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Think Tank Analyzes Impact Of Irish Budget Tax Reforms

by Jason Gorringe, Tax-News.com, London

18 December 2014


Ireland's highest earners are set to benefit the most from the tax cuts introduced in Budget 2015, according to new research from the Economic and Social Research Institute (ESRI).

The claim is made in "Distributional Impact of Tax, Welfare, and Public Service Pay Policies: Budget 2015 and Budgets 2009-2015," a new paper published by ESRI. The article focuses primarily on the distributional impact of the main tax and welfare measures announced at Budget 2015, but also considers longer-term trends.

The Budget, delivered by Finance Minister Michael Noonan in October, includes plans to reduce the marginal tax rate from 52 percent to 51 percent. This includes a reduction in the top rate of income tax from 41 percent to 40 percent, a EUR1,000 increase in the standard 20 percent income tax rate band to EUR33,800 (USD42,059) for single individuals, and a restructuring of the Universal Social Charge (USC).

According to ESRI, the introduction of a new, higher USC rate, counterbalancing the cut in the income tax rate for those on high incomes, "gives rise to a less unequal outcome than a simple top rate tax cut." The report calculates that a simple top rate tax cut would have cost approximately EUR230m in a full year. The higher USC rate "claws back" nearly EUR100m of this, by capping the gains of those on the highest incomes at the same level as those on EUR70,000 a year.

Nevertheless, as the article points out, "there are gains for all top rate taxpayers, and the fact that these are concentrated in the higher income deciles means that this group sees the greatest proportionate gains."

On the other hand, ESRI notes that the scale of the adjustment in Budget 2015 was small, representing a gain of just 0.6 percent for high earners. Taking into account the impact of the austerity Budgets implemented since October 2008, ESRI found that the greatest losses have been for the top 10 percent of households, with above-average losses also experienced by the lowest income households.

Commenting on the research, Simon Harris, Minister of State at the Department of Finance, said: "The ESRI report highlights some important findings including that income levels of the highest earning group have been worst affected as a result of all Budgets between 2008 and 2014."

"Every worker in the country will receive an increase in net take home pay from next month because of our [2015] Budget. Our taxes are still too high and the fact that people earning less than EUR35,000 pay the higher rate of tax needs to be addressed. This is the first year of a three year tax reform plan which will have those tenets of fairness, job creation and economic growth at its core. Low and middle earners will have more money in their pockets after this Budget because it is fair and right and because the extra money they spend will help create jobs and grow the economy," Harris added.

TAGS: individuals | Finance | Budgets | tax | Ireland | law | tax thresholds | ministry of finance | tax rates | social security | revenue statistics | tax reform | individual income tax | Welfare | Tax

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