Squeezed: workers here hit top tax rate earlier than in other countries
26 September 2013
Posted by: Author: Charlie Weston (Irish Independent)
Author: Charlie Weston (Irish Independent)
NEW evidence has emerged of the massive income tax squeeze being imposed on middle Ireland.
Workers here pay the high rate of income tax on a far bigger chunk of their income than in other countries, experts have concluded.
Finance Minister Michael Noonan is being urged by tax practitioners to avoid raising income tax any further in next month's Budget.
A single worker in Ireland starts paying the higher income tax rate of 41pc on any earnings above €32,800, said the Irish Tax Institute. And a married couple with one income pay the top rate on earnings over €41,800.
In France, by contrast, a worker can earn €186,749 before hitting the higher rate.
In Britain, the top rate of income tax does not kick in until salaries go over €183,235, explained Mark Redmond of the institute.
Even in the US, the highest rate does not apply until earnings are greater than €300,000.
Some of these countries have at least three different income tax rates. Nonetheless, experts said it was significant that Irish workers hit the highest rates on much lower levels of income.
Workers here are hit by 41pc income tax, 4pc PRSI (pay related social insurance) and universal social insurance (USC) of 7pc for employees. Self-employed people earning over €100,000 pay USC of up to 10pc.
This is the so-called 'marginal tax rate' – income tax imposed at the highest level.
The Exchequer's overall income tax take has surged by €1.5bn since 2008, despite there being 300,000 fewer workers in the economy. This emphasises the extent of the income tax hit on ordinary workers.
The Irish Tax Institute's Bernard Doherty said the Finance Minister might be tempted to adjust tax credits and the tax bands in the Budget.
New taxes worth €500m were due to be raised from the Budget on October 15.
A number of 'carry-forward' elements from last year's Budget would raise €600m in taxes. These include the full year's property tax for next year, changes to pensions tax reliefs and an increase in carbon tax.
The minister has already signalled that he will remove the temporary VAT rate of 9pc on the hospitality industry, which is likely to raise €360m.
Mr Doherty said the minister had limited room for additional tax-raising. This meant Mr Noonan could change the income tax credits – the amount you can earn before paying tax.
The tax expert said the minister may also change the tax bands, which would see people paying income tax at 41pc at lower levels of income.
"The burden of income tax has gone up. There is no further capacity for income tax increases. The money is just not there," said Mr Doherty.
There was also a call by the institute for income tax on the self-employed to be lowered.
Proposals to heap more social insurance on the self-employed will only be an impediment to job creation, it said.
The self-employed pay more tax than an employee if they earn over €100,000 because there is a higher universal social charge imposed on them.
The Advisory Group on Tax and Social Welfare recommended to the Government earlier this month that the self-employed should have to pay higher pay-related social insurance in order to fund more benefits for that sector. But Mr Redmond said: "The self-employed are already paying a marginal tax rate of 55pc."
This article first appeared in independent.ie