Nat O'Connor: The OECD provides a table of its member states showing total tax revenue as a percentage of GDP. In 2012, Ireland's total tax revenue was 28.3% of GDP. The lowest in the OECD was Chile on 20.8%. The highest was Denmark on 48%. Of all EU members of the OECD, Ireland has the lowest total tax revenue.
Ireland's low overall taxation is mostly due to very low social insurance charged on people's incomes. As shown in the three charts below, people on low and average incomes in Ireland pay much lower taxes than what they would pay in other countries. People on above average incomes pay less tax than they would pay in European countries, but slightly more than they would pay in English-speaking countries (including the UK).
AW stands for Average Wages. All charts are for taxation of single people. All the data is from the OECD Taxing Wages: Comparative tables.
Chart 1 compares personal taxes in Ireland with the Nordic countries. Clearly, someone on two-thirds of average wages (67% AW) pays far less tax and social insurance, and likewise someone on average wages (100% AW). However, the progressivity of Ireland's income tax system is visible for those on one-and-two-thirds of average wages (167% AW).
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As shown in a previous blog post, the comparison between the tax paid on 67% AW and 167% AW is the main definition of income tax system progressivity that keeps being talked about. However, the progressive 'jump' from paying less tax to paying more tax is not the only thing that matters. As Chart 1 shows, despite this progressivity, the tax paid by those on higher incomes is still less than what people on equivalent incomes pay in the Nordic countries.
Chart 2 shows a similar scenario when comparing Ireland to continental European countries. In fact, several of these countries have higher income taxes/social insurance than the Nordic countries. Tax in Ireland is lower in each case, but the taxes on those earning 167% of average wages comes close to the next lowest, which is the Netherlands.
Tax reliefs: An important note is that these are all theoretical amounts of tax to be paid as they only count standard tax credits, not optional tax reliefs or tax breaks (such as Ireland's pension tax relief or health insurance tax relief). Ireland has more tax reliefs than other EU countries, except the UK. In fact, a feature of the English-speaking countries is that not only is a lower rate of tax/social insurance charged, but there are more tax reliefs available in these countries to further lower the effective amount of tax paid.
Chart 3 shows that tax in Ireland is most similar to the other English-speaking countries. Yet even in these cases, taxes on low and average incomes is still the lowest in the group. However, the progressivity of the income tax system does make those on 167% of average incomes the highest taxed of this group.
Chart 3 is really important to understanding the tax debate in Ireland. The talk of Irish emigrants staying away due to high tax is presumably based on the comparisons in Chart 3 and the assumption that all Irish emigrants are in English-speaking countries.
Yet, data on trade and migration (in an earlier post) question the validity of this assumption.
Ireland cannot improve infrastructure or provide more comprehensive public services without higher total tax revenue. This must mean increased taxes on lower and average incomes given how low those taxes are in Ireland, but this will obviously only be politically acceptable if people see clear evidence of costs lowering or new free-of-charge or subsidised services in exchange for higher taxes/social insurance.
Higher earners in Ireland would pay a third more tax, or even half again more tax, in other European countries. But lower earners would pay at least double practically everywhere in Europe. Even in the UK, people on low incomes pay half again as much tax/social insurance as in Ireland.
As noted above, the OECD data does not take into account the important role of tax reliefs in reducing these theoretical tax levels, but the overall picture of low personal tax in Ireland is pretty stark. The charts also don't include property taxes or other local taxes, which are typically higher in other European countries but also higher than Ireland in the USA and other English-speaking countries too.
Of course, this does not mean that people on low or average incomes necessarily have a better life in Ireland. As shown in TASC's report, Cherishing All Equally, the cost of living is 20% higher in Ireland and people on low incomes are worst affected by charges for public services, as the cost of GP fees, schoolbooks, public transport, etc. take a larger slice of low incomes.