Highest tax hikes for top Irish earners

IRELAND’S top earners have been hit with the highest personal tax hikes this year compared with any other country globally.

This is according to KPMG’s latest tax survey which also found the global decline in top personal income tax rates over the past seven years may be coming to an end due to the need for new sources of budgetary and stimulus funding among governments.

According to the KPMG survey the top average personal income tax rate dropped 0.3% worldwide in 2009 to 28.9%.

It said Ireland has implemented a significant tax increase for its top earners by increasing its top rate of tax from 43.5% in 2008 to 52% in 2009 when the top rates of health contribution (5%) and income levy (6%) are added to the income rate of 41%. It notes other countries like Britain have announced an increase for its top earners from next year by increasing the top rate of tax from 40% to 50%.

KPMG Cork partner, Michael Lynch, said: “In the current economic environment, where countries face increasing budget deficits and need funding for various measures, it is becoming clear that some states are turning to those in the highest income brackets amongst their current tax bases to increase revenue.

“Our study has recorded a general decline in top personal income rates over the past seven years, but in 2010 we are seeing indications that a reversal may be on the way, as some countries are already proposing rate increases for its top earners.”

According to the KPMG study, the highest personal income taxes in the world are paid by workers in the European Union (EU). But it said that with the introduction of flat rate taxes in a number of Eastern European countries such as Latvia and Poland, which reduced their top rates to 23% and 32% respectively for 2009, average rates have fallen from 41.1% in 2003 to 36% in 2009.

“High income earners typically have the talent and credentials to migrate to countries that have lower personal income tax rates and a need for skilled labour, so a shift in personal income tax rates could potentially impact global workforce mobility trends,” said Mr Lynch.

Denmark, when factoring in social security and the personal income tax rate, has the highest rate at 62.3%. In the Asia-Pacific region, Japan has the top rate at 50%. Chile has the highest rate in the Latin American region at 40%.

When taking both the personal income tax rate and social security rates into account for employees earning $100,000 (€70,390), the countries with the highest effective rates were Slovenia (54.9%), Croatia (53.5%) and Hungary (48.1%).

Ireland was rated at 33.8% and Britain at 31.8%.

For employees earning $300,000, the countries with the highest effective rates were Slovenia (60.4%), Denmark (57.1%) and Croatia (54.5%). Ireland registered at 43.8% and Britain at 37.9%.

“Social security is often a forgotten tax and many countries are talking about increasing contributions made to these programmes,” said Mr Lynch. “HR professionals need to consider social security along with the entire gamut of taxes – national, state, municipal, in order to better inform their international assignment programmes decisions and discussions.”