Sir, – I have read with interest the correspondence (Letters, Donal McGrath, December 31st; Brian O'Brien, 2January 2nd) on our income-tax regime.
Mr McGrath is of opinion that we should have a third income-tax rate for higher earners. His call for this innovation comes two sentences after his statement that our top income tax rate is not out of line with international norms.
Mr O’Brien points out that we have one of the most progressive income tax systems in the world.
Any debate on our income tax system and international comparisons should acknowledge the major difference between the income tax systems of other high-income European countries and that of Ireland. The difference is not that high-income earners pay lower taxes in Ireland. They don’t. Rather it is that those on lower incomes have an income tax liability in these other European countries but not in Ireland. The Revenue Commissioners estimate that 37 per cent of income earners or about one million tax units (this ignores those on State pensions and the long-term unemployed) did not pay income tax in 2018 while about 29 per cent did not pay the universal social charge which, of course, is now far from universal.
Before and during the last general election campaign we heard much from trade unionists and social justice “activists” in praise of the Danish, Swedish and more generally the Scandinavian model. This was presented as one where high taxes were accepted as the price worth paying for socially cohesive expenditure programmes. That model appears to have fallen out of favour with the tax-and-spend brigade since it was pointed out that the most striking difference between it and our system is that workers on lower incomes pay substantially higher income taxes there than they do in Ireland.
This was highlighted by the Irish Tax Institute in its 2019 pre-budget report. An Irish worker earning €18,000 paid €480 in income taxes. The corresponding figures were €1,895 in the United Kingdom, €3,358 in Sweden, €3,886 in France and €4,679 in Germany.
Those seriously advocating for an Irish income tax regime which is closer to those in other high-income European countries will find that a third income-tax rate may indeed have a role to play.
But that third tax rate would apply to lower, and not to higher, incomes. – Yours, etc,
PAT O’BRIEN,
Rathmines,
Dublin 6.
Sir, – Brian O’Brien (Letters, January 2nd) mistakenly ascribes taxation policies and suggestions to me based on my earlier letter (December 30th) which I simply did not raise. I never proposed taxing high earners by “tinkering” with income tax in preference to a wealth tax; my points relate only to the Taoiseach’s proposals on income tax and do not address the comparative merits of different taxation systems at all.
I also did not suggest that the French tax regime should be applied in total here.
My only reference to their system, quoting Leo Varadkar’s approval of that model, highlighted their four rates of taxation compared to only two here, a scheme that more accurately reflects the broad distribution of income in society.
Furthermore, my criticism of the Irish system centres on the taxation of middle-income groups as against high-income earners.
Irish low-income earners are almost exempt from income tax here while having much poorer state services than their French equivalent, making a direct comparison of income of limited value. Considering these differences makes the idea of “emulating” the French system in detail, which Mr O’Brien mistakenly suggests would be my proposal, entirely unrealistic.
I did not express or imply any “approval” of our top rate of tax, as Mr O’Brien states.
I highlighted the Taoiseach’s commitment to lowering the top rate as a solution to the excessive burden of taxation on workers below the average wage when the main fault in our system is not the top rate itself but that such earners pay the top rate at all, whatever that rate may be.
Middle-income earners should pay the middle rate of tax. Ireland has no middle rate. Our rates were merged into only two bands from 1992 on – before that there were between three and six rates.
Mr O’Brien rightly points out that higher rates of tax may encourage people to work less and perhaps emigrate, but that is exactly the point of my criticism.
Current Irish tax rates on middle income groups such as nurses and teachers have fuelled substantial emigration because their take-home pay is inadequate here, especially considering the State’s poor commitment to housing, health services and child care.
Overall Mr O’Brien raises many interesting points (although he might note that France’s president slashed its wealth tax in 2018, effectively cutting it by 70 per cent) but does not address the central point of my earlier letter – why do workers here on the average wage pay the top rate of income tax and how or if that should be rectified. – Yours, etc,
DONAL
McGRATH,
Greystones,
Co Wicklow.