming out next year), but it’s not a transformation we can perform in 5 years, rather one we need to phase in over 10-15 years.
Thanks for the comment,
Ronan.
Rory O'Farrell ,
Hi Ronan,
sorry, I meant tax figures for other countries. Regarding inequality (before tax) in terms of top income shares, I would say that Ireland is in line with English speaking countries, but out of line with Western Europe. My data only goes to 2000 though, but I don’t see why it would have become more equal since.
George Campbell ,
Ronan
Property tax
Ronan why do go for of a tax on land which is not the approach Nat takes in the TASC proposals?
George
James ,
Hello Ronan,
A couple of brief points.
Water charges are only water charges if they are offset by an equivalent reduction in income tax. Since this is not going to (nor should not) happen, water charges are tax. Let’s call that one as it is. Proponents of water charges correctly state that we should pay for our water, but we do – that’s partially why we pay income tax.
Property tax: bringing in your proposed sliding scale tax is wholly unfair to those who chose not to purchase a second-hand house since 2004. Many people decided or were not able to afford a second-hand property and chose a new house in order to avoid stamp duty. They should not now have to pay the stamp duty equivalent, as you suggest.
Otherwise, good comments. We need to cut the fluff and call our taxes for what they are, and include all citizens who can afford into the mix.
JPB
How can Ireland tax and grow: a video discussion | Ronan Lyons ,
[…] Browse All Posts « How can Ireland tax and grow? Thoughts for Budget 2011 […]
John O'Connor ,
Hi Ronan,
Two points for you.
Firstly, typical paye income only employees contribute more than just Income Tax and VAT/excise. How about PRSI, Income and Health Levies. You can then add another ~6% to your totals for people earnings €15k-26k and make that 10% to lower paid people earning €26k above.
I would also be inclined to add in the employer prsi contribution (13.5%) to the analysis here as well as it forms part of the contribution directly attributable from an employees work to tax take. I say this despite the fact that employer social contributions in Ireland may lag those made in other Euro states, France certainly.
Secondly, you say that “A family with one earner on the average industrial wage was actually subsidised by the state”. Have you more on that as that raised an eyebrow.
Thanks for the excellent commentary,
John
Ronan Lyons ,
Hi all,
First, for those interested in land-value tax, check out this very interesting article in praise, which sums it up well:
http://www2.macleans.ca/2010/10/21/did-2010s-man-of-the-year-die-in-1897/
@Rory
I don’t know of any source for internationally comparable stats on tax share, but I think it might be do-able with a bit of work, if only because much academic research (such as http://www.jourdan.ens.fr/piketty/fichiers/public/AtkinsonPikettySaez2009a.pdf) has been done using this very measure.
@George
Two reasons I’d be against TASC’s proposal on property tax (for others: a 0.28% value tax on residential property):
(1) It’s a bad tax from the point of view of stability of income, incentives for home improvements, etc.
(2) It would not generate enough money, relative to what a good property tax should (i.e. compared to our OECD counterparts). A tax that blunt would have to be doubled or trebled to generate enough income.
@James
On water: In a perfect world yes. But when 1/3 of the money the government spends is not backed by any income at all, we don’t have that luxury. The choice is not between water charge or not, it is between water charge or higher income tax. (So I guess, in a way, you would be getting what you asked for…)
On grandfathering: point taken but I think for political acceptability/avoiding riots on the street, some account will have to be taken for stamp duty paid. There’s also an equity issue. A property tax is payment for amenities enjoyed by the residents. If you have paid stamp duty, at least you’ve made some contribution. If you haven’t, you’ve been enjoying roads and schools and water and so on scot-free. (Literally, as I’ve recently learnt that a scot is a payment!) Ultimately, this is a bargaining exercise: could I win you over with only offering tax credits for half of all stamp duty paid?
@John
Someone elsewhere brought up the employer PRSI issue. I think it’s an interesting one but my own view is that employer PRSI is a competitiveness issue (the wedge the employer faces) rather than a contribution issue (the point made above). Perhaps the forthcoming budget will sort this out for once and for all – my hope, though, is that they keep the concept of paying for a service (namely insurance against unemployment). The more things that go into an amorphous blob of central spending, the more difficult it becomes to manage our public finances.
On the average age tax contribution, check out:
http://www.ronanlyons.com/2009/04/27/are-irish-workers-undertaxed/
Thanks to one and all for the comments,
Ronan.
Pineapple Dan ,
You want people to pay 2000 per year but from what? people can’t afford property tax and they can’t sell their house either.
property tax is a great way of gouging the poor whether or not they have the money they still need to pay. and also making sure that only people with high incomes can continue living in a large house
Kevin Murray ,
Ronan
Sorry for not responding to your question about the revenue from water charges more quickly.
My figures are based on the typical consumption in a residential property (excluding water that leaks away) and the exisitng metered charges to non-domestic customers.
If the government were to introduce a flat charge based on a true assessment of what people consume, then they would probably bring in around €400m per annum. That would be based on €500 pa for a family home and €300 pa for a 1 or 2 person property. It allows for social welfare waivers but not for a universal free allowance of water.
If they bring in water meters then there will be a small (10%) reduction in the net revenue; although the customer may end up paying as much or more for the cost of the metering and reading service.
In any event, €360m to €400m is a good estimate of what the government could bring in, with or without meters.
Oc course if they do bring in meters they will additionally save about €75m per annum on the water that would otherwise have been lost through customer-side leaks.
Kevin
Labour alternative budget versus Fine Gael alternative budget - Page 2 ,
[…] The top .5% of income earners in Ireland pay approx 18% of all income tax and the top 6% pay 5-% of all income so they are paying more than their fare share….especially with nearly half the working population paying nothing apart from the levy…The highest rate of tax here is already higher than in nearly all OECD countries already. Irish lower paid workers are paying less tax than nearly every other European Country. We have the highest starting threshold for tax credits etc. How can Ireland tax and grow? Thoughts for Budget 2011 | Ronan Lyons […]
Where should Ireland cut its public spending? Thoughts for Budget 2011 (II) | Ronan Lyons ,
[…] Browse in Irish Economy « How can Ireland tax and grow? Thoughts for Budget 2011 […]
Kevin Barrett ,
Hi Ronan, just on a technical point, the PAYE tax credit for 2010 is €1830 not €18,300. Also I think the maximum marginal tax rate is 52%, 41% income tax, 5% health levy, and 6% income levy. This applies to anyone over €175k which puts us above the UK.
And it’s hard to craft a Budget when you’re watched by Olli Rehn: Open Letter to soon-to-be European overlords | Ronan Lyons ,
[…] a higher tax regime. Certainly, we can do with fixing our income tax credits – which seem particularly generous to lower earners compared to those elsewhere in Europe – but our income tax rates are, if anything probably too high, I’m sure […]
Open letter to new European overlords ,
[…] […]
Mark ,
Well you got a small move in both directions.
Cathal O'Donoghue ,
Ronan. The tax credit system that has evolved over the last few years not only resulted in a large number of people paying little or no income tax as they have median income earnings but also produced a disencentive for certain workers to increase their earnings. For example a part time office clerk earning €18,300pa pays no income tax,assuming that person was offered additional hours of work then they would only net 80cent in the euro (ignore prsi/health levies etc) on their marginal income assuming a 20% tax rate. Tne tax free thrshold of €18,300 only applies to PAYE workers as the self employed including proprietary directors do not get a PAYE credit. The self employed start paying income tax after earning €9150pa. Not to forget if you are self employed their is no ceiling on PRSI/health levies. many paye worker who were let go and started a business in 2009 got a shock when preparing their tax return to lesrn of the low tax free thrshold they had relative to PAYE workers.
Ronan Lyons ,
Hi Cathal
You’re dead right – a good tax system would mess as little as possible with people’s incentives to work. Ireland has probably the greatest meddling with people’s incentives of any OECD country because of the gap between average all-in rates and the marginal rate on the next euro.
Thanks for the comment,
Ronan.
Ronan ,
Hi Ronan,
Fantastic site with some great points and clearly expressed. I have noticed that you are using the rest of the OECD countries as a yard stick which is conceptually correct but may not tell the real story,the cost of living is so much cheaper than in “rip off” Ireland…a phrase i hate, certainly there are legislation and policies that we can learn from them and implement, look at their concepts and adjust accordingly to make them work in ireland such as the property tax and reforming income tax which is badly needed.
I just feel that lowering the tax band to include those who cant afford to pay is unfair and i did find it condescending as did Nat O’Connor.I appreciate that you didnt mean to sound so harsh.I feel that yes, if we were working from a blank canvas that is the way to go, everybody should contribute accordingly but when the cost of living in this country is so high and given the amount of social welfare that is currently claimable, you are eradicating the incentive to work.
I work in a pub along with being a trainee accountant and i deal with the so called upper and lower classes of society on a daily basis, i see some friends on the dole getting €196 into their hand every week for doing nothing, the majority are 18-25, most with tradesman qualifications, they complain if they get a days work, we are ruining this generation, the days of the stereotypical hard working irish are dead and gone, we think we are too good to work in restaurants, pubs, cinemas etc, if you go up to dublin on a night out or evening shopping you can count the amount of irish people who serve you on one hand, we need the ” foreigners” because they have the hard working attitude we, the Irish were once renowned for.
On the other hand wealthy business men & women willing to pay huge fees just to get their tax bill down which they are right to,why not avail of these loopholes, its not their fault, the difference is at the top their are loopholes, at the bottom there is poverty and homelessness.Might sound exaggerative but these are real issues that we rarely hear about because they have lost their voice in society because depending on where u stand in society is how loud your voice is heard.
Can anyone explain to me how lowering the minimum wage which i believe 3% of the working population is on is going to lure anyone back to work when the current minimum wage clearly doesnt.
I apologise for the length of this rant!!..and im going to make my last point brief as it is the single biggest disgrace…too many needless td’s on crazy wages, they have the equivalent to a blank cheque with their expenses and mental pensions considering the current hardship everyone they represent faces at the moment, how can these people lead us out of our current climate when they have never heard or never will hear that dreaded beep beep beep at an ATM…they would probably mistake it for a ringtone on their new iphone paid for by every one of us commenting on this article!
Ronan Lyons ,
Hi Ronan eile,
I think we’re in agreement. I don’t think reducing the minimum wage – without also reducing unemployment benefit – will improve the incentive to work. However, I wasn’t suggesting that in this blog post at all. I think it’s a competitiveness measure, not a fiscal one, so I am as confused as anyone about how it ended up in Budget discussions.
Anyway, one other point I’d make is that Ireland may be more expensive than other OECD countries but that is not a blank check to have whatever system we want. We’re about 10% more expensive than other OECD countries. So certainly we can be one tenth out of line… but any more than that and we are out even by your conditional argument.
Hope that makes sense,
R
David Quaid ,
Hi Ronan,
Another very interesting and thought provoking post.
Just a question about the 0.5% top earners, indeed take the top earners over €150k.
For a start, wouldn’t it be true that State Employees (and there’s plenty who earn over this amount) don’t actually generate tax – they’re just paid an amount net of Tax, it doesn’t actually increase the tax take?
Secondly, if you were a company director, would you not just align your PAYE Tax at the point where it gets ineffective to pay yourself more and so just pay Dividends/Licence/Royalty or just stop?
Most of the big billionaires in the USA are paid quite small salaries in comparison to their wealth which is based on Shares and proceeds from.
Thanks,
David
Ronan Lyons ,
@David
Good question. On the first point, the question becomes how to factor in the social benefit created by public service organisations. That is a long task ahead of us, though, so for the moment you are write in an accounting sense that public service (as distinct from semi-state) can be viewed as a cost. On the latter point, the key thing for the tax system is to be fair, i.e. not discriminate between capital and labour income, so it makes no sense to switch as described. I’m not sure how the current system stands in that regard.