Dáil Éireann Debate, Thursday - 1 February 2024
118. Deputy James Lawless asked the Minister for Finance how the income tax treatment of employees with salaries of €100,000 in Ireland compares with other EU countries; and if he will make a statement on the matter. [4276/24]
View answerIt is a general principle of taxation that, as far as possible, income from all sources should be subject to taxation. Ireland has a progressive income tax system which is structured such that the more income a person has, the more tax that person pays. Therefore, a progressive tax system ensures that the burden of taxation falls most heavily on those with a higher ability to pay. As a person’s income increases they move up through the various rates and bands and, as a result, while the levels of net pay increase overall, the amount of tax they pay also increases.
For example, in 2024, it is estimated that the top ten per cent of income earners, those earning in excess of €102,000, will contribute around 63 per cent of the total income tax and USC collected this year. In contrast, those earning €69,500 or less, which represents the bottom 80 per cent of income earners, will contribute 21 per cent.
Ireland has one of the most progressive systems of taxes and social transfers of any EU or OECD country. These systems contribute to the redistribution of income and to the reduction of income inequality in Ireland. Our redistributive tax system has been acknowledged by the IMF, the OECD and the ESRI.
In addition, it is useful to examine the tax wedge – a measure of workers labour income taking account of employee and employer taxes less benefits as a proportion of employer costs. It essentially captures the tax burden facing workers.
The latest OECD data, available for the year 2022, show that Irish lower income workers, in general, have lower effective tax burdens / wedges than their EU and OECD counterparts. The wedge for below-average income earners was 25½ per cent in 2022, below the OECD average; and when compared to the wedge of above-average income earners, Ireland is the most progressive EU Member State, and is the third most progressive in the OECD.
It is my view that a broad-based, progressive income tax system, where the majority of income earners make some contribution but according to their means, is the fairest and sustainable income tax system in the long term.
