Individual Income Tax Changes In Irish Budget

By Global Tax Weekly

We often refer to Ireland’s corporate tax advantage when discussing international tax issues and the competition for foreign investment. Less discussed beyond Ireland’s shores, I’m sure, is its individual income tax disadvantage.

While Ireland’s top rate of personal income tax at 40 percent (recently reduced from 41 percent) is broadly in line with other European countries, it kicks in at a relatively low amount of income (EUR33,800 in 2017). When Universal Social Charge – brought in as part of Ireland’s fiscal retrenchment deal with its bailout creditors – is factored into the equation, this has resulted in a marginal tax rate of over 50 percent for some, which places Ireland among the Nordic nations in terms of individual tax.

By comparison, the UK’s higher 40 percent rate of tax applies to income exceeding GBP45,000 this year, which is the equivalent of more than EUR50,000. Unsurprisingly then, there has been something of a brain drain of Ireland’s best and brightest across the Irish Sea in recent years. Indeed, overwhelmingly, entrepreneurs in Ireland believe that the country’s personal income tax system is the single-biggest deterrent to those interested in establishing and growing a business in the country, if the results of a recent survey by EY are to be believed. Of the 160 entrepreneurs from Ireland who were previously finalists in the firm’s Entrepreneur of the Year program, 72 percent expressed this opinion.

In fact, while Ireland excels on corporate tax, it hugely disappoints on individual tax. According to IBEC, Ireland’s main business and employer association, it is misleading to label the country as “low-tax” just because it has a 12.5 percent corporate tax rate. In 2014, IBEC said the individual income tax burden as a percentage of GDP was 11.6 percent in Ireland, comfortably above the EU average of 9.5 percent. And according to the OECD, Ireland’s tax system is one of the most progressive in world.

Finance Minister Paschal Donohoe deserves some praise for recently calling out the injustice of the current situation, describing it as as “unsustainable” and “unfair.” And the Government is at least attempting to alleviate the tax burden on the middle class. But it’s a slow old process. The marginal tax rate on income up to roughly EUR70,000 ticked down to 49 percent as a result of tax measures announced last year, and will ease to 48.75 percent under changes announced in the 2018 Budget last week. Hang on to your hats! At this rate, it’s difficult to forecast what will happen first – a top marginal rate of 40 percent or humans setting foot on Mars.

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