Personal Taxation Levels in Ireland

With Budget 2013 looming –  we have taken a look at income tax levels in Ireland compared to other countries.
The government have said that they will not increase income tax levels or bands – but will they touch other “deductions” such as USC or PRSI ?
Some people might think that we have enough deductions taken from our earnings already  – and that Ireland is a high tax country.

According to figures compiled in an IMF report in September 2012  – Ireland  has some  of the lowest rates of Personal Income Taxes in the OECD – especially for lower incomes.
They  compared the level of PIT (Personal Income Taxation) to those in other English speaking OECD countries.  (This includes USC + PRSI and equivalents)

For a single  person earning the average wage – the effective taxation rate in Ireland in 2012 is 17.9% – which is lower than the UK (25.1%) , USA (22.8%) , Australia (22.2%) and  lower than the OECD average of 24.8%. (New Zealand’s rate is lower at 15.9%)

For a Married couple , 1 earner with 2 children on the average wage – the PIT rate in Ireland works out at 10.3% which is almost half  the OECD average of 19.2% , less than 50% of the  23.5%  rates in the UK and the  21.1% in Australia and about two thirds of the the 15.9% rate in  New Zealand . (The rate in the US is slightly lower at 10.4% .)

As the income levels rise – Ireland’s deductions become higher than the other countries . For a single person earning 167% of the average wage (i.e. About €54000) – the effective rate of taxation is 31.4% in Ireland compared to 30.4% in the UK , 28.6% in the US, 28.1% in AUS and 22% in New Zealand. (OECD av is 30.3%)

The IMF point out that  the  income level where income tax  kicks in at 20%  for a regular single PAYE earner is €16,500 and that all income below this level is exempt from the income tax, irrespective of how high the total earnings of the PAYE earner are. The entry point threshold corresponds to 51 percent of the average annual wage (€32,400) which, by far, is the highest in the OECD: the next closest ratio is 27.6 percent (for Italy), while the average for both OECD and English-Speaking economies is just 9 percent.

The IMF report also says  that the  employee PRSI rate (at 4 percent) is modest and has an high exemption threshold (€18,304) and it  comes with a generous initial allowance –  i.e. deduction from income of the first €6,604 for the purposes of calculating  PRSI liability.  So , the PRSI liability for someone earning €18,304 is 4% *(18304-6604) = €468, which is an  effective rate of 2.6 percent.

The IMF report suggests phasing out the annual PAYE tax credit of €1650 between the minimum wage (€17,508) and the average wage (€32,400). It says that this will increase the average and marginal income tax rates for persons earning between the minimum and average wage; raise the average tax for those earning above the average wage; and improve the targeting of special income tax reliefs.

It also suggests lowering the 20% tax rate or introducing two new bands of 15% and 25% –  so ensuring that  tax burdens do not rise for those earning below 67 percent of the average wage .

On PRSI – they suggest   reducing the PRSI exemption threshold and phasing out the universal entitlement to an allowance on the first €6,604 of income between the minimum wage and average wage.

It will be interesting to see if the “wisdom” of the IMF will be taken on board in Budget 2013 ??