Budget 2013 – Progressivity of Irish Income Tax System | Public Policy, Public Expenditure & GNP

Budget 2013 – Progressivity of Irish Income Tax System

Key Point

Based on the standard OECD measure Ireland has the most progressive income tax system (including social insurance contributions) in the EU.

Introduction

This note examines the progressivity of the Irish income tax system in comparison with other OECD countries. It finds that according to OECD measures the Irish system is one of the most progressive.

Progressivity of Irish Income Tax System

The progressivity of the Irish income tax system is clear. According to Revenue data for 2009, there were 100,000 taxpayers who had an income of over €100,000. These comprised 4.7 % of taxpayers and they accounted for 22.6 % of income but paid 45.3% of the income tax. The Revenue data excludes social insurance contributions and income levies.

How progressive is the Irish tax system when compared with other countries?

The OECD method of judging the progressivity of the tax system is to compare the tax due by a single person on 167% of average income with that payable on 67% of average income. Tax includes employee social security contributions.

The data are set out below.

On this measure Poland has the least progressive system in the OECD while Mexico followed by Israel has the most progressive. Ireland has the greatest absolute difference between the two examples at 19.3 % of income compared with an OECD average of 9.6 % and has the third most progressive system in general and the most progressive in the EU.

However to get an indication of the degree of progressivity imparted to the overall system one needs to take account of the importance of income tax (including employee social security contributions) in the economy.

If we weight the results by the share of income tax as a % of GDP (GNP for Ireland) we find that the progressivity of the Irish system is at no 2 (of 33 countries) just behind Finland and just ahead of Sweden but considerably ahead of the UK and US.

Conclusion

The degree of progressivity in the tax system is in the final analysis a matter for political judgement. The fact that the evidence suggests that Ireland is an outlier does not necessarily imply that the correct course is to make the system less progressive.

Estimates of Progressivity of Tax System

Income Tax Plus Employee Contributions

Source: OECD Taxing Wages 2011

Tax Burden on Single Person on 67% and 167 % of Average Income

Country

67%

167%

Difference

Ratio

Australia

15.9

28.2

12.3

177

Austria

27.3

38.5

11.2

141

Belgium

35.6

49.1

13.5

138

Canada

17.5

26.8

9.3

153

Chile

7.8

0.8

111

Czech Rep

18.9

26.2

7.3

139

Denmark

36.8

44.8

122

Estonia

17.7

3.3

119

Finland

23.1

36.9

13.8

160

France

26.1

33.6

7.5

129

Germany

34.9

43.8

8.9

126

Hungary

29.5

37.8

8.3

128

Iceland

23.1

32.9

9.8

142

Ireland

12.8

32.1

19.3

251

Israel

9.4

24.7

15.3

263

Italy

26.7

37.9

11.2

142

Japan

19.5

24.8

5.3

127

Korea

9.4

15.3

5.9

163

Luxembrg

20.5

36.6

16.1

179

Mexico

13.6

12.6

1360

N’Lands

26.8

37.4

10.6

140

N Zealand

12.9

9.1

171

Norway

25.6

35.7

10.1

139

Poland

23.6

25.4

1.8

108

Portugal

17.3

32.9

15.6

190

Slovak R

19.4

25.5

6.1

131

Slovenia

28.8

39.3

10.5

136

Spain

17.7

26.7

151

Sweden

22.1

35.4

13.3

160

Switzland

20.7

7.7

159

Turkey

24.8

31.2

6.4

126

21.7

30.4

8.7

140

19.6

28.6

146

Irl Ranking

OECD Avg

20.8

30.4

OECD -EU 21

24.4

34.6

http://www.oecd.org/tax/taxpolicyanalysis/taxingwages.htm

Progressivity Of Irish Income Tax System 2013

26 May 2014

Budget 2013 – Progressivity of Irish Income Tax System

Key Point

Introduction

Progressivity of Irish Income Tax System

Estimates of Progressivity of Tax System

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