Low-paid workers’ exemption from tax base ‘unfair’ on middle earners

Tax institute calls for broader personal tax base and simplified social insurance system

Exempting so many low-paid workers from the income tax base is placing an unfair burden on middle-income earners, the Irish Tax Institute (ITI) has said.

In a submission to the recently established Commission on Taxation and Welfare, the institute said that in 2022 taxpayers here will be paying personal tax at marginal rates of 48.5 per cent on salaries above €36,800 and 52 per cent on salaries above €70,044, which it said were among the highest in the world.

It noted that these high rates apply while 28 per cent of income earners, equating to almost 700,000 workers, will pay neither income tax nor the universal social charge (USC).

It said the USC, the broadest component of the income tax base here, has been gradually eroded over the last seven years. It accounted for 23 per cent of the income tax take in 2015 but now accounts for less than 18 per cent. And the number of taxpayers exempted from paying it has risen from 12 per cent when it was first introduced in 2011 as an emergency measure in the wake of the 2008 financial crisis to 28 per cent in 2021.

“Put simply, the cost of exempting over a quarter of workers from the tax net falls on the shoulders of modest-income earners,” the ITI said.

“The institute believes that a broader personal tax base would make the Irish system more sustainable and would reward those who work to increase their earnings. It would also bring us into line with competitor countries internationally,” it said.

While the current trend of salary increases should bring more taxpayers into the USC net, “we believe that the policy rationale for exemptions needs to be re-examined”, it said.

It queried why all social welfare payments are currently exempt from USC irrespective of the total income of the recipient while individuals aged 70 years and over only pay a maximum USC rate of 2 per cent provided their total income is not more than €60,000 per year.


The taxation commission, the body set up to look at various ways the State can fund itself into the future, received more than 200 submissions as part of the public procurement process ahead of its deliberations.

The tax institute said the imminent changes to the international corporation tax system mean that the attractiveness of a country’s personal tax system and the cost of employing workers in a country will become an increasingly important factor in determining where businesses locate.

"In our view, an objective of any long-term strategy aimed at attracting and retaining foreign direct investment should include reducing the marginal cost of employment in Ireland for both businesses and individuals," it said.

It also called for Ireland’s social insurance system to be simplified and reformed so that it is on a par with our European counterparts.

The institute also took aim at the Government’s proposed site value tax, suggesting a tax based on the value of land, without regard to the value of any development or buildings on that land, was not appropriate for residential property.

However, it said there was merit in considering a site value tax which would replace the existing commercial rates system for businesses.