Families score best on Irish tax system

IRELAND has the most family-friendly tax regime in the world, with some low-paid families getting more than their wages — thanks to state allowances.

An OECD report looked at the amount of money families lose in income tax and social welfare contributions and offset it against payments from the state such as children’s allowances. Ireland is well down a world list of earnings in terms of gross wages. But a married couple on average earnings with two children, with just one person working, is better off in Ireland than most of the EU countries, the US, Japan and Australia.

Due to a mixture of relatively low income tax rates, a high threshold before a person becomes liable to pay tax and low social welfare contributions, the average Irish family pays less than almost all others.

Taking into account children’s allowances of €160 for the first two children and €195 for the third and other children, low-income families effectively pay no tax.

The report estimates that a family earning €31,336 a year actually receives 1.1% of the salary back from the State — or €344 a year.

This compares to a single-earner married couple with two children in Hungary who pays a total of 43.8% of their average earnings in tax and social welfare contributions.

The average for the OECD countries was 27%.

Irish single individuals without children on an average industrial wage also fared better than almost all others handing over just over 22% of their salaries in tax and social contributions in 2007. Social security contributions for employees of 4.7% are also among the lowest in the 30 countries surveyed. This compares with Belgium, the most heavily taxed country in the OECD where workers lose more than half of their salary, as do those working in Hungary and Germany, when social security contributions are taken into account.

Ireland came third last with just New Zealand, Korea and Mexico taking less contributions from workers.

Irish taxpayers benefit from paying no state or local taxes and, due to reductions in tax over the past few years, their outgoings have dropped on average by 0.7 percentage points.

But Ireland was well down the list — 20th — in terms of gross wage earnings with the average estimated in terms of purchasing power at $31,042 in 2007. This compares with the highest, Britain, at $51,097, Germany at $49,744 and $43,812 in Belgium.

The report noted that across OECD countries, tax changes have tended to favour low-wage earners but in a few countries including Germany, Luxembourg and the US, tax reforms have mainly benefited higher income groups.

In the US, those in the higher income brackets saw their tax burden drop by 1.6 percentage points and those on average or below-average earnings saw little change.