Costs may limit scope for personal tax cuts
In a pre-budget analysis, the institute focuses on Ireland’s “high-risk tax base” that relies on taxes on labour and multinationals.
Taxes on labour means the exchequer will likely raise €16.5bn in income taxes this year; €3.7bn from USC; and an additional €9.6bn from PRSI.
But there are no huge gains for income tax-payers that are likely to be affordable in the budget next month, the figures suggest.
Raising the threshold by €1,000 at which a single person, a one-income couple and a two-incomes couple start paying tax at the 40% income tax rate, would cost the exchequer over €200m.
That would lead to gains of €200 a year for the single person earning €40,000, and gains of €400 for the two-incomes couple earning a combined €80,000.
The institute estimates 550,400, or 21% of all so-called “taxpayer units” — which includes married or civil partners considered as a single tax unit — pay income tax at the 40% higher rate.
An estimated 956,100 tax units, or 37%, are exempt from income tax.
The institute highlights the high levels of debt when the true picture of the size of the economy is taken into account.
It also highlighted the needs of indigenous industries.
Reducing the current USC band of 5% to 4.5% would cost €200m, while a reduction to 4% would cost €392m.
Its figures show 769,800 tax units, or 29% of all tax units, pay neither income or USC.
The institute assessed Irish personal tax levels to global comparisons.
At a salary level of €18,000, Ireland levies the least in personal taxes of a selection of eight countries.
In Ireland, this tax-pay payer pays €510 compared with €2,119 in the UK, according to the Irish Tax Institute.
At a salary of €55,000, personal tax paid in Ireland rises to €16,180 — the third highest amount after Germany and France — of its selection of eight countries.
And the Irish exchequer collects €26,129 in personal tax at a salary level €75,000 —the fourth largest amount after Germany, Sweden, and France.
At an income level €150,000, the personal tax amounts to €65,129.
The institute said that Ireland’s top marginal tax rates of 52% and 55% compare with rates of 47.5% and 44% in Germany; Sweden’s 60% and 55% rates; and the 47% and 42% marginal rates in the UK.
Amalgamating the USC and PRSI charges would be a complicated task and take many years and involve a number of upgrades to systems across a number of departments, the institute said.
Among potential tax-raising options, increasing the training levy to 1% from the current level of 0.7% would raise around €170m, while the sugar tax on sweetened drinks could yield around €40m.
And increasing the 9% hospitality and tourism tax back to 13.5% would raise €491m in a full year.
The institute favours a number of options to help SMEs facing the challenges of Brexit.
These include changes to share options and incentives to boost research and development, as well as the Government working on ways to help SMEs tap other sources of financing, the institute said.
