Workers see tax on labour rise 10% in 3 years

The tax on labour facing a single worker earning less than the average wage has increased by more than 10% — one of the highest rises in the EU over the past three years.

But at 28.7%, the tax wedge is second only to Britain at 25% despite increases following the banking crisis.

The figures for tax trends in the 28 member states show that Ireland is still among the least taxed countries when direct, income, and corporate taxes are taken into account.

The tax wedge is less than two-thirds of the EU average while the slice of income taken by the State has increased from nearly 15% in 2007 to 21% last year.

Taxation commissioner Algirdis Semeta is urging countries to reduce the burden of tax on labour, saying it would help businesses become more competitive, especially in hard-hit economies.

While most countries have reduced the tax wedge on labour over the crisis years, those hit hardest by the recession have increased it, including Ireland, Greece, and Portugal.

One of the issues raised in relation to Ireland is that the State income from Vat could be increased if the net was widened.

The European Commission’s guidelines for next year’s budget drew attention to the fact that Vat was lowered for the tourist industry and that this is being maintained despite no proof that it is beneficial.

They also questioned the range of goods that come under the zero-tax rate, suggesting this should change.

Mr Semeta said: “Tax rates do not necessarily need to rise to have stable revenues. In this respect, the steady increase in Vat rates across the EU, which the report reveals, could be curbed if Vat systems were more efficient.

“Many member states could even lower their standard Vat rate if they broadened their tax base and relied less on reduced rates.”

He repeated that labour tax is generally too high across the EU while growth-friendly bases, such as environmental taxes, are under-used in many countries.