High and low earners pay more tax pro-rata compared to those in middle

Irish top and bottom earners pay more in taxes on a pro-rata basis than middle-income earners, according to research conducted by the Nevin Economic Research Institute (NERI).

Overall, the Irish income tax system is progressive, though the indirect taxation system is regressive, said the report’s author, Michael Collins.

On average, Irish households pay 13.6% of their gross income in direct taxes and 10.36% in indirect taxes, which includes Vat, excise and levies.

“The direct income taxation system is progressive — as income increases, more tax is paid as a percentage of gross income,” said Mr Collins. “The indirect taxation system is regressive — as income increases less tax is paid as a percentage of gross income.”

In the period leading up to the economic crash, Ireland had become one of the most lightly-taxed countries in the EU. Income taxes were cut as the Government became increasingly reliant on transient property taxes, such as stamp duty, to finance public spending. Since 2008, successive budgets have ramped up direct and indirect taxes to offset the collapse in property taxes. There has been an ongoing debate about which socio-economic cohort has suffered most from these consolidation measures.

Mr Collins’ research found that the bottom decile of the population as a percentage of gross income paid 30.64% of their income in direct, indirect and total household taxation. The fifth decile had the lowest burden, with just 17.03% in direct taxes, whereas the top income decile paid 29.69%.

On the other hand, the lowest income decile paid 29.93% of their income in indirect taxes, whereas the top decile paid 5.7%.

“Three deciles contribute taxation to the exchequer at above the average level: The top two deciles and the bottom decile. This gives a U-shape to the overall household tax contribution curve — households at the bottom and top of the income distribution contribute the most, with contributions as a percentage of gross income declining to their lowest points in the third, fourth and fifth deciles and then increasing after that towards the top decile,” said Mr Collins.