Do we really pay the lowest amout of tax in Europe?
Smart Money: New figures list Ireland as one of the lowest-taxed economies. But it’s not that simple...
Taxing matters: We pay a relatively high amount of income tax but a low amount of social security contributions by international standards. Photograph: iStock
The Republic is the third lowest taxed economy in the industrialised world, according to new figures from the OECD. Of the 37 countries examined in the data, only two – Chile and Mexico– had lower tax takes compared to the size of their economy. Given that anyone on a middle to higher income sees a large chunk disappear in income tax – and that we are hit with VAT,excise, property tax and more, how can this be? You need to look behind the figures to make some sense of it, but the trends are interesting. They point to how we pay tax may change in the years ahead. And they suggest that even if the way we pay changes, the overall burden is unlikely to fall by much.
1. Tax and the Leprechaun economy
First off, we need to look at how the figures are calculated, which is looking at the tax take as a percentage of GDP. The cash value collected in taxes in each economy is directly comparable, but in the Irish case GDP has been inflated by the activities of multinationals here.This has been a distortion in Irish national data for years, but the figures were really thrown out in 2015 when multinational reorganisation driven by international tax changes sent Irish GDP shooting up by 32 per cent in cash terms. This led to a big fall in the Irish Tax to GDP ratio from 28.7 per cent in 2014 to 23.6 per cent in 2015.