Broadening the tax base: should lower-paid workers pay more?

• Published date: 31 October 2023

The consultation closed last April and the Department of Finance has now published the submissions received — almost 30 of them — from a variety of tax experts, business associations and members of the general public

There was a wide variety of views expressed, with many looking for lower tax rates and an increase in tax reliefs.

But one overriding theme emerged: too few people are paying too much tax, and this needs to change. The solution? Increasing the tax burden on the lower paid.

Many of the submissions called for a broadening of the tax base to reduce pressure on middle-income and higher earners, who, they say, are bearing the burden of contributing income tax for the State’s coffers.

As noted by the Consultative Committee of Accountancy Bodies — Ireland (CCAB-I) in its annual taxation report, the Department of Finance confirmed that “the distribution of tax liabilities is markedly skewed towards higher wage earners”. The top quarter of earners (those earning €50,000 or more) contribute about 80 per cent of total income tax revenues, with another quarter of taxpayers “paying little or no income tax”.

Based on recent Revenue figures, some 1.26 million taxpayer “units” — individuals or jointly assessed couples — will pay neither income tax nor Universal Social Charge (USC) in 2024.

“Base-broadening reforms should be considered as a matter of priority,” it suggests, adding that Government should also look at broadening who pays consumption taxes (particularly VAT), capital taxes and property taxes. “Alleviating some of the burden on high-income earners is vital in the global economy within which Ireland operates,” it argues.

The Irish Tax Institute says that “with one-third of income earners paying neither income tax nor USC in 2023, the Irish personal tax base is narrow”. Base-broadening measures

Given this structure, PwC suggests there might be a basis for extending USC to all taxpayers (about 29 per cent are currently exempt), “such that all income earners make a contribution to the national exchequer”, adding that this could be balanced somewhat by a lowering of the standard rate tax band or through carefully implemented transfers to those on low incomes.

The Department of Enterprise also suggests “base-broadening measures” to reduce “the over-reliance on a small proportion of high earners”, while the British- Irish Chamber of Commerce wants to see lower taxes applied on a broader base. “This is a preferable option to applying higher taxes on a...