There has recently been a substantial upturn in the population of Ireland and a more significant rise in households with an income of over €100,000. Amidst the vast corporations, tax revenues have been raking in from its considerable increase, and owing to an upswing in employed individuals and an upward trend in earnings, the income tax has become substantial. Since 2018, the income tax increase has exceeded €11.6 billion, while the corporation tax ascended to €13.5 billion. Despite corporation tax beginning from a comparably lower base and over doubling, income tax has been a pivotal contributor to the reserves of the national treasury.
Recent insights reported by the Parliamentary Budget Office (PBO) exemplifies the growing dependency on high-earning individuals in terms of income tax contribution. Even though the PBO’s statistics are based on 2021’s final results, the current estimated figures by Revenue Commissioners suggest that roughly 10% of tax contributors earning more than €100,000 will be accountable for 55% of total income tax by 2024.
Internationally, Ireland’s income tax system is remarkably ‘progressive’ as it places a more substantial burden on high income earners. Meanwhile, the tax load on low-income earners remains relatively less, especially for young families. Considering Ireland’s high costs of living, the comparatively narrow income tax base seems justified.
Predicted adjustments aside, the Revenue figures in recent years have consistently shown an increase in households earning over €100,000 yearly, resulting in their proportional contribution towards the income tax bill edging higher. Similar to corporation tax, the revenue obtained from income tax depends heavily on a smaller basis. Many wealthier taxpayers are employed by multinationals, contributing significantly to corporation tax.
In comparison to pre-pandemic figures, the number of high-income earners in Ireland has doubled, making them a key factor in the country’s income tax system.
There’s been a notable surge in the global labour force since 2018, jumping from 2.6 million to 3.4 million in the present year. Over this period, the number of household incomes exceeding €100,000 has escalated at an impressive rate. Tax units—consisting of individuals or jointly-assessed couples—earning above this threshold have doubled from 177,000 to a projected 357,000 this year. This figure might fall short of the truth, given that some couples aren’t jointly assessed, leaving their income outside the count as one tax unit.
The tally of tax units generating income beyond €150,000 has seen an upturn as well, soaring from 67,000 in 2018 to an estimated 146,000 this year. While tracing them to a specific occupation is unattainable, the Central Statistics Office (CSO) earnings data echoes that sectors such as ICT, finance, science, and a few professions tend to feature higher-income profiles.
As a result of the sweeping employment boom in multinational companies, the augmentation in professions like law and accounting, coupled with the robust economic performance, the higher earning sections of the population have witnessed a steep increase. This surge surpasses the anticipated progress spurred by average wage rises, which nonetheless have also had a role in elevating individuals into the €100,000 and above income bracket.
Furthermore, an additional suite of data, albeit somewhat dated, delves into individual taxpayers. This reveals a hike in taxpayers earning over €100,000; from 102,000 in 2018 to 141,000 in 2021. These figures last updated and according to trends extrapolated from this data, it could be deduced that around 200,000 people earn annually in excess of €100,000 now.
Analysing data provided by Revenue offers insight into the proportion of this income tax attributed to multinational business enterprises. Latest figures from 2022 indicate that of the €29 billion taxes paid by businesses in Ireland inclusive of income tax, the Universal Social Charge (USC) and Pay-Related Social Insurance (PRSI), almost €19 billion stems from multinational operations, predominantly from corporations with overseas ownership. This fact aligns with the remuneration levels prevalent in this sector.
According to a cautionary statement released by the Department of Finance, the five sectors responsible for generating the majority of Ireland’s income and corporation tax receipts, approximately 85%, are the same. Therefore, any disturbances in activity within these sectors could negatively impact not just corporation tax revenue, but also income tax income. This highlights the dependency of Ireland’s public finances on the operations of a small percentage of multinational sectors.
It is crucial to note that the exchequer’s finances in Ireland are also susceptible to issues beyond the discussion of corporation tax. The income tax, USC and PRSI contributions from multinational firms and their workers have seen an increase from €8 billion in 2018 to €19 billion in 2022 and are likely hitting the mid-twenties billions currently. A relatively high-income tax-paying group, some of whom are employed by such corporations or rely on them for business, contributes a significant portion of Ireland’s income tax. This group includes many people who do not see themselves as extraordinarily high earners and have considerable connections to Ireland.
On the opposite side, the top percentage of the highest-earning individuals, pays over a fifth of all income tax, revealing the financial mobility of this group.
Policy implications need to be understood carefully. To support an expanding and aging demographic, as well as climate change-related costs, Ireland will have to increase its tax revenue in the forthcoming years. While future governments could attempt to manage expenditure, the feasibility of this is questionable. Additionally, a predicted rise in corporate tax income, expected to stay around current levels in official predictions, is inclined to falls. The Department of Finance and the Fiscal Advisory Council assess that nearly half of these revenues could be unstable due to their windfall nature. Changes in international tax, whether through OECD processes or otherwise, could entail potential benefits and risks.
In the face of present conditions, it’s essential to preserve a robust income tax foundation. The Commission on Tax and Welfare suggested that the current income tax and Universal Social Charge (USC) foundation – which has been diminishing as lower-wage earners receive more USC breaks – should be upheld, and that the social insurance (PRSI) base should be expanded in several ways. The commission has also proposed alternative taxes on wealth through increased capital and local property levies, instead of implementing a new wealth tax. Almost all political parties aim to further decrease the income tax and USC pressure on lower and middle income earners, with Sinn Féin planning to fund this primarily through increased taxes on incomes exceeding €100,000.
Regardless of the chosen approach, the forthcoming taxation strategy for affluent population segments remains an intriguing matter. The commission argued in favour of wealth and property taxes as the more economically-sound alternative, opposing further increases in income tax. However, as financial pressures persist, the expectation is that the wealthier members of society will continue to bear a substantial portion of the tax burden, regardless of the next governing body. Although the number of high-wage earners has increased in recent years, being a part of this group comes with the “advantage” of higher tax payments.