Mortgage relief better for lower income homeowners

Mortgage relief in Ireland bucks international trends with those on lower incomes benefiting more than those with higher incomes, new research has shown.

The Economic and Social Research Institute looked at income tax, the universal social charge, and mortgage relief as it examined their impact on the exchequer.

Edgar Morgenroth, an associate research professor at the ESRI, said mortgage interest relief, one of the most common income tax reliefs in the past, was notably progressive with those at lower income levels benefiting proportionally more than those at higher income levels. This is despite those at higher income levels benefiting more in absolute terms.

He said: “Ireland is different to other countries in that we’re finding mortgage relief a progressive tax, not the other way around. One reason is that Irish people own homes much more than other countries.”

The research finds that income tax revenue automatically increases by 2% for every 1% increase in taxable income. For the USC, revenue automatically increases by 1.2% for every 1% increase in taxable income.

The researchers said the results imply that income tax revenues are more sensitive to economic fluctuations than the revenue arising from USC. The analysis also shows that income tax revenues are more progressive than universal social charge revenues.

Mr Morgenroth said: “The research doesn’t take the view that one is bad, good, or better than the other. It depends where you stand. If you are concerned about keeping tax revenues stable, then USC is more stable than income tax. But if you are concerned with progressivity, then income tax is preferred.”