Tax burden of single workers in Ireland increases again

Single workers saw their tax burden increase yet again in 2018, according to a new report from the OECD, which shows that the gap in the tax burden between single workers with no children and one-earner married couples has now stretched to 15 per cent.

The survey also reveals however, that when low income single workers have children in Ireland they face one of the lowest tax burden across the OECD.

The report, Taxing Wages 2019, measures the so-called tax wedge – the difference between a person’s take-home pay and what it costs their employer to employ them. Bigger tax wedges are seen as a disincentive to employment.

It also considers the net personal average tax rate, which measures the income tax and social security contributions paid by employees, minus any family benefits received, as a share of gross wages.

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This year’s survey shows that single workers in Ireland faced an average tax wedge of 32.7 per cent in 2018. This means that single workers here have the 25th lowest tax wedge among the 36 OECD member countries, the same position as in 2017.

This is up by 0.12 percentage points on 2017, and is substantially higher than the wedge faced by a one-earner married couple with two children and earnings at the average wage level, of some 17.3 per cent.

The OECD average tax wedge in 2018 was 36.1 per cent, with the highest figure reported in Belgium (52.7 per cent), Germany (49.5 per cent), Italy (47.9 per cent), Austria and France (47.6 per cent). The lowest were in Chile (7 per cent), New Zealand (18.4 per cent) and Mexico (19.7 per cent).

Steeper increase

But Irish single workers have faced a steeper increase in their tax burden. Since 2009, for example, the tax wedge for the average single worker in Ireland rose by 2.9 percentage points, while the tax wedge for the average single worker across the OECD increased by just 0.6 percentage points during the same period.

When it comes to average tax rates, single workers in Ireland faced a net average tax rate of 25.4 per cent in 2018, which means that their take-home pay, after tax and benefits was 74.6 per cent of their gross wage. So a single worker on an income of €50,000 would get to keep €37,300 of their income after tax.

This compares with the OECD average of 25.5 per cent, and is substantially less than some of the highest rates across the region: Belgium (39.8 per cent), Germany (39.7 per cent) and Denmark (35.7 per cent). On the other hand, the lowest were in Chile (7 per cent), Mexico (10.2 per cent) and Korea (14.9 per cent).

The survey also shows a widening gap between single workers and one-earner families with children in Ireland. These families benefit from both child benefit (@ €140 per child per year) as well as the ability to earn more at the lower rate of tax, at €44,300 compared with €35,300 for a single worker.

Indeed, the survey shows that the gap is now over 15 per cent of labour costs in Ireland.

The gap means that a family with one earner and two children will have a tax burden of just 8.3 per cent in 2018. This means that this Irish family had a take-home pay, after tax and family benefits, of 91.7 per cent of their gross wage compared to 85.8 per cent for the OECD average. So a family earning €50,000 will get to keep €45,850 after tax.

This is the 28th lowest in the OECD, and is far lower than Turkey (26.2 per cent) and Denmark (25.2 per cent). On the other hand, the lowest average tax rates were in the Czech Republic (0.2 per cent), and Canada and Estonia (both 1.8 per cent).

Low-income workers

In previous years Ireland was the only OECD state where lower-income families received more back from the State – in the form of child benefit – than they contributed in tax. However, this situation has now changed, and the survey shows that the lowest tax wedge faced by a single Irish worker on 67 per cent of the average wage (or about €26,534) is 3.1 per cent. This compares with a comparable rate of 10.4 per cent in the UK and 25.2 per cent in France. It means that someone on such a wage would lose just €822 a year (including employer taxes) on their income.