Peter Reilly, Tax Policy Leader, PwC Ireland: Despite healthy budget surpluses in recent years, broadening Ireland’s tax base is important given the growing headwinds facing the global economy. Although the Irish Government has had the fiscal space to cut taxes and simultaneously raise spending in recent budgets, this approach is unlikely to be sustainable in the event of an economic slowdown. The OECD has called for the development of a roadmap to explore how Ireland can diversify its tax receipts - and this is exactly what is needed. A recent report published by the Revenue Commissioners indicated that the foreign multinational sector accounted for 84 per cent of all corporation tax in Ireland in 2022. Amid the zeitgeist of growing protectionism, a move to reshoring, and an increasingly competitive battle for FDI, it is imperative that Ireland enhances the productive capacity of its indigenous sector.

In terms of personal taxes, although Ireland has a highly progressive system, the exclusion of a large number of individuals from the tax net should be reconsidered to broaden the tax base as the OECD has suggested. The top 20% of taxpayers in Ireland account for approximately 80% of the personal income tax yield, with 40% of personal income tax receipts linked to salaries paid by multinationals.

Additionally, in 2023, 37% of taxpayers were exempt from USC reflecting increases in the entry threshold over the past few years. This is despite the original purpose of the USC being to broaden the income tax base. A narrowing of the tax base results in the need to apply higher marginal tax rates – currently 40% - to maintain revenue targets. From a competitiveness standpoint, Ireland needs to be wary of being an outlier in terms of high marginal income tax rates which also create disincentives to work more.

Additionally, Ireland’s most recent Commission on Taxation recommended reform of the pay-related social insurance base to bring more people into the system and a similar broadening of the VAT base. In respect of the latter, while the standard VAT rate in Ireland is the fourth highest in the EU at 23%, reduced rates are widespread with 0% on food, water, books, and children’s clothes, and 13.5% and 9% on heating oil and solid fuels, construction, many hospitality and tourism-related services. Increasing the reduced rates of 9% and 13.5% by just one percentage point could yield additional revenues of EUR 64 million and EUR 519 million per year, respectively, according to Department of Finance calculations.

Aisling Curran, Tax Director, Forvis Mazars: The population is growing fast, and Ireland has never had as high a share of those in their prime working years in employment. According to the February 2025 CSO figures the labour market comprises of a record 2.8 million workers and tax receipts for February are €900 million, 21% ahead of the same month last year. With the economy at, or close to, full employment, improving the medium-term resilience of tax revenues is key to ensuring long-run fiscal sustainability.

Ireland is considered to have an unusually narrow personal tax base. Around one-third of income earners in Ireland do not pay personal income taxes or the universal social charge. Meanwhile, the top 1% of income earners in Ireland contribute a little under one-quarter of all income tax and USC payments. A significant portion of these high earners work for multinational companies. It is well known that Ireland has a high reliance on corporation tax and employment tax revenues from multinationals, which can create risks. A broader personal tax base, in which all taxpayers contribute according to their means, would be more sustainable, and bring Ireland in line with competitor countries.

There has also been steady growth in VAT receipts. The reduced VAT rates could be an area to be examined to diversify tax revenues, effectively broadening Ireland’s tax base. We need to ensure the country remains an attractive location for inward investment.

The cost of employment is a key consideration in investment decisions. Current vulnerabilities in Ireland are our housing crisis, the increasing cost of doing business and struggling national infrastructure, all of which our Government assure us policy efforts will focus on these areas which shall support both our foreign and domestic investment.

This article appeared in the March 2025 edition of the Irish Tax Monitor.