Effective Tax Rates after Budget 2022 and Why Ireland remains a low tax country
Central to a thorough understanding of income taxation in Ireland are effective tax rates. These rates are calculated by comparing the total amount of income tax a person pays with their pre-tax income. For example, a person earning €50,000 who pays €10,000 in taxation (after all their credits and allowances) will have an effective tax rate of 20 per cent. Calculating income taxation in this way provides a more accurate reflection of the scale of income taxation faced by earners.
Following Budget 2022 we have calculated effective tax rates for a single person, a single income couple and a couple with two earners. Table 1 presents the results of this analysis. For comparative purposes, it also presents the effective tax rates which existed for people with the same income levels in 2002 and 2012.
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Table 1: Effective Tax Rates following Budgets 2002/ 2012/ 2022 |
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|---|---|---|---|
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Income Level |
Single Person |
Couple 1 Earner |
Couple 2 Earners |
|
€15,000 |
7.7% / 2.7% / 0.8% |
2.2% / 2.7% / 0.8% |
0.0% / 2.0% / 0.0% |
|
€20,000 |
13.8% / 9.8% / 6.4% |
4.7% / 6.3% / 3.4% |
0.0% / 2.3% / 0.0% |
|
€25,000 |
16.2% / 14.0% / 12.0% |
7.1% / 7.2% / 5.6% |
4.1% / 2.5% / 0.6% |
|
€30,000 |
19.3% / 16.8% / 14.8% |
10.2% / 8.6% / 6.1% |
8.5% / 4.7% / 1.9% |
|
€40,000 |
26.4% / 24.2% / 19.8% |
15.7% / 14.2% / 10.0% |
12.3% / 9.2% / 7.0% |
|
€60,000 |
32.4% / 33.4% / 29.4% |
25.3% / 26.2% / 20.9% |
19.3% / 16.8% / 14.5% |
|
€100,000 |
37.1% / 40.9% / 38.1% |
32.8% / 36.5% / 33.0% |
29.9% / 29.7% / 25.6% |
|
€120,000 |
38.3% / 42.7% / 40.4% |
34.7% / 39.1% / 36.1% |
32.4% / 33.4% / 29.6% |
Notes: Total of income tax, levies and PRSI as a % total income. Couples assume: 65%/35% income division. PAYE earners.
In 2022, for a single person with an income of €25,000 the effective tax rate will be 12.0%, rising to 19.8% at an income of €40,000 and 40.4% at an income of €120,000. A single income couple will have an effective tax rate of 5.3% at an income of €25,000, rising to 10.0% at an income of €40,000, 20.9% at an income of €60,000 and 36.1% at an income of €120,000. In the case of a couple where both are earning and their combined income is €40,000 their effective tax rate is 7.0%, rising to 29.6% for combined earnings of €120,000. As chart 1 shows, despite increases during the recent economic crisis, these effective tax rates have decreased considerably over the past two decades for all earners.
Chart 1: Effective Income Tax Rates in Ireland, 1997-2022
Notes: Total of income tax (including USC), levies and PRSI as a % total income. Couples assume a 65%/35% income division. PAYE earners. 2009* refers to a supplementary Budget in that year.
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WHO DON’T HAVE A VOICE
When you support Social Justice Ireland, you are tackling the causes of problems.
Ireland’s Overall Tax Take Remains Inadequate
Data accompanying Budget 2022 outlines Government’s plans for taxation and spending over the next 4 years (to 2025). Over that period, assuming the policies signalled by Government are followed, overall tax and PRSI receipts will climb from €81.7bn in 2021 to €97.9bn in 2025.
While the impact of the pandemic means that Budget 2022 has been framed in a period of continued uncertainty, it is a regret that it did not provide a more strategic perspective on the long-term direction of fiscal policy; particularly as policy begins to consider how our society will look post-pandemic.
Social Justice Ireland believes that over the next few years policy should focus on increasing Ireland’s tax take. Simply, an increase in Ireland’s overall level of taxation is unavoidable in the years to come; even to maintain pre-pandemic levels of public services and supports more revenue will need to be collected. Consequently, an increase in the tax take is a question of how, rather than if, and we believe it should be of a scale appropriate to maintain current public service provisions while providing the resources to build a better society. In other publications we have outlined the details of our proposal for a national tax take target set on a per-capita basis; an approach which minimises some of the distortionary effects that have emerged in recent years. The target is as follows:
Ireland’s overall level of taxation should reach a level equivalent to €15,000 per capita in 2017 terms. This target should increase each year in line with growth in GNI*.
As a policy objective, Ireland should remain a low-tax economy, but not one incapable of adequately supporting necessary economic, social and infrastructural requirements. We regret that Budget 2022 made limited progress on this issue.