By Anthony Foley
Most of us appreciate good quality public services but are less keen on paying the necessary taxes to provide them.
In 2017, the total net tax take was almost €50.76bn, even though pay-related social insurance which generated another €10.2bn is not usually included, wrongly in my view, in the tax statistics. Also excluded from the tax sums are local authority business rates, of over €1.47bn.
Income tax tends to be the first item when we think about taxation but all types of income taxes, including the universal social charge, account for only 39.3% of the total tax take.
The vast bulk of income tax is paid by Paye earners, while the self-assessed and other income taxes such as interest retention and dividend withholding taxes make up the rest.
Vat accounts for over 26% of the tax take; excise duties almost 12%; and taxes on the profits generated by companies take in over 16% of the total. Much smaller contributions come from stamp duties, capital taxes, customs duties, and the local property tax. The two big items are income tax and Vat, but Vat and excise duties bring in almost the same amount as income tax.
Who pays income tax?
Almost one million earners, or 37% of the total, do not pay any income tax because their incomes are too low. Some 42% of workers pay income tax at the standard rate of 20%, and 21% of all workers pay the higher rate of 40%. A smaller number of taxpayers are exempt from USC: 790,000 people, or 29% of the total. In other words, most of the income-USC tax is paid by a small proportion of taxpayers.
In 2018, it is expected that the top 1% of income earners whose income exceeds €200,000 a year will pay 28% of total income tax; the top 7% of income earners, earning more than €100,000, will account for 53% the total
income tax take; and the top 26% of income earners, earning more than €50,000, will account for 85% of all income tax revenues.
The remaining 74% of income earners with incomes of up to €50,000 will pay 15% of the total.
The picture for corporation tax is one which is changing rapidly: At €8.2bn, it now accounts for over 16% of all tax revenue.
The payments are heavily concentrated on multinationals, accounting for 80% of the corporation tax receipts last year, while the top 10 payers accounted for 39%.
Ireland’s standard Vat rate is relatively high at 23%. Only six of the 28 EU countries have a Vat rate above 23%, and 19 countries have Vat rates pegged below 23%. Ireland has the highest wine excise tax in the EU; the second highest beer excise and the third highest spirits excise, as well as the highest cigarette excise. However, Ireland has a relatively low 9% Vat rate on hospitality and certain other sectors, and does not charge Vat on most food items.
So the question is whether Ireland is a low tax or a high tax economy?
The standard measure in calculating the so-called national tax burden is tax revenue, including social insurance contributions, as a percentage of GDP, and Ireland has low social security contributions by EU standards. Based on GDP, Ireland, on 25%, is a very low tax economy: It was the lowest in the EU, followed by Romania’s 26% and Bulgaria’s 29% rates, in 2016.
Of course, it is well accepted that GDP is not a good indicator of Ireland’s economy.
The Irish tax revenue based on the modified GNI measure was 37%, which means there are 13 EU countries which pay more tax than Ireland.
These include states with better public services such as France at 48% and Sweden at 45%.
In 2016, the taxes collected per head of the population came to €15,580 in France and to €21,076 in Sweden.
The big tax policy issue is whether to implement higher tax levels to support better public services. Demographics, interest payments, efficiency, scale differences and defence spending all play their parts.
However, who wants to match the French or Danish tax payments?
Anthony Foley is emeritus associate professor of economics at the Dublin City University Business School.