Ireland’s population has grown strongly in recent years – and the amount of households earning over €100,000 has risen even faster. While much attention has – correctly – gone on the surge in corporation tax, the big rise in income tax due to more people being at work and earnings rising has also been very significant. The income tax take has risen by more than €11.6 billion since 2018, corporation tax is up €13.5 billion. While the jump in corporation tax has been from a much lower base – it has more than doubled – income tax has also been central to the health of the exchequer.
As the income tax take has risen, the reliance on higher earners has crept higher, as a report by the Parliamentary Budget Office (PBO) underlined this week. While the PBO was working from final figures for 2021, more recent Revenue Commissioners figures estimate that about 10 per cent of taxpayers units earning more than €100,000 will pay 55 per cent of all income tax in 2024.
Ireland’s income tax system is notably “progressive” by international standards – putting a larger burden on higher earners. And more and more people are falling into this higher income category. In contrast, the income tax burden on lower earners is modest by international standards, particularly for young families. Given the high costs of living in Ireland this is probably just as well, though it does mean that the Irish income tax base is relatively narrow.
While these Revenue figures will be subject to revision when the final numbers come in, the trends in recent years have been pretty consistent. More households are earning more than €100,000 annually and the amount of the income tax bill they account for has been creeping higher. As with corporation tax, income tax is based on a relatively small base paying most of the money. And many of the better-off income tax payers work for the big multinationals who are paying the bulk of the corporation tax.
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The increase in the numbers paying income tax since 2018 has been striking – up from 2.6 million then to 3.4 million this year. This includes retired people and others with an income tax liability as well as those in the workforce. And the number of households earning more than €100,000 has risen even more quickly. The number of tax units – single people or dual-assessed couples – earning more than €100,000 has doubled from 177,000 in 2018 to an estimated 357,00 this year. And this is an underestimate of the total number of households with €100,000-plus income because in some cases couples are not jointly assessed and are thus not counted as one tax unit.
The numbers of tax units earning over €150,000, meanwhile, has risen from 67,000 in 2018 to an estimated 146,000 this year. While it is not possible to say definitively where these people work, separate CSO earnings data shows the higher earning sectors are the ones you would expect – ICT, finance, science and some of the professions. The big surge in multinational employment, the related rise in professions such as law and accounting, and general economic strength have thus led to a sharp rise in the higher earning sectors of the population. It is well ahead of what would happen naturally due to general wage rises, though these have contributed too, pushing more people into the €100,000-plus bracket.
Another set of data looks at individual taxpayers, though it is a few years out of date. This shows that the numbers earning more than €100,000, according to these separate Revenue figures, rose from 102,000 in 2018 to 141,000 in 2021, the most recent year for which figures are available. On the basis of trends shown in this data, we could tentatively guesstimate there are about 200,000 people earning more than €100,000 annually.
Revenue research gives some pointers as to the amount of this income tax that relates to multinational activity. The most recent figures are for 2022 and show that of the €29 billion in income tax, USC and PRSI paid by companies in Ireland and their employees, just under €19 billion came from the multinational sector, the bulk of it from foreign-owned companies. Not surprisingly, this reflects the level of salaries in this sector.
Meanwhile, the Department of Finance has warned that “the five sectors which account for the largest share of income tax receipts also account for around 85 per cent of corporation tax receipts”. It added: “Any shock to the activity in these sectors would, therefore, not only affect corporation tax receipts but also spill over to income tax receipts. This highlights the vulnerability of the public finances to the activities of a small number of multinational-denominated sectors.” Turning the measure around, the top five sectors for corporate tax account for more than 50 per cent of all income tax paid.
The vulnerability of Ireland’s exchequer finances thus goes beyond the well-discussed issue of corporation tax. It is worth noting that the income tax, USC and PRSI payments from multinationals and their employees have risen from €8 billion in 2018 to €19 billion by 2022 and are no doubt in the mid-20 billions by now. A group of relatively high income taxpayers – many employed by these corporations or at least partially-reliant on them for business – also pay a large amount of Ireland’s income tax. Many of these people would not consider themselves to be super-high earners and would have significant ties to Ireland. However, it is also worth remembering that a smaller group – the 1 per cent of highest earners – pays more than a fifth of all income tax. And this group of high-rollers tends to be more mobile.
Policy issues here are important. Ireland will need to raise more tax in the years ahead to pay for a growing and ageing population, and costs such as those linked to climate change. Of course it is open to future governments to try to restrain spending instead, but this looks unlikely. As does a continuing surge in corporate tax revenues, expected in official forecasts to hold around existing levels, though they remain vulnerable to falls. The Department of Finance and the Fiscal Advisory Council estimate around half the revenues are windfall in nature and thus vulnerable. International tax changes – inside or outside the OECD process – bring risks as well as possible gains.
Against this backdrop, maintaining a solid base of tax on income is vital. The Commission on Tax and Welfare recommended the income tax and USC base – which have been narrowed as lower earners have got USC relief, in particular – be maintained and that the PRSI base should be widened in a number of respects. It also called for a range of new taxes on wealth via higher capital and local property taxes rather than a new wealth tax. Most parties want to reduce further the income tax and USC burden on lower and middle earners; in the case of Sinn Féin this would be largely paid for by higher taxes on those earnings more than €100,000.
Whatever route is taken, an interesting question will be the future taxation of the better-off sections of the population. The commission argued against further hikes in income tax, arguing that taxing wealth and property was a better way to go in economic terms. But as spending pressures remain, high earners look set to continue to pay a significant part of the tax bill, whoever forms the next government. Thousands more have joined the ranks of higher earners in recent years, but membership of this group has its “privileges” in terms of paying more tax.
