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Cutting top rate of tax could give 'half of taxpayers' more money in their pocket

Ibec also believe it would help stem brain-drain.

Image: pocket money via Shutterstock

EMPLOYERS GROUP IBEC is calling for an overhaul of Ireland’s 52% marginal tax rate in Budget 2015, describing the system as one of the most punitive in Europe.

The group published this morning a detailed analysis of Ireland’s tax system, ‘Debunking Irish Income Tax Myth’.

It claims that as many as half of taxpayers are paying the marginal rate of 52%, far higher than previous suggestions that 17% pay this rate.

Ibec’s chief economist Fergal O’Brien described the 52% rate as “eye-watering”, and a “barrier to investment and job creation”.

“The suggestion that only a small number would benefit from a cut to the marginal rate is often repeated, but is wrong. Around half of taxpayers pay at the marginal rate,” he said.

Positive economic trends mean we now have a chance to ease the pressure. We need to take it.
Austerity was necessary, but it has had its day. Those advocating another brutal budget are out of touch with the current economic reality.

The report also details how Ireland is “not a low income tax country”, and since 2010 has become the fifth highest tax jurisdiction for personal income in the European Union, with the tax-take from this €3 billion above average.

However, the opposite is the case for those on incomes lower than €32,600.

“Our analysis shows that, in particular, those people earning from €39,000 upwards pay a disproportionate share of tax and are taxed higher than their OECD counterparts,” the report said.

There are also warnings that some features of Ireland’s tax system are strong contributors to emigration.

It gives the example of a situation where a skilled graduate moves from a gross pay of €20,000 to €60,000 in the first ten years of their career:

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“Skilled graduates would be better off by over €5,000 annually working in the UK if given a choice between working in Ireland or in the UK over the years in their career in which earnings growth is the highest”, the report said.

This also contributes to brain drain, as “the tax system does not only impact the attraction of skilled people but their retention as well”.

In order to retain or regain these skilled individuals it is imperative we deliver a system of tax which is attractive to these individuals.

Ibec’s main recommendations for Budget 2015 are:

  • Increase the entry point to the marginal tax rate from €32,800 to €34,800
  • Reduce the marginal tax rate from 52% to 51%
  • Reform the universal social charge so self-employed and PAYE workers are treated the same
  • Drop the unfair pensions levy, as had been promised.

Read: There’s “no room” in the Irish economy for tax cuts – we should be investing instead >

More: Michael Noonan was told to scrap water charges in the Budget. Here’s how he took it… >

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Nicky Ryan

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