THE GOVERNMENT’S reliance on income tax is “probably at an unhealthy level,” the chief executive of the Irish Tax Institute has said. Speaking at a tax briefing yesterday ahead of this year’s budget, Mark Redmond welcomed the Government’s commitment not to increase income tax.
“The capacity for people to bear more pain is running out as we approach an overall tipping point in terms of the money than can be taken from them in tax,” president Bernard Doherty added.
In total, €5 billion in extra tax income has been achieved since the 2008 budget, with €4.65 billion targeted over the next four years, according to the institute.
Income tax and VAT are bearing the brunt of increases as revenues from capital taxes, such as capital gains and capital acquisition taxes, have collapsed.
Income tax now represents 40 per cent of the overall tax take compared to 29 per cent in 2007, despite the decline in the number of people at work. This is due to an increase in tax bands, tax reliefs, and primarily the introduction of the income levy and the universal social charge.
The standard and higher rates of income tax have not changed since 2007, remaining at 20 per cent and 41 per cent respectively.
According to figures compiled by the Irish Tax Institute, budgetary cuts over the last four years have cost one-income families on the average industrial wage €453 per month on average equating to a 16 per cent reduction in monthly take-home pay.
Similarly a one-income family on a salary of €55,000 has seen a reduction of €564 a month.
Noting that most euro zone countries with large deficits are using VAT to generate revenue, Mr Doherty said Ireland will have the highest rate of the tax in the euro zone along with Greece, Portugal and Finland, after the increase.
However, the fact that the UK’s standard rate of VAT is now 20 per cent, means the forthcoming change to Ireland’s VAT rate may not have a huge impact on cross-Border trade, he added.
According to the institute, one possible taxation route that may be pursued is a broadening of the PRSI base. This could include introducing an obligation on employees to pay PRSI on their investment income such as income from rents or deposits.
However, because most employees are not obliged to file tax returns, the practical difficulties involved in collecting such taxes would prove a stumbling block, according to John Bradley tax partner at KPMG.
