Report Reveals One-Third of Irish Income Earners Pay No Tax

A recent report from the Department of Finance has revealed a significant disparity within Ireland’s income tax base. The findings indicate that approximately one-third of all income earners, totaling around 1.2 million tax units—which can represent individuals or couples—are effectively outside the income tax system due to generous tax credits provided by the government.

The report highlights that the top 10 percent of income earners contribute a staggering 40 percent of total income tax receipts and 60 percent of contributions to the Universal Social Charge (USC). In stark contrast, those in the bottom 50 percent of the income distribution account for merely 10 percent of income tax receipts and 5 percent of USC contributions.

This skewed tax base poses risks to public finances, as underscored by the report: “Considering income tax is the State’s largest source of tax receipts, the heavy reliance on so few payers leaves the public finances vulnerable to any shifts in the economic cycle.”

The report also notes that this concentration risk mirrors concerns regarding the corporation tax base, where just 10 companies are responsible for 60 percent of total receipts. Many of these top earners are employed by large US multinationals, which contribute significantly to the corporation tax.

The findings suggest that these multinationals are likely to be disproportionately affected by potential downturns in the global economy. “As such, in the event of a shock to one or more of these sectors, the contagion effect of these interlinkages risks the development of a ‘snowballing’ deterioration in both corporation tax and income tax,” the report states.

Concerns about the narrowness of Ireland’s tax base have been raised repeatedly, including in a prior report by the Commission on Taxation. Despite the increasing number of reports highlighting these issues, there has been little movement from the government to address them.

This inertia can largely be attributed to the current tax landscape, which has allowed the government to avoid making difficult decisions. The ongoing tax bonanza has created a scenario where addressing the underlying issues of the income tax structure does not seem urgent.

As discussions around tax reform continue, it remains to be seen how the government will respond to these pressing concerns, especially in light of the potential vulnerabilities in both income and corporation tax revenues. The implications of these findings could resonate throughout the economy, affecting not only government funding but also public services that rely on stable tax revenues.