Kieran Coughlan: Potential average tax saving in this October’s budget could be €431
By definition, these persons are earning relatively small incomes.
Students, retired persons, and those with part-time employments are included in this cohort.
To be entirely outside the scope of tax, earnings must usually be below €12,012 in the case of an employee, or €5,000 in the case of the self-employed.
Taking these non-tax paying earners out of the total leaves 1.74m taxpayers.
Once a taxpayer falls within the tax net, the contribution can be as low as 1.5% for those only exposed to USC at the low rate, rising to a hefty 55% marginal tax rate for self-employed persons earning more than €100,000.
The big question is: Is our tax system fair? Fine Gael MEP for Dublin, Brian Hayes, is on record as suggesting it is. Yet, for those just entering the tax system, the imposition of tax can seem unfair. An employee earning €12,000 pays no tax, an employee earning €12,100 must pay €181 in tax.
For those earning an average industrial wage, and burdened with mortgage and childcare costs, the tax system can seem unfair, because disposable income is non-existent.
For a married couple where one person takes on the role of carer, the tax system can seem unfair, given that a joint income couple can have substantially higher earnings at lower tax rates.
At the top end, high earners consider the tax system as unfair. After all, just 9% of income earners (about 215,000 people) pay a whopping 54% of all tax and USC. Each one of those persons contributes more than €78,500 in tax and universal social charge.
For us farmers, the tax system can seem unfair when we invest heavily in an effort to grow our businesses, and ultimately our profitability — but tax relief is either not available, only partially available, or granted over extended periods of time.
For example, the tax code grants no tax relief for land purchase, only partial tax relief in the case of a farmer increasing their stock numbers (usually 25% relief) and in the case of a farmer spending on machinery, allowances are granted over time, usually eight years.
Fairness in the tax system must surely be correlated with flexibility.
They key to unfairness is that an individual’s gross earnings is a rather blunt instrument for measuring their financial contribution to society. In a way, the tax system should be complicated further, so that those persons with the biggest social burdens are granted proportional relief.
Against these views of fairness, the ability for multinationals to route profits to and from Ireland with minimum exposure stands out as the elephant in the room, when it comes to fairness.
Budget 2016, on October 13, will not offer a panacea. We have been reminded of that by Public Expenditure Minister Brendan Howlin saying the “fiscal space” available is maxed at €1.5bn, with 50% of this spread out as tax cuts, and the remainder covering public spending increases.
Based on simple maths, at 1.74m workers, the potential average tax saving could be €431. I hope the budget will favour the person who works hard and who strives to make a better living, always with the fundamental principle that those earning income should be taxed at a lower rate than applicable to passive or unearned income.
So far, it has been suggested that there will be some cuts in the unpopular USC, coupled with efforts to grant self-employed persons a small additional tax break to bridge the gap between them and employees.
Given the “fiscal space” available, it’s likely that any such credit will be a minor affair, worth a few hundred euro at best.
Meanwhile in recent times, farm organisations have latched onto the concept of the multiplier effect on economic growth. As taxpayers’ earnings increase, so too does their spending, which in turn causes extra increases in income across the economy, a ripple growth effect.
