Monday, 11 January 2010

Effective tax rates in Ireland

Proinnsias Breathnach: I sent the following letter to the Irish Times in early December, but like my article on competitiveness, it failed to make it onto the page:

In an article in The Irish Times on December 3, Danny McCoy, Director General of IBEC, wrote: “OECD data show that effective tax rates for high-income earners in Ireland are higher than those in many European countries, including Germany, France and the UK.” Mr McCoy suggests that this is undermining Ireland’s ability to attract or retain highly skilled workers.

A table from the OECD website (Table I.5, OECD Tax Database) shows that, for workers earning two thirds more than the national average wage, the proportion of income paid in income tax and employee’s social security in 2008 was as follows: France 33.3%, Germany 45.6% and the UK 30.3%. The comparable figure for Ireland was 26.9% - lower than any of the other 14 countries which made up (with Ireland) the European Union before its recent enlargement.

Of course, Mr McCoy may have had in mind people earning a lot more than two thirds above the average wage. According to the income tax calculator on the website, a single German worker earning €200,000 per year (perhaps typical for a high-flying executive or top scientist) would have expected to take home €105,660 last year after payment of income tax, social security and solidarity surcharge. An Irish worker in the same category would have taken home €5,000 more than this, according to the tax calculator. Again, the effective rate of tax is lower in Ireland.

It may be that the OECD data referred to by Mr McCoy give a different picture, but even if so, the data quoted here indicate that the picture is rather less clearcut than Mr McCoy would have us believe.

1 comment:

Proposition Joe said...


What would be really interesting would be a graph showing how the gap between Irish and German effective rate varies across the income deciles.

Part of the reason the Irish Times declined to publish might be the fact that it conflicts with their own analysis. For example, follow the "Married: €120,000" link on this graphic from the Irish Times Budget 2010 coverage, which claims an Irish effective rate of 37.21% versus a German rate of 36.09%.

The German rates are ahead for singles at all income levels shown by the IT, which suggests that the married rate is anomalous due to the individualization regime. However whether anomalous or not, it shouldn't be ignored given the significant proportion of single-income households (which is probably increasing due to job losses in formerly double-income families).