The extraordinary impact of the flood of foreign investment on Ireland’s corporate tax receipts is in the spotlight again before the budget. We tend to see this as a phenomenon somehow separate from the everyday economy we live in, a figment of international tax planning that could disappear overnight. But new evidence underlines how the spurt in growth from this investment boom is leading to a big increase in the number of people earning higher incomes. Ireland is quietly becoming a better-off society.
Each year before the budget the Revenue Commissioners produce a briefing document, which outlines the cost of tax changes and – as part of this – estimate how many people fall into different earning groups. And the estimates for 2025, which have just been published, tell a story.
The Revenue figures relate to “tax units” and so include single earners and jointly assessed couples. They are thus not an accurate measure of household income, but give an accurate view of earnings trends.
Back before the pandemic, in 2018, there were about 177,000 taxpayers – including jointly assessed couples – earning more than €100,000 gross. This number will rise to just under 400,000 by next year, more than 11 per cent of all earners. This is more than a doubling of the total in this earnings group in seven years and 10 per cent up on the estimated 2024 figure.
This is a really rapid rise. This is not to suggest that, say, a dual-earning household on just over €100,000 is on the pig’s back, or to disqualify them from membership of the squeezed middle. Nor is it to ignore that inflation has had an impact over recent years, pushing people up the earnings brackets without necessarily leaving them better off. But the scale of the increase in those in higher income levels is striking.
A family income heading towards €110,000 is required to buy an average-priced house in Dublin – there are enough in this category to do so
Looking higher up the income scale, for example, more than 165,000 of the 400,000 now earn more than €150,000, representing 5 per cent of total earners. This compares with 67,000 in 2018, which was 2.5 per cent of all earners. Some 87,000 taxpayers reporting earnings of more than €200,000 a year – it was 35,000 in 2018. Ireland has a growing number of well-off households earning more than €300,000 and with lifestyles to match.
Not all of these jobs are in multinational-land. But it seems fair to speculate that the jump in inward investment since 2015 is a key factor. Research by Davy, based on Central Statistics Office data, shows that the total contribution of multinationals in wages and corporate tax has more than trebled since 2013 to reach about €67 billion last year, of which about €47 billion was wages. These are the jobs attracting people to come and work here from overseas – one of the reasons for the high immigration figures shown in this week’s CSO population data. And the spending of these firms is supporting thousands of jobs across the economy in areas such as professional services and spinning off via higher spending to the wider economy.
The rise in those with higher earnings frames a lot of what is going on in the economy. It is, at a basic level, good news. And it provides some reassurance about the wider benefits of the economic growth reported for Ireland over recent years, dismissed by some as some kind of accounting phantom. Multinational tax planning may mess up much of our data, but the big rise in the number of people at work – up 750,000 over the past decade – tells its own story. And so now does the data showing a rise in those in higher earnings groups.
The figures suggest that the gap in gross incomes in Ireland between those at the top and those at the bottom remains wide – and may even stretching further. The flip side is that the higher-earning group pays most of the income tax and USC; for next year those earning more than €100,000 are expected to earn just over 40 per cent of the total income, but pay not far off two-thirds of all tax on personal income.
The policy challenge is to use these resources first to help those without jobs and lower earners, and second to make life easier for the squeezed middle who struggle to make ends meet due to the undoubtedly high cost of living in Ireland. Third, it is to address the large infrastructure and service deficits the State now faces.
[ House prices are out of reach of the average earner - so why do they keep rising?Opens in new window ]
The rising number of higher earners does explain much of what is going on in the housing market. There are enough people, in other words, with higher income to pay the prices in the market at the moment. Middle earners find themselves outbid. A family income heading towards €110,000 is required to buy an average-priced house in Dublin – there are enough in this category to do so, and enough higher earners to bid for the more expensive homes.
This is part of a wider story. The dual economy of higher earners living mainly off the multinational sector and more modestly paid domestic employees does create its own issue. It contributes to an economic backdrop and high costs, which mean domestic companies and their employees can sometimes struggle to keep up. It leaves the squeezed middle – including many of the roughly 800,000 tax units earning €50,000-€100,000 – feeling, well squeezed, and lower earners sensing they are excluded.
But there are wider positive economic spin-offs, too, and the creation of really significant resources for the exchequer. The ritual warnings about the exposure of tax revenues to the activities of a few big companies will be repeated in the weeks ahead as the budget approaches. And they need to be heeded. But we also need to realise that Ireland’s economic and earnings base has been transformed. Of course the Irish economy is vulnerable to the decisions of multinationals – such as US company Cardinal Health, which announced this week that it was closing a plant in Tullamore.
But the multinational-driven economic boom is real, even if it has its tax-driven excesses too. Perhaps we have spent a bit too much time over recent years worrying about this all disappearing overnight. Instead, we need to a spend a bit more time figuring out how to use the extraordinary level of resources created for the State in a strategic way to transform the level of housing, infrastructure and services available to the wider population.