In tax and benefits terms, it has long been assumed that it is better to work in Northern Ireland but to receive unemployment benefit or a State pension in the Republic, not that you can do both. Jobseeker’s allowance here is €208 a week while the basic State pension is €248.30.
These rates are considerably better than their equivalents north of the Border – £77 (€91) and £129.20 respectively – even when discounting for currency differences and living costs. The Republic’s State pension – in terms of purchasing power parity (PPP), an OECD-designed measure that compares purchasing power (in dollar terms) across jurisdictions – is $304.29, about 1.7 times the North’s equivalent ( $180.45).
Why these basic social protections are stronger in the Republic is an open question – it used to be the reverse – but they’ve been cut by successive UK governments since the Thatcher era of the 1980s. Conversely, welfare rates in the Republic were maintained at relatively high levels even through the austerity period that followed the 2008 financial crisis, a point that is rarely acknowledged by the left.
The income tax systems throw up a different set of issues. The relatively modest levels of income at which workers in the Republic start paying the top rate generates near universal rancour and is indisputably out of kilter with peer countries, including the UK. The higher rate of tax (currently 40 per cent ) in the Republic applies to all gross taxable income above €36,800 for a single person (Central Statistics Office figures from 2020 put the average full-time salary at €49,000). In addition, a 4 per cent rate of PRSI applies, along with the universal social charge of up to 8 per cent for employees, depending on your income level. Those earning below €13,000 are exempted from USC.
Business groups claim “high rate meets low entry point” effectively penalises work and undermines the Republic’s competitive offering. Workers in the UK (and Northern Ireland) pay the higher rate only at income levels above £50,271.
Tánaiste Leo Varadkar and Minister for Finance Paschal Donohoe insist reducing the tax burden for workers remains a core objective of the Government. Events – Brexit, Covid-19, higher inflation – keep getting in the way, of course. Either way, the low entry point appears to confer an advantage on workers north of the Border. Hence the conclusion that Northern Ireland workers – in tax terms at least – are better off.
Income tax, however, is only part of the tax equation for workers. What’s seldom considered in these comparisons is the social insurance component. A new study comparing the tax and benefits systems North and south shows that when this is included, some cohorts of workers in the Republic pay on average less tax than their counterparts in the North.
The study by Queen's University academic Mike Tomlinson – entitled Social Security in a Unified Ireland and published in this month's issue of the academic journal Irish Studies in International Affairs as part of the Analysing and Researching Ireland North and South project – examines the income tax/welfare issues involved in a united Ireland. In other words, who would gain and who would lose in unified system.
Tomlinson arrives at his conclusion by looking at the gross income of various earners in the North and comparing what they currently pay under the UK tax code and what they would pay if the Republic’s system applied.
The bottom 10 per cent of workers in the North, those on gross salaries of €387.40 a week, pay €43.80 in tax, a combination of €20.80 in income tax and €23 in social insurance. In the Republic, they would pay €27.70, comprising €14 in income tax, €4.30 in USC and €9.40 in social insurance.
For middle-income earners on €630 a week, the tax advantage of the Republic’s code is greater. Workers currently pay €121.40 in tax under the UK code, comprising €69.30 in income tax and €52.10 in social insurance. If the Republic’s system applied, they would pay €101.60, comprising €62.50 in income tax, €13.90 in USC and €25.20 in PRSI – so 16 per cent less.
His study finds that all income groups except the top 30 per cent of earners would end up paying less tax in the Republic’s system, effectively debunking the notion that most workers would be better off labouring north of the Border.
“From an employee perspective, the overall differences between the Irish and British tax codes [including social insurance] are not great,” Tomlinson says.
“The South has lower insurance contributions but higher income tax plus USC deductions over most of the income range,” he says.
“Overall, most employees in the North on low and middle incomes would be better off under the South’s PAYE system,” he says. His study also examines the implications for the public finances of a unified system, finding that using the Republic’s tax code would result in an additional €769 million in tax being collected in the North.
This was primarily due to the higher tax on high earners and the higher social insurance contributions from employers. Tomlinson’s paper is just of one several recent studies to examine the economic and financial implications of a united Ireland, a concept that had received little academic attention until Brexit.
This is likely to change given Sinn Féin’s success in becoming the largest party in the North’s recent Assembly elections, which has put the issue of a Border poll and a united Ireland very much on the agenda.