The extent to which the rapid growth in the State’s economy has benefited households is, to say the least, contested territory.
The Republic’s soaring headline economic data often seems divorced from the experience of households. But new figures from the Revenue Commissioners show a remarkable rise in the numbers in higher-income groups in Irish society over the past five years or so.
Hard-pressed lower and middle earners are the focus of public debate. But quiet prosperity is on the rise here. And while the so-called squeezed middle worries about back-to-school costs, there are an increasing number of high-income households buying the electric Range Rover and keeping the top end of the property market ticking over.
This week the Revenue Commissioners published their annual pre-budget forecast of the earnings of the population for the following year. Because these are based on tax payments, they are broken down by what are called “taxpayer units” – in other words, couples who are jointly assessed for income tax are counted as one unit, or taxpayer.
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The results are striking. There are almost 420,000 taxpayers set to exceed incomes of €100,000 next year. That is about 12 per cent of the total. That is more than double the 206,000 earners in this category in 2020, when they represented 7.5 per cent of total taxpayers. Even as recently as 2022, the total number earning more than €100,000 was just over 236,000.
Inflation, of course, is part of this story. And so is the increasing number of people in the workforce. In some cases, the total will be made up by two separately assessed earners on more modest wages. And €100,000 – while well above the average income – is barely enough to afford to buy a house in Dublin.
But the rapid growth in the higher-income sections of the population is nonetheless remarkable. At income levels of €150,000-plus, it largely reflects earnings from the multinational sector and professional service firms that work for them. The numbers in this category have jumped from 93,000 taxpayers in 2022 – 3.2 per cent of the total – to an estimated 176,000 for next year, or about 5 per cent of all taxpayers. One in 20, in other words, now earns more than €150,000.
This group injects significant buying power into the economy. They are the consuming storm troopers of the two-tier economy, which is split between the multinational-based world and that inhabited by domestic industry and most earners. It is this group that is keeping the higher end of the housing market going – the €1.5 million-plus category, which remains out of reach for most of the population. Their spending power can inflate prices generally, both for houses and more generally, making life more difficult for ordinary earners. But they also drive demand.
And they are huge tax contributors. About one-half of all income tax is paid by taxpayers earning more than €100,000, and about one-third comes from the smaller group earning above €150,000.
There are many tricks which the really wealthy – as opposed to those on high earnings – can pull to cut their tax bill. But when you are in the income tax system, either paying PAYE or self-employed, higher earners pay up via income tax and the Universal Social Charge.
The reliance of the income tax system on this group is growing rapidly. As recently as 2022, some 38 per cent of all income tax came from those earning more than €100,000, but next year it is estimated to be 47 per cent. In turn, many of the higher earners are employed by multinationals that themselves pay vast amounts of corporation tax. The State’s narrowing tax base is leaving it increasingly exposed.
What income level leaves people “well off” is a matter of perspective. High income does not necessarily equate to wealth, which is a stock of assets, such as property, savings or shares. One often leads to the other, of course. But many of those on relatively high incomes have not built up significant assets – beyond their house – and adjust their lifestyle to spend their income. Talk to any mortgage broker and you will hear the story of the €300,000 annual income household that still does not have much left at the end of the month.
That may not elicit a lot of sympathy from the vast majority on more modest earnings. But there are some signs of nervousness in the higher-earning group, too, as US president Donald Trump’s policies overshadow the outlook for the sectors they work in.
The EU-US trade deal – if it sticks – may restore some calm. But the US president’s attack on the regulation of digital technology companies in the EU – and his threat to retaliate by targeting the countries involved or perhaps even the regulators – is significant. So is the comment by European Commission vice-president Teresa Ribera that the EU must be prepared to walk away from the trade deal if the US tries to coerce it into weakening digital regulation.
If this tech war develops – and the EU reacts with its own measures against US tech firms here – then the State is right in the firing line. Of course, with Trump, you never know. But his unpredictable policies and call for investment to return to the US have already led to some caution among the highest earners. Demand in most areas of the housing market remains white-hot, but at the higher end, where houses sell for €1.5 million-plus, estate agents and brokers say that viewings have slowed and sales are taking longer. Those who previously counted on two high and rising incomes and share options as a sure thing are hedging their bets.
The growth in their numbers in recent years is of a piece with the sharp rise in corporation tax. This is the real economic impact of the high-tech boom and the big inward surge of investment here over the past decade. No one knows what happens next, but the Republic has had an extraordinarily good – and in some ways lucky – run.
