This year, Ireland’s wealthiest 10% of wage earners, those with an annual income exceeding €102,000, will be responsible for 63% of total levy from income tax and USC (universal social charge), as stated by the government’s high-level tax strategy group. The group’s yearly set of review papers, intended to enlighten fiscal policies, indicated that Ireland has one of the most developed global progressive income tax systems. Simultaneously, the top 1% of income earners, those who make €290,000 or more per year, will contribute nearly one-fourth of the total receipts (24.4%). Meanwhile, individuals who earn under €69,000—covering the lower 80% tier of income earners— would deliver 21% of the total income tax and USC revenue.
The group questioned whether such a high degree of monetary progression is either economically or fiscally suitable, or if it places a disproportionate financial obligation on other wage earners. It warned of potential negative impacts of high marginal taxes, including decreased work incentives and competitiveness, and even inhibiting foreign investment by affecting the availability of highly skilled workers.
The primary source of government revenue last year was income tax that included PAYE, USC and included other elements, raising nearly €33 billion, and accounting for 37% of the total government tax revenue. As a result of an upward macroeconomic trend, such as growing numbers of employed individuals and wage increases, it is expected that total income tax revenue will grow by 5.6% or €1.9 billion in 2024.
However, the group emphasised an increasing potential risk within the state’s income tax base, with over 40% of total revenue now being derived from multinationals, both foreign and Irish owned. It cautioned that a sudden change in one or more high-income sectors could represent a substantial risk to public finances, with potential impacts likely to be significant rather than gradual.
The organisation’s paper on income tax has calculated the cost of various prospective alterations to the income tax regime. The study suggests that adjusting the income tax model to accommodate a 4.5% wage increase would result in a nearly €1.2 billion expense for one fiscal year.
It’s a long-standing grumble that wage increments often lead to taxpayers being burdened with considerably larger tax liabilities. It’s anticipated that the Government will assign about €1.2 billion from an expected €1.4 billion tax bundle in the forthcoming budget to shield the income tax system from inflation.
Compared to global benchmarks, local workforce tend to fall into the higher 40 per cent tax bracket at quite modest income levels.
If the standard income tax cut-off point, where taxpayers begin being charged the highest rate, were increased from €42,000 to €43,890 (reflecting the 4.5% wage growth), there would be a financial fallout of €465 million.
Alternatively, lowering the peak income tax rate from 40% down to 39% would set the national treasury back by €525 million each year.
In another document concerning corporate tax, the organisation once more emphasised the vulnerability risk at the core of the commercial tax foundation, indicating that overseas multinationals contributed 84% of the €23.6 billion in takings gathered in 2023. The top ten contributors supplied €12.3 billion, making up 52% of the total recycled revenue, marking a drop from 57% in the previous year.