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How marriage is all-important when examining your tax burden

Overall, Ireland’s labour income taxation system can be considered fair, however the benefits of saying “I do” may play a larger role in this than one might have expected, writes Shawn Britton.

Shawn Britton

AS BUDGET 2019 was being prepared, there were some suggestions that the income tax burden for Irish workers is unfair.

But how does Ireland compare with other countries? 

While married couples fare relatively well under the Irish taxation system, higher-earning singles see no substantial difference when compared to other OECD countries.

Overall, the Irish income taxation system works well comparatively for married couples, due largely to family benefits. However, single persons, particularly those who earn more than two-thirds above average earnings (which are currently €38,605) , may not feel the full benefit of the Irish income taxation system.

Married couples

Based on the latest net average tax rate figures from Organisation of Economic Cooperation and Development (OECD) Tax Database, Irish income taxes are not high compared to other countries, particularly for two-earner married couples.

In fact, for a two-earner married couple with two children, where one earns 100% of average earnings and the other earns 33% of average earnings (so about €52,000), Ireland has the lowest net personal average tax rate among the 35 OECD countries.

For the same married couple with no children, Ireland has the third-lowest net personal average tax rate of all OECD countries.

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Higher-earning singles

However, one cohort where the personal income tax burden may be felt more acutely is relatively high-earning single persons. For a single person with no children and an income that’s 167% of average earnings (about €65,000), Ireland comes in with the 17th lowest net personal average tax rate out of the 35 OECD countries.

When considering countries where many Irish expats reside (the UK, the US, Canada, Australia, New Zealand), Ireland comes in at second-to-last place in terms of which country has the lowest net personal average tax rate.

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What do these findings suggest?

It is clear that compared to other countries, Ireland can be considered a fair place in terms of personal income taxation.

For all OECD countries, Ireland is in the bottom quintile for net average personal tax rate for many household structures.

At worst, it still remains in the lower half of net average personal tax rates.

Compared with countries where many Irish expats live, Ireland has the lowest net average personal income tax rate for married couples. However, the income tax burden for single persons is the second highest out of these six countries.

This might mean that if we look at tax alone, young, relatively high-earning single persons may not find much financial incentive to move to Ireland in the case of non-Irish high-skilled workers, or return home in the case of the many Irish abroad, particularly as average earnings have not grown as fast as jobs data might have predicted.

Overall, Ireland’s labour income taxation system can be considered fair, however the benefits of saying “I do” may play a larger role in this than one might have expected.

Shawn Britton works on the Economics Desk of KBC Bank. 

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Shawn Britton

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