The income tax burden is borne disproportionately by middle and higher income earners in Ireland, according to a new analysis by Ibec.

Higher earners pay significantly more than their share of income with the top 5% of all tax cases paying over half of all tax. As a result Ireland has a highly progressive, highly redistributive tax system, one which is uniquely so in a European context, according to Ibec.

The results of international comparisons show that claims that Ireland is a low tax country are only true for lower income earners with Irish middle and high income earners paying average or above average taxes.

KEY FINDINGS 

+ Middle and high earners pay the vast majority of all taxes collected and have contributed most during the crisis.
Inclusive of income tax and the USC, a single person will not reach an effective tax rate of 5% until over €20,000 in income.

In Association with

At the top end of the scale, the average effective tax rate for a single-income earner (based on Revenue data) including income tax, USC and employee PRSI is 43% with a sharp shift upward ineffective tax rates at the entry point to the marginal rate of tax.

The top 1% of all income tax cases in Ireland earn 9.1% of income and pay 30.4% of the taxation, the top 5% pay almost 55% of all taxation from 22.7% of the income.

In effect this means that those persons or households with over 100,000 in income account for over half of all income tax paid, underlining the extreme redistributive effects of the Irish tax system.

+ Low earners pay less tax than the OECD average but at the average wage and above Irish tax rates are relatively high.
Ireland is a low income tax country at lower than average earnings (€32,600 and under). For earners above this level, however, Ireland is a high tax country compared to the rest of the developed world.

At earnings of 120% of the average wage or just above €39,000, Ireland surpasses the OECD average effective income tax rate. Ibec's analysis shows that, in particular, those people earning from around €39,000 upwards pay a disproportionate share of tax and are taxed higher than their OECD counterparts.

By 250% of average wage (€81,500) Ireland has the sixth highest average income tax rate in the OECD at 34.6%, five percentage points higher than the OECD average.

+ There are a number of unique features to the Irish tax system which provide a clear disincentive to work.
The largest of these is the high marginal tax rate we have at modest wages. For example, a skilled graduate moving from gross pay of €20,000 to gross pay of €60,000 over the first ten years of their career will see an increase of annual net pay of just €22,888 in Ireland.

The same person in the UK would see an equivalent increase of €30,287, a difference of €7,399. Skilled graduates would be better off by over €5,000 annually working in the UK if given a choice between working in Ireland or in the UK over the years in their career in which earnings growth is highest.

Ibec says the latest emigration statistics showing three quarters of all emigrants since 2009 were either employed or recent graduates (with only 20% unemployed) suggest that this effect on earnings and career progression may be more important than employment in decisions to emigrate among skilled employees.

+ Ireland is not a low income tax country.
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%.

This rise has seen Ireland become the 5th highest tax jurisdiction for personal incomes in the EU. Our tax rate on personal incomes is now the equivalent of over €3bn in personal income taxation above the EU average, in proportionate terms.

+ Over half of all taxpayers would benefit from a cut in the marginal rate.
Recent analyses which have suggested that only 17% of income taxpayers pay tax at the marginal rate and that the average tax rate is only 14.1% are both factually incorrect and technically flawed.

Ibec's analysis of the 2012 Revenue data shows that about half of Irish taxpayers pay tax at the marginal rate, while in the region of 54% of taxpayers are within the equivalent of two hours a week in overtime of entering the marginal rate.

+ The Irish tax system is highly progressive and redistributive in a European context.
According to the OECD, Ireland's income tax system is the most progressive in the developed world. An earner at 167% (€54,442) of the average wage has an effective tax burden 19.3 percentage points higher than one at 67% (€21,842) of the average wage.

Ireland's tax and transfers system reduces the Gini coefficient of measured inequality by 35%, compared to an EU average reduction of 15.7%, making it the most redistributive in Europe.

The progressivity of the Irish tax system is based largely on a narrow income tax base (almost 38% of tax cases are functionally exempt from income tax) along with low levels of tax for those on lower incomes and Northern European style tax levels for those on medium to high incomes. This has important effects for post-tax income inequality and also work Incentives, says Ibec. (October 2014)

+ Download Ibec's analysis of Ireland's unfair income tax system here.

+ Download the Budget 2015 proposals from left-wing think tank TASC to clobber the middle class again here.