Editorial - Budget 2019, and the personal tax take
It is ten years since the fall of Lehmans in 2008, yet Irish personal, as distinct from corporate, taxpayers, are still paying the price - a still heavy one by international standards. The case for giving back is strong and compelling. Evidence-based, as distinct from envy-based, economics shows that when tax takes are higher than in competing jurisdictions at all levels, the jurisdiction with the higher rate slips behind over time in relative growth terms.

Analysis in this month’s [September 2018] Irish Tax Monitor shows that the marginal tax rate on employment income remains at 52% (including 40% income tax, 8% USC and 4% PRSI), and, writing there, Deloitte’s Donna Hemphill says ‘it is widely acknowledged that Ireland’s marginal income tax rate remains too high, and that this is an important factor, that it needs to consider in the war for talent, whether this is seeking to attract key individuals to work in Ireland, or retaining its local home-grown talent’. ‘The likelihood is that Budget 2019 will bring similar increases to the standard rate cut off point as in previous years, (circa €750), coupled with other small positive changes in relation to USC bands and rates.

‘Whilst these changes will be welcomed, we believe that the real opportunity in this year’s Budget is to develop a roadmap that sets out the Government’s short to medium term objectives to reduce the marginal tax rate in line with that of our European competitors.

Meanwhile, a pre Budget report from the Irish Tax Institute shows that after 10 years, workers across all salary levels are still paying more personal tax (income tax + USC + PRSI combined) than they did a decade ago. All types of earners are impacted including single earners, one income families and families with two incomes.

The report shows that the more you earn the greater the percentage decrease in net pay. The net pay of single income earners on €35,000 is down 3% or €964 compared to 2008 while those on €75,000 are down 5% or €2,800.

This remains the case despite a programme of personal ‘reductions’ over the past 7 years that include: 3 increases to the USC entry point, 11 USC rate reductions, 6 USC band widenings, two increases in the entry point into the top rate of income tax (40%) and a 1% decrease to that top rate. However, against that, a new 8% USC rate was introduced on PAYE income over €70,044 and a new 11% rate was introduced on self -employed income over €100,000, and the employee PRSI ceiling of €75,036 was abolished, increasing the PRSI for income over that.

The Tax Institute also highlighted the internationally high, and incresingly so, ‘progressivity’ of the Irish personal tax code showing that in 2012, an individual on €75,000 paid 31.7 times the overall personal tax of someone earning €18,000, while by 2018, this multiple has increased to 53.8, the main driver being the USC - a measure brought in to pay for the GFC.

It is time for the Government, and its Opposition partners to move beyond the politics and economics of envy, and give back to taxpayers what they have earned since the GFC. There would be an inevitable bonus in the form of an extended leg to the Irish, so far corporation-financed, and strongly tax based, recovery.
This article appeared in the September 2018 edition.