Tax: how does Ireland compare with other countries?

All other things being equal, when it comes to tax, middle-income earners would most certainly like to earn their salaries in Singapore or the US.

Figures show that someone earning €48,000 in Ireland will pay over €4,000 more in personal taxes a year than they would in the US, while if you earn €150,000, you would get to keep a staggering additional €40,000 if you earned that money in Singapore rather than Ireland.

On the other hand, if your income is at the other end of the scale, you may be happier to be tax resident in Ireland. Someone earning €25,000, for example, will get to keep almost €350 a month more in Ireland than they would if they had earned it in Germany.

Of course, looking at tax alone is not enough. Cost of living and the welfare system are other important factors in determining how far your salary will go. A report from the Organisation for Economic Co-Operation and Development (OECD) earlier this year found that real wages actually fell in Ireland last year, by about 3.3 per cent, due to the impact of high inflation.

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However, in the wake of last month’s budget and in advance of general election campaigning next year, it is of interest to consider just where Ireland sits by comparison with others on the personal tax burden.

Thanks to data prepared by KPMG and the Irish Tax Institute, based on income tax, USC and PRSI burden – or their equivalent – across a number of countries in 2022, we can get a good idea of how Ireland compares.

As mentioned, there are some caveats: while the social security burden might be greater in France, for example, it does deliver greater social/health/welfare benefits. In addition, the situation has changed due to the impact of last year’s budget, and will change further in January.

Lower paid workers

First of all, let’s take a look at lower paid workers. From the data prepared, it is evident that they fare better in Ireland when compared to taxpayers in other countries.

As the table shows, an individual earning €25,000 in Ireland will lose just €3,012 of their annual income in the range of personal taxes, which means they get to keep €21,988. This puts Ireland in second place out of the eight countries surveyed in terms of the lowest tax burden, and equates to an effective tax rate of about 12 per cent.

In Germany for example, the highest-taxed country at this income level, the same worker will get to keep only €17,831 of their salary – or some €4,157 less than an Irish worker, while in France, net take-home pay will be almost €3,000 less than in Ireland.

The US and the UK are broadly similar to Ireland but it is low-tax (and high-cost) Switzerland, where the burden is the lowest.

If you are living in Geneva or Zurich, you will pay only €158 a month in taxes, or €93 a month less than you would in Ireland, but you will undoubtedly face other challenges in such a high-cost economy.

But are the level of taxes on this cohort of workers low enough to suggest they should be changed?

Earlier this year, as part of a consultation held by the Government on the future of Ireland’s personal taxation system, a number of responses called for an increase in the burden of taxation to lower paid workers. This is because a high proportion of personal-income-related taxes in Ireland is collected from a small pool of higher paid workers. The top 25 per cent of earners, or those earning €50,000 or more, contribute about 80 per cent of total income tax revenues.

[ More than one million workers paying higher rate of income tax ]

On that basis, groups including the Consultative Committee of Accountancy Bodies – Ireland (CCAB-I), PwC and KPMG, urged greater use of base-broadening measures, so that those on lower incomes contribute a greater share of the overall tax take.

However, while a more balanced tax take might be good news for the exchequer, it could prove untenable to a group of taxpayers who also have to deal with rising costs right across the economy.

Middle-income earners

Those earning close to the average wage fare a little bit worse when it comes to the proportion of their income they must give up in taxes when compared with other jurisdictions.

Ireland slips back to fifth place, behind countries such as the US, Switzerland and Singapore, in terms of how much of a €48,000 salary a worker gets to keep, at €36,193.

In the US for example, a worker will only lose €7,665 of their €48,000 salary, compared with €11,807 in Ireland, which equates to an effective tax rate of 24 per cent. This means that if you earned the same salary in the US, you would only give up €639 in taxes each month, compared with almost €1,000 a month in Ireland.

[ Ireland identified as one of the world's top tax havens ]

On the other hand, Irish workers fare better than counterparts in France, Sweden and Germany. Again, German workers give up the most of their income in tax – some €17,483 a year – which equates to an effective tax rate of some 36 per cent. Of course, German workers have access to social security benefits that may not be accessible to Irish workers, so it’s not always easy to compare on a like-for-like basis.

And recent budgetary measures may shift this comparison somewhat; for example, someone earning €48,000 will pay €770 less in tax next year than they would have done this year.

Moving up the income ladder to a salary of €75,000, Irish workers are in a similar position, giving up €25,076 of their income in tax each year for an effective tax rate of about 33 per cent.

This puts Ireland behind lower cost locations such as Singapore, the US and Switzerland, but also behind the UK, where a worker will lose €21,754 in personal taxes a year, or €3,322 less than they would in Ireland.

This is in part due to the relatively low level of earnings at which workers start paying the top rate of tax; as the Irish Tax Institute/KPMG study points out, Irish taxpayers currently pay personal tax (including income tax, USC and PRSI) at marginal rates of 48.5 per cent on salaries above €40,000 and 52 per cent on salaries above €70,044. Self-employed taxpayers pay marginal rates of 55 per cent on income above €100,000.

Higher earners

But what about higher earners, or those earning €100,000 or more a year?

In line with Ireland’s progressive system of personal taxes, whereby the more you earn, the more tax you pay, those earning €100,000 a year will find that they have the third highest tax burden among the countries surveyed, behind only to Germany and Sweden.

[ Sinn Féin would hike taxes on the better off. Is that good or bad for the economy? ]

An Irish worker will lose €38,076 in taxes every year, just behind the tax burden in Sweden, but still almost €5,000 less than a German worker on the same salary will pay.

Unsurprisingly perhaps, a worker in Singapore will pay just about €16,500 tax on their €100,000 earnings, followed by the US and Switzerland. Again, a UK worker will pay about €5,500 less on their earnings than their Irish counterpart.

It’s a similar story for those earning €150,000.

In Singapore, you’ll get to keep €10,443 of your salary each month; in Sweden, this will be just €6,913, or a hefty €3,500 less. And in Ireland? A little more than €7,000, so better than Sweden, but still at the end of the pile, and again, behind the UK. This works out at an effective rate of some 57 per cent.

Next year, someone earning €150,000 can expect to pay €855 less in tax a year.