Dáil Éireann Debate, Wednesday - 22 May 2013
11. Deputy John McGuinness asked the Minister for Jobs, Enterprise and Innovation if he has indicated to the Department of Finance his views that income tax rates are a significant influence on multinationals in deciding whether to locate here; and if he will make a statement on the matter. [24417/13]
View answerForfás recently produced a report for Government entitled “Costs of Doing Business in Ireland 2012”. This Report concluded that “While Ireland has already regained some cost competitiveness, further progress is required if Ireland is to return to strong economic and employment growth”.
Total labour costs include wages, taxes on income and employer and employee social security contributions. The Forfás Report concluded that Ireland has “the fourteenth highest total labour costs level in the 28 OECD countries examined”. While Ireland has one of the lowest levels of employers’ social welfare contributions, there is no cap or reduced rate over a specified earnings threshold. Therefore as salaries increase, Ireland’s competitiveness position can be quickly eroded.
Ireland’s tax wedge has grown significantly in recent years as the previous Government imposed 80% of the tax adjustment on income taxes. The wedge is higher for higher income earners – a financial disincentive for highly skilled internationally mobile workers. The tax wedge is important from a competitiveness perspective. Ireland’s 48% personal tax rate is in the top one-third in terms of highest personal tax rates of the 33 OECD countries, however, only 2 of the 33 OECD countries have lower entry levels to the higher personal tax rate than Ireland. The marginal rate of income tax, at 52% for employees and 55% for the self-employed, is higher than in most of our competitor countries, particularly in the UK. It also kicks in at a much lower level of income - in fact, at €32,800 for a single person, the threshold is below the average income. Tax rates of over 50% on average incomes damage inward investment and entrepreneurship, and make too many people question whether they would be better off not working at all. That is why I have publically argued that we must also as soon as possible begin to reduce the income tax burden, starting with hard-pressed families on average incomes who have endured so much over recent years, and put a little badly-needed extra cash in their pockets.
The Forfás Report recommended “no further increases in the labour tax wedge” and identified the need “to flag when it will be feasible to reduce marginal labour rates below 50 per cent”.
I have brought this Report to the attention of cabinet colleagues. As Jobs Minister, I must be alert to the impact this can have on our ability to create employment. This issue is raised with me when I visit the board rooms of major potential investors.
The CEO of IDA Ireland has also stressed that in the fierce competition for international investment, Ireland must be wary of losing its attractiveness as a location to employ highly skilled labour. As an open economy, highly reliant on FDI, Ireland must be sensitive to the impact of personal tax rates and structures on labour costs.
The very heavy reliance on personal tax adjustments in the 2009 Supplementary Budget, Budget 2010 and Budget 2011, in particular the introduction of the Universal Social Charge, has resulted in Ireland having higher marginal personal tax rates relative to other jurisdictions.
To summarise, Ireland’s competitiveness position in terms of personal tax rates is a combination of the actual rate and the entry level relative to other jurisdictions.
