Minimum wage workers avoid top income tax net

By Conor Keane, Business Correspondent

A total of 656,517, or 34.4% of the State’s 1.9 million taxpayers, will pay no income tax next year.

However, more workers than ever will be paying tax at the highest rate of 42% next year.

Last year, 632,185 paid at the highest rate. Next year, 633,740 workers will be paying the 42% rate.

This is as a result of Finance Minister Brian Cowen’s decision to limit the increase in the tax band to just €1,400. This is well short of the €2,500 required to remove thousands of workers earning €28,000 and above from the higher tax rate bracket.

The average industrial wage is €32,000.

Mr Cowen’s increase to the tax bands was just the bare minimum required to maintain the status quo. If the minister had not increased the bands, then a massive 685,848 workers would have been paying tax at the highest rate.

Under Sustaining Progress - the Government’s national pay contract with workers - the Government promised: “To the extent that there is any scope for personal tax reductions, progress will continue to be made over the three budgets contained within the lifetime of this agreement towards removing those on the minimum wage from the tax net, moving towards the target where 80% of all earners pay tax at not more than the standard rate.”

Mr Cowen has fallen well short of this 80% target in his first budget, with just 66.8% of workers paying tax at not more than the standard rate.

At present, one third of workers still pay tax at the highest rate.

Figures released by the Government following Mr Cowen’s budget speech show that just 31.8% of workers, 608,075, will pay tax at the standard rate next year, just 12,164 fewer than if Mr Cowen had not changed the tax bands.

A single person on the average industrial wage will pay a total of €11.50 less per week in tax, because of the changes to the standard rate tax band and tax credits, Mr Cowen added.

Chief executive of the Chambers of Commerce of Ireland (CCI) John Dunne welcomed the removal of minimum wage earners out of the tax net.

“This will be a key driver in wage moderation and attracting people into employment,” he said.

“However, the minimum wage itself will continue to be inflationary unless future increases are synchronised with the national wage agreements,” Mr Dunne warned.

The Labour Party’s finance spokesperson Joan Burton said the outlook was bad. “In the coming year we will still have far more taxpayers in the higher band than was the case years ago,” she added. “He (Mr Cowen) is continuing the basic injustice of a tax system where the incidence of taxpayers on the higher marginal rate is among the highest in Europe.”