Jackie Cahill
Ceist:91. Deputy Jackie Cahill asked the Minister for Finance how the income tax treatment of low paid workers in Ireland compares with other EU countries; and if he will make a statement on the matter. [4264/24]
Amharc ar fhreagraThursday, 1 February 2024
Ceisteanna (91)
Freagraí scríofa
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.
Focusing on the tax system, Ireland’s progressive tax system ensures that the burden of taxation falls most heavily on those with a higher ability to pay. This means that those on lower incomes pay less income tax as a share of their income than those on higher incomes. It is estimated that the top 10 per cent of income earners, those earning in excess of €102,000 will pay 63.2 per cent of the total income tax and USC collected in 2024. In contrast, those earning €69,500 or less, which represents the bottom 80 per cent of income earners, will contribute 21 per cent.
In addition, the latest OECD data show that Ireland recorded the third largest absolute reduction in the Gini coefficient – a measure of income inequality – between market and disposable income in 2020. Almost one-third of the reduction was due to the tax system. The absolute reduction due to tax has remained the largest in the OECD since 2009. This points to the strongly redistributive nature of the tax system in Ireland.
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 wedges than their EU and OECD counterparts. The tax 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.
Budget 2024 included a €1.3 billion personal income tax package, which was designed to reduce the tax burden on income taxpayers, including lower income earners. The budget tax package was built around 3 key pillars: changes to tax credits, the standard rate band and USC, and the Government sought to use each of these levers to spread the benefit of the available package as effectively as possible.
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.