Irish taxation: An unequal burden

Little prospect of move to broaden the tax base, so high rates associated with relatively low incomes will continue

High marginal tax rates apply at relatively low levels of income in Ireland. In consequence, workers earning less than the average industrial wage pay the higher (40 per cent) income tax rate at €33,800. And each additional euro they earn is taxed at double the standard 20 per cent rate. The universal social charge (USC) and PRSI also apply.

As the Irish Tax Institute (ITI) points out in a pre-budget report, Ireland’s income tax rates ensure workers on higher income pay more tax than many of their European counterparts on similar earnings. For those on lower incomes, the ITI found the opposite applied: Ireland had the lowest effective personal tax rate of 10 peer countries – including Germany, Sweden, the US and UK. As the report noted: “The bottom 50 per cent of taxpayer units contribute less than 4 per cent of the personal tax take while the top 12 per cent pay 63 per cent”.

The high rates for middle- and higher-income earners also mean they are paying more in personal taxes than before the financial crisis seven years ago. That position is unlikely to change soon. Minister for Finance Michael Noonan said this week that the USC would be phased out more slowly – over five years – than expected.

A high personal tax take has adverse consequences. High marginal rates reduce the incentive for individuals to work and, for the State, they undermine competitiveness. They make it harder to retain Irish employees with portable skills or to attract workers from abroad. Someone on a €75,000 salary in Ireland pays 21 per cent more in tax than his or her counterpart in the UK.


Efforts to broaden the tax base, thereby enabling a lowering of personal tax rates, have met with strong opposition. Water charges, suspended pending the report by an independent commission on a new charging structure, now seem unlikely to be re-imposed given Fianna Fáil’s U-turn in favour of paying for water through general taxation. The local property tax too has been frozen until at least 2019. All of which leaves even less scope to lower personal tax rates.