Tough Budget Needed to Stave Off Grimmer Future

In Wednesday’s Irish Times,  I put forward a compressed version of the talk I gave at Monday’s DEW workshop: you can read it here.

61 replies on “Tough Budget Needed to Stave Off Grimmer Future”

@Philip Are you forgetting that Ireland is an open economy for people as much as for goods and traded services? Higher taxes will mean that bright / talented people will leave to earn better money elsewhere. If you take an individual in his mid 40s with a defined contribution pension earning, say, 100k per annum. His pension has been badly hit and he needs to massively save for his retirement. You are, in essence, suggesting that he pay higher taxes to fund the defined benefit pensions of a semi-reformed (at best) public sector.

100K euro in the UK leaves you with around 12k MORE in after tax income as we stand. Ireland is, for people on middle and upper incomes, already a high tax economy for which not a lot is received in return. In fact you may argue that for what we do get it may be the highest tax economy in Europe.

The fact is that even if I agreed with you on tax increases – your assuming that people’s behaviour doesn’t change as the government demands more of their money. And that’s without even getting into incentives for risk taking in business. So leaving aside my philosophical preferences I don’t think it will work.

though I do accept that you are calling for the tax base to be broadened which, in principle, I do agree with.

I agree with the main messages.

However, I think that it is too often forgotten that the Irish government owns a number of companies. These companies typically have a poor return on investment. Competition is often distorted because of the size and priviliged status of these companies.

Privatisation would thus bring several billion euro in revenue, increase profits (and taxes), and lower costs.

Something is seriously wrong when our economy of 140-170 bn generate a tax take of 32bn. Assuming our economy contracted to 140bn, thats a tax burden of 22%, how is any state able to run on that. There is ample scope for tax increases, and dare I say it, at the lower end of the income scale.

@ Damien

the problem is that a married couple with kids essentially pay no net tax (ie after recieving reliefs for mortgages, child benefits etc) until they hit around 60k. This very basic family unit needs to be brought into the tax net somehow if we are going to meaningfully change our tax base. And once again, these far-from-wealthy people will be paying more tax to keep our well-paid public sector employed for the next decade.

You are correct and given the nature of the political leadership, taxes will indeed rise. Delay will mean compounding of debt charges.

A reform of public services may cost more than it saves. It is symptomatic of management that it over reacts. Then the shortages have to be addressed by more expensive means. Nurses may be a case in point. Requiring the private sector to supply means more cost to the public sector, as the remedy is short term and may mean that a pick up in other countries means a permanent loss of these services. The biggest waste in piublic services is the employment of consultants willy-nilly. Not only do they sometimes not deliver, they charge top dollar for their work. This subsidy to the private sector, lobbyist types perhaps is unkind, is written into Nama at an appalling figure of 2,400,000,000 Euro!
Setting up a body to provide these services might be much cheaper?

Privatize all public services. Why not? Answer: it costs more money. If you disagree, then advocate it!

@ Pat

“A reform of public services may cost more than it saves”

“Requiring the private sector to supply means more cost to the public sector”

Im sorry Pat, but these are the same old talking points that are trotted out by the Unions every time public sector cuts are brought up. The pay cuts should allow for public sector services to remain as is for the most part, so i don’t see how that would “cost more than it saves”, or require the private sector to fill the gap. We need to acknowledge now that the public sector is grossly over paid in overall terms (ie after allowances, overtime, easy work conditions, pensions etc), and this needs to be addressed asap.

We just got downgraded by Fitch in the last few mins, to AA- from AA+, with the fiscal deficit the chief reason for this downgrade. The sooner we face up to reality the better it’ll be for everyone.

@ YM

apologies, correct, dual income household was per my example.

However, even in the single income household you use, after mortgage interest relief and child benefit they’d only be paying around 5.5% of their income in tax at the 60k income level.

Please note that im not necessarily against this, but simply to note that the tax burden will have to fall on people like this if we really want to broaden the tax base, and that this tax will be used primarily to fund the well-above-average pay of 400k public sector workers.

I find it difficult to accept an argument which states “lets tax the rich @ 63%” when (a) no one seems willing to say what constitutes ‘rich’ and (b) how much this tax is likely to earn for the exchequer and (c) we only tax a reasonably earning middle class family 5.5% as is.

My suggestion is that lots of people either consider income of 80k per year to be ‘rich’ or else don’t realise how few actually earn over 125k per year, that this tax will either tax massively the middle class or else earn nothing, and that our tax base at the moment leaves out a far more people at the bottom of the scale and not at the top.

What people forget is that there’s an unacknowledged economic model in Ireland whereby all services supplied directly by the government or by those who are licensed by the government cost considerably more than in other comparable countries. Rates, GP visits, Consultant fees, property….. A good benchmark I suspect is to measure disposable income AFTER the cost of living is factored in and to calculate the cost of an average meal out in an average Dublin restaurant as a percentage of this disposable income.

A lot of people on low or no incomes have 30 year mortgages 50k or more of which was an upfront tax (stamp duty) payment.

Our electricity and gas costs represent hidden transfers of wealth from the poor to the workers in the ESB and Board Gais.

The PRIMARY cause of our high cost economy is government patronage of vested interests. Even the government aren’t so stupid as to believe that the people aren’t paying hidden taxes in thousands of transactions every year.

The tax burden for the average family is far too low and the assertion that people are paying 52, 53 or 55% tax needs to be challenged. Of course, the marginal rate is high and that is reached at modest incomes(36k) but the generous tax free allowances, credits etc reduce their overall tax burden.

What we need is to move everyone into the tax net after 5,000 euro from the current 18k (15k for levy). that will bring in part time workers, students, low income earners whom should be making a contribution to the running of the state.

To minimise the shock to low income earners whom many have never experienced paying income tax(since the TFA is about 18k euro) the first rate of tax should be say 10%, moving onto the standard rate at about 24k and onto the higher marginal rate at say 50k.

Don’t disagree with any of your further points.
“I find it difficult to accept an argument which states “lets tax the rich @ 63%” when (a) no one seems willing to say what constitutes ‘rich’ and (b) how much this tax is likely to earn for the exchequer and (c) we only tax a reasonably earning middle class family 5.5% as is.”
(a) is a big issue

To answer (b) some, from 2006 figures (but salaries are well down):
A 10% levy on all earnings for those who earn above 75k would net 2.8 bn… hey, that’s nearly 10% of what we need! Let’s put an additional 100% levy on those who earn over 75k!

I don;t think you need to increase tax rates significantly to get “more money from the rich”. What you need to do is shut down all the ridiculous loopholes and aggressively pursue and prosecute offenders. A regular tax amnesty as is usual in Ireland is the worst thing that can be done if you want to discourage legal and illegal tax cheats.

“To answer (b) some, from 2006 figures (but salaries are well down):
A 10% levy on all earnings for those who earn above 75k would net 2.8 bn… hey, that’s nearly 10% of what we need”

Is that on individuals who earn over €75K? Great. We need every penny. This is an emergency. The lesson from the eighties is that if we delay raising taxes they will end up much higher in the long-run. Even €1.5 Billion is €1.5 Bilion less borrowing. According to Ronan Lyons the top 0.5% only pay 27.5% in taxes.

40% for most of them will mean slightly less wine and pheasants. The top income tax rate for the superrich should go up to 60%.

@ E76

“Is that on individuals who earn over €75K?”

I could be wrong, but i thought the CSO figures were generally talking about ‘tax units’, so this could as easily be a married couple each earning a little bit more than the average industrial wage, and you are seeking to drag into the new top rate of tax. And again, all so we can keep paying the public service their well-above-average wages.

Cut public sector pay first and then ill contribute to both infrastructure invesstment as well as deficit reduction.

“0.5% only pay 27.5% in taxes”

Sorry if i laugh at loud at your issue with such a progressive taxation system.

@ E76

““0.5% only pay 27.5% in taxes”

Sorry if i laugh at loud at your issue with such a progressive taxation system.”

sorry – thought you meant the top 0.5% pay ‘only’ 27.5% of all taxes. My bad. However, i’d say at the other end of the scale 50% pay less than 10% in tax. This needs righting as well. As discussed, the tax base needs widening at both ends.

Think Garo suggested above – end all reliefs and tax schemes. No issue with this. We should move to a generally flatter and simpler tax system in totality.

@ E76

shouldnt we be aiming for tax policies that see those at the top of the ladder pay 41% or so of their income in tax, and those at the bottom pay 20% or so, ie just like the way the tax bands are formed?

Everyone should pay something, at a minimum 15%, so that they are part of the system, and equally no one should have to pay more than 50%, as it was they who earned the money, not the state. Doesnt that seem like a fair way to set the system up at a very basic level?

I’m with Damien on this one. We need to distinguish between ‘effective tax rate’ and marginal tax rate. The former is the real tax burden. True the marginal rate is where the decision is made whether the next euro is worth earning. But let’s be clear: a married couple earning 100k jointly, though into the high marginal rate, are paying an effective rate of about 25%. So they pocket 75k. That’s raw income tax before you add in anything they might claim back off the state such as child benefit, mortgage interest relief etc. So they ‘could’ be paying down close to 20%. Peculiarly, some individuals earning much more than this can keep their effective tax rate down near the same level – because in certain cases they enjoy more of the bigger tax expenditures. This is where our system loses its progressivity.

For me the only sensible approach on the tax side is
a) bring more people in
b) have a few more bands for progressivity at higher incomes
c) remove most expenditures as outlined in the COT report
d) keep an eye on effective tax rates – which must go up, but not so much as to seriously damage the labour market.

But on d) I think the market might sustain more than is often claimed. Not to say I want to say someone on 200k paying an effective tax rate of 50%. But how about 30% say? I don’t think for a moment these people will flee. Where to? And many of the people on 100K+ draw incomes in one way or another from the state. It’s not our knowledge economy IT grads who are earnign this: it’s lawyerers, medical consultants, higher civil servants. They live in one of the most lucrative regimes in the world. I think talk of a mass exit is overstated – just as it is true that they are relatively small in number and therefore adjusting up their rates is a help but not a fix.

Everyone pays Vat and it rivals income tax in the amount collected. The poor of necessity spend their income and so are already paying 15% of their income in taxes. I believe that the Conservatives in Britain funded their income tax cuts through hikes in Vat so the link is often even closer.
If the effective rate of income tax on any income earned by an individual above say 100,000 was raised from 27.5% to 37.5% for the duration of this emergency it wouldn’t be pleasant, but I doubt there would be a mass exodus. Certainly nothing proportionately as massive as the exodus of the unemployed and graduates.
For those over a million an effective tax rate of 27.5% seems extraordinarily lenient and in this crisis unaffordable. 63% might be too much of a shock. But how about 40%? It’s not the Gulag.
In the long-run I do see why effective marginal income tax rates of above 50%, especially at low incomes, but even at very high incomes, would be a disincentive.

But this is a crisis. We need the money. Income taxes will have to go up for the majority of earners. But there is a strong case for substantially raising them for the rich and especially the very rich for the duration of the crisis.

After the crisis the country can decide on the rates it wants.
And as I say the counter-intuitive choice for the rich may be the right one.
Let taxes go up now. Get the crisis sorted out. Lobby for their reduction as economy improves. Current opposition will probably make substantial concessions.
Oppose tax rises. Crisis continues. Tax rates go up and up. Opposition come into office with a desire to punish the rich. Taxes go up and up again. Taxes never come down.

Generally countries whose population rallies round in a crisis rather than expecting everyone else to take the pain do better in the long-run and get out of the crisis quicker.

@ E76

once again no mention of the expenditure side of the government finances. You’re only addressing half the argument. People might be willing to see tax hikes if they felt their money wasn’t going to get pished away down the drain that is much of the public sector. At the moment you are suggesting huge tax increases for the middle classes without any remedial action on the runaway public sector spending. At various stages you have suggested tax increases for almost every part of society, rich and poor, but you completely fail to even remotely address the public sector expenditure. You’re suggesting taxing moderately middle class people at the highest rate of tax. You’re suggesting that people who are an awful long way from being ‘wealthy’ should continue to pay through the nose to prop up our public sector and social welfare.

How about you just chop that spend by 10%? Problem solved no, we’d save around 4bn straight away? A public servant earning 50k now earns 45k, one earning 75k now earns 68.5k – hardly impoverishing them am i? Even somone on social welfare entitlements of 20k now has 18k, so where’s the problem? Why should the private sector, which has already shed 175k jobs or so, bear the brunt of the brutal tax increases that you favour over simple spending cuts?

A Number of observations:

1. ‘…skilled mobile professionals…’ – deserve the high rates of pay they get. Really? This is pure pyscho-babble! There are many un-employed professionals who would gladly take the jobs, even if the going rate was Min Wage. If those ‘skilled mobile professionals’ want to accept 100% of nothing – then good riddance!

2. ‘Set a sustainable growth path..’ and ‘…(until) the economy recovers’.
I am assuming that PL’s economic model is Permagrowth. Well I have very bad news Philip – Permagrowth is in the ER on life-support. It would need too much space to explain this. Sustainability means you DECLINE your economy y-o-y! ‘Sustainable Growth’ is an oxymoron.

3. If GDP is accepted as a very rough growth metric – then will someone please explain to me why we have racked up such massive debts – which I define as Negative GDP – and how in God’s name we intend to repay these debts: default or inflation?

4. I’ll make it simple. You have two models, Left-hand drive and Right-hand drive. They are enantomers, (mirror images). Same composition and properties – but functionally very different. Same inputs, different outputs. From my vantage point economic models and so-called laws are arrant nonsense. Miraculous deceptions remote from reality. The bad economic data is there to observe, its the confounding solutions that are truly maddening.

5. I’ve said this before, but just to drive the point home. We MUST adopt legislation to allow individual citizens to go simply and easily into personal bankruptcy, write off their debts (all), and get out – say in 36 months. Skip the taxes and public service bit until this is done – its really urgent – much more so than NAMA. If any one has a problem with this, then I refer you back to my question in (3) above – please explain the alternative.

B Peter

“You’re suggesting taxing moderately middle class people at the highest rate of tax”.
Taxing income of over 100,000 at an effective rate of 37.5%?
We move in different circles.
Or did you mean my proposed effective 40% rate on those over €1,000,000?
We move on different planets!

“once again no mention of the expenditure side of the government finances”.

You may have missed this comment of mine on another thread:
“On second thoughts 15% of GDP and 17% of GNP are just too high. We need to fully implement McCarthy, cut wages across the board and jack up taxes, especially for the very rich”.

We are in a crisis. If I know the Irish establishment they will drag the correction out for years, causing prolonged mass emigration and unemployment, and leaving us with permanently higher unemployment.
In the 80s we had a flexible currency and no property market collapse.
This is worse than 1981. Lets take drastic action or prepare for the worst.
Saving €4 Billion will not be enough. We are going to have to have a whole raft of measures and I believe save a lot more.

From your point of view the longer the correction takes the more left-wing the country will become, and the higher tax rates will eventually be. If I were a “moderately middle class” person by your definition I would want this crisis over with quickly, for fear of something worse.

@ E76

from your link to Ronan Lyons site:

“Ireland’s top 0.5% of earners, the 11,714 people who earned more than €275,000 in a year, paid almost 18% of all income tax, over €2bn in total. Their average tax rate was 27.5%.
Almost 770,000 people earned less than €17,000. Understandably, given tax credits, these workers paid a tiny amount of tax, €20m in total. Their average tax rate was about 0.5%.
It’s in the middle, though, where things seem to go all screwy. The median earner, earning about €25,000, paid just 4% in income tax!

1. the average millionaire pays six times the income tax rate of the average worker. There’s one thing the system ain’t and that’s regressive!
2. amazingly, two thirds of the 2.2m people paying income tax in Ireland paid an average rate of less than 10%.
3. as per above, the median earner pays about 4% in income tax in Ireland, compared to 20% in the OECD.”

So those at the higher end of the scale pay a far higher effective income tax than those at the bottom. And by far higher i mean 27.5% vs either 0.5% or 4%. And yet its the high earners who are going to be asked to pick up the slack?? Watch these people leave, watch the brightest and the most mobile in our society head to the UK or to the US or to Australia. With this sort of crackpot economics i wouldnt blame them.

By the way, as a single male with no dependents, i currently pay around 36% of my income in tax. But im sure this isn’t high enough for you right? As i said, if you’re unwilling to tax middle class families substantially more, than you simply must focus your actions on the expenditure side of the finances.

We are already watching people leave and I think public opinion is realising the country is in a deep hole.
We need drastic action. A temporary 10% increase in tax on incomes over 100,000 now may save “the richer”, shall we way, from much worse later on.

The state has a obligation to deliver a service to a citizen for taxes paid. Think of it as a sort of contract. Obviously if people feel they are getting poor value for money they will start to look elsewhere. For example people are now shopping north of the border. A friend of mine who lives in N. Dublin travels to Newry every two to three weeks. They spend about 200E on food and nappies etc. By doing so they save about 100E compared to the Republic, a saving of 33%. Is that value for money? Are they being unpatriotich? Are they betraying their country? No it is the other way round, it is the country which has betrayed its own citizens with penal vat rates. Shops have to charge high prices because of these stupid upward only rent agreements. If it continued then in a few years a Mars bar would propably cost 3 euro.

If personal income taxes are pushed up and up, then those people who are in a position to leave will leave. They would most probably be those just out of 3rd level with no financial ties to Ireland, no mortgage no wife or children. The world is a much smaller place now, and contact with home is much easier and cheaper with VOIP with video etc. Don’t forget the cheap flights which can be availed of these days. So emigrating abroad is not such the big deal it once was say 20 to 30 years ago etc.

However those people who have already settled in Ireland, they have married, in the process of bringing up children, etc, they generally will tend to stay and hold on to what little they have and try and ride it out etc. Or the other option for these people is for one spouse to go abroad to seek work and send money home like before.

However with a few mouse clicks one can find out Income Tax rates for many countries. Brazil top tax rate 27.5%, Isle of Man = 10% rising to 18%. France 40% after 65K etc, the USA 33% after $80K or if you are married you can claim your spouses allowance in which case you enter the top rate of 33% at around $150K. And of course the US has a VAT rate of about 9% depending on the state.

Of course there are other considerations like cost of health insurance etc. But at least if you did emigrate you would most probably get better weather.

Also it’s not just about if you can afford to pay more tax. The less money you have then the less experiences you will have in life. The less holidays you can take, the less novelty items you can buy, the smaller the house you have to live in etc. I mean some houses and aparments are just too small and it is disgraceful the familys have to live in such small boxes. This adds to the stress of family life.

Don’t forget the vat rate which has to be added to your income tax rate. A 5 euro note will not feed you. So if you are effectively paying 36% of your income overall in taxation, you lose another 21% when you go to buy food or a coat to keep you warm in the rain. So to live in Ireland you could be paying a effective tax rate of 57%. If you are going to push a high rate of tax to 63% for high earners, then they could be looking at 84% tax to buy things. We are entering mad hatter terittory now.

In addition people are now realising if you want something to retire on then you should be looking at putting away 1/3rd of your salary every year to fund your own private pension. The more tax you pay in Ireland the less you can save for your pension, so the poorer will be your retirement experience. The idea of retiring at 55 because the stock markets did well is not looking good.

So people are under severe pressure, getting hit from all angles. I would recommend to any young person to emigrate. There is a much bigger world out there and it is much closer and better oppertunities can be had if one is careful.

Nevertheless there is still something romantic about Ireland. But maybe this feature will not be enough this time.

The Unions exist to boost their members. I have left the co
untry and am not employed!
I have no axe to grind. The affects on my pension 29,000 or so, will be minimal. I am more concerned about FX rates!
You are part of a generation that has been sold a mirage. The financial services industry exists to falsify OPM. It will now be dismantled except for carbon traders, so be warned.
As we can see from the Merril Lynch report on Anglo the private sector is note merely dishonest it is expensive! You have not addressed my arguments and I think that shows you lack an argument that is factually based?

Your judgement on Nama is also in question as the rating downgrade will not be the last while we have the option of liquidation removed from discussions of these massive malinvestments in land. You appear to be attacking my argument by associating it with unions. Your government has joined with these unions for their own reasons.

@ Pat

its very difficult to ‘prove’ that publicly supplied services are ‘cheaper’ than privately supplied services (its also difficult to prove the opposite), as the government generally operates in near-monopoly positions in everything it does, or it offers a highly differentiated service to the privately operated on where there is overlap (education, healthcare). The one example of where the public competes with the private sector directly that i can think of is in waste collection, and the involvement over the last few years of the private sector has massively driven down costs. However, in general there are very little comparable situations.

However, lets look at the industries that were previously of the domain of the public sector and are now offered solely by the private sector:

– airlines
– telecommunications
– airports (abroad)
– ports (abroad)
– steel production
– waste collection

Across the board, the prices of these services have dropped for the consumer after privatisation.

And lets look at sectors in this country which are still controlled for the most part by the public sector but which are offered around Europe by the private sector

– energy supply
– mass transit systems

Here we pay far higher prices for these services than the comparable ones in Europe.

We know that public sector employees are paid more than their private sector counterparts. We know they work less hours and have lower productivity. We know we pay more for publicly supplied services here than comparable private sector supplied services abroad, we know previously publicly supplied services have massively fallen in price after privatisation here. Could you please supply some facts to back up your claim that the public sector can supply services at a cheaper rate than the private sector?

@ Pat

there are also numerous examples of private bus operators who offer either comparably priced or higher quality travel services than Bus Eireann – many offer express routes with free wi-fi vs the Bus Eireann offer of standard routes and no wi-fi.

Re Fitch downgrade – it made far more negative reference to the deterioration in the public finances than it did to NAMA.

“However, the agency notes the vigour of the government’s fiscal consolidation response to date, the expectation of further aggressive budget tightening and the likely success of the National Asset Management Agency (NAMA) in rehabilitating the banking sector.”

As such, it would appear to be greenlighting more public sector cuts and at least seems to be somewhat ok with NAMA. This is exactly what the OECD said last night as well.


“If the effective rate of income tax on any income earned by an individual above say 100,000 was raised from 27.5% to 37.5% for the duration of this emergency it wouldn’t be pleasant, but I doubt there would be a mass exodus.”

Presumably you’re basing the 27.5% on the Revenue income distribution stats for 2006?

In the meantime, taxes on the top-end have gone by 8.5% (that’s 2.5% in extra health levy and a 6% income levy on 175k+). Also note that these levies are immune to sheltering.

So the high-earners are *already* up close to the 37.5% that you propose. And yet revenue continues to collapse.

With the PRSI threshold abolished, they’d be well above the effective rate you propose.

The financial services industry is a leech that has been sucking away the lifeblood of economies. The countries with the biggest financial services industries were the ones that have suffered the biggest in this bust. Iceland, Ireland, UK and the US in that order. What we all need to remember is that the financial services industries don’t actually produce anything.

Yes they help direct capital where it is needed but the vast majority of financial services industry does not do that. Most of it just plays around with OPM, taking a cut when the going is good and a smaller cut when the going is bad. How many fund managers in Ireland advised people to pull their money from the market when the ISEQ was near 10,000? Why do we even need any of these people if they can’t do what they are basically being paid to do? What is the annualised 10-year return of the Irish stock market? How many funds here have returned more than that after fees and expenses?

An astonishing large proportion of the deficit incurred by the government this year and in 2008 has been due to the money being thrown into the bottomless pit that is these banks. We keep hearing people like Eoin telling us that the public sector is bloated. And it is. But the fact is that the Irish financial services sector is far more bloated and contributes even less to the economy and the well-being of citizens than the public sector. Why do we need these banks? I cannot see how they are adding much value to the Irish economy. Whatever value they may have added in the past decade has been wiped out and more over the past 15 months alone.

@ Eoin,

While paying 36% in tax is excessive no matter what your income or stasis. Chasing after middle class families in a singularised (or partly singularised) tax system is not the answer. Ireland’s tax system has been set up against families and therefore against *future* tax payers i.e. children.

Because children are seen in Ireland as a ‘benefit’ and not a ‘credit’ as is the case in the U.S. (where I returned from having emigrated 10 years ago) I get the general perception that somehow every non-family taxpayer is doing families a favour. I can tell you as a single-income, married(-couple) with two young children that I am most certainly a net contributor in tax eventhough I have to manage with a net-overspend in my monthly expenditure from savings. Luckily, we “saved” an additional 50-100K by doing a little simple maths and not jumping in on the housing bandwagon – but that doesn’t mean we have tonnes of cash in the bank, or mortgage relief to claim. While reasonably well paid I have no pension, and cover all of my familys’ benefits, so it seems absurd to me as to how we could be struggling when I would be 10K better off in the US with the same income. I find it harder again to understand how single-income families earning less than I do can manage.

Tax payers without dependents (and it seems the ‘tax experts’ to our solutions) forget the tonne of additional expenditures attached to families like frequent GP visits, education fees etc. Or the need to support a second adult from one income. Add to that, such these costs are charged at increased 2009 rates – not a ‘deflated’ 2003 or whatever year price – means there isn’t a whole lot of cash sloshing around in family incomes. If the second adult is trying to re-educate for employment to help cover expenses then you can throw in creche fees too.

In the current climate, more dual-income families are turning into single income ones and the harsh realities this entails. The OECD report will not have helped ease the pain.

Solutions been proposed to cut benefits are a quick fix. What they will do in the long run is create a situation where demographics shift away from couples having children (because of the costs) towards a situation where a shrunken PAYE sector of the future won’t be able to cover our net-debits – and those debits will include both you and me. I see few families getting any thanks now for that contribution….


@Sporthog, Pat Donnelly
Tax rates have gone up. But I would question how much they have gone up on those who can afford the tax advice. If on average those earning over 1,000,000 are now paying 37.5% then that is progress. But I would wonder if they are. But in any case I think we need to push their taxes up by at least another 10% for this emergency. The number who leave the country in the short-run is likely to be relatively small – nothing compared to the number of emigrants. We can look at their taxes again after the crisis. Remember in other countries they would be paying property taxes or local government taxes. This is a crisis.

E76: I am not sure that raising headline tax rates is the best way to raise effective tax rate. Close all the shelters and loopholes and you will see effective rates go up a lot at the higher end without an increase in headline rates.

@Proposition Joe

“In the meantime, taxes on the top-end have gone by 8.5% (that’s 2.5% in extra health levy and a 6% income levy on 175k+). Also note that these levies are immune to sheltering.

So the high-earners are *already* up close to the 37.5% that you propose. And yet revenue continues to collapse”

I think you’re confusing marginal and average tax rates here. Marginal rates have risen significantly, but average rates will have risen a lot less.

@ Aedin

you’re right.

But someone on 275k per year will still pay 4.07% in income levy’s alone, with this approaching 6% as their income increases.

Not sure how you could guess what the health levy is, but given that its now at between 4-5% on all taxable income, we can assume their is at least 1-2% there at a minimum.

So overall there’s 5-6%+ in additional tax on top of the old figures.

I would question how many people earn more than €1m in taxable income who are still tax resident in this country. An extra 10% on those who are might look great for the headlines but might not raise much money.

If you want to collect more tax
1. Remove all the tax shelters. Simplify the system. we don’t need schemes for hotels, car parks or holiday homes any more, if we ever did need them.
2. Bring more people into the tax net. 700,000 people paying €1000 more on average brings in €700m.
3. Tax children’s allowance (easier than means testing).
4. Introduce a property tax to replace stamp duty. Other countries do it, it can’t be beyond the wit of the Dof to come up with a similar one (unless of course we want to reinvent the wheel which we usually do)

But as others have pointed out we might be able to stomach higher taxes if we thought we were getting half decent services for them. Instead we have the impression (rightly or wrongly) that we’re paying for overstaffed, overpaid, underworked public servants with fabulous pension entitlements.


You have it right on the button. Just don’t expect anyone, except the Five Sigmas, to pay any heed. The herd have a business-as-usual response- which in the current predicament is completely useless. Keep at it.

B Peter

@ Stuart

i agree completely.

As of 2007, a household on the average industrial wage pays an average tax rate of almost exactly 0% after child benefit is taken into account. Yes, zero. (

Even after the recent income and health levys, a somewhat middle middle class family earning 60k per year only pays around 11% in actual tax after you include social transfers such as child benefit and mortgage interest relief. In 2007 it would have been around 7%.

Again, at the risk of repeating myself, and while not advocating tax hikes, if you really want to maintain expenditure levels as is by creating a sustainable tax base, or seriously go about cutting the deficit, you simply must bring these people into the tax net. I have to imagine that the proportion of ‘tax units’ earning 60k or less is around 75% of the workforce. As such, 75% of the working population currently contributes very little in actual income tax as a proportion of their wealth. So we could be looking at well over a million people in employment paying less than 10% in actual tax. I’m all for progressive tax systems where the wealthy pay the bulk of the tax burden, but this seems ridiculous.

By the by, im single with no dependents, and as such i pay around 36% of my income in tax. I am by no means ‘wealthy’, i’d put myself as somewhere towards the higher end of the middle-middle-class category. If you try to raise my taxes above 40% while maintaining the status quo for those below me (ie 10% or so), then i really will start to consider leaving this country for the UK or Australia.

I would suggest that the onus is therefore on those who advocate either maintaining public sector expenditure as is to explain to middle class families why they should pay up to 10% of their pay in additional tax.

@ Garo

completely agree, have no issue at all with closing off 90% of the current tax shelter schemes. Anyone know what that would be worth now (rather than 2 yrs ago)?

Why 90%? why not 100%? no idea how much it would be worth but that should not stop us from trying it should it?

@ Garo

well i would assume that at least some tax incentive schemes are productive or add value to the economy (the film schemes apparently pay for themselves), and some may be required for other policy goals (ie investing in Ballymun for instance). Tax schemes in and of themselves arent bad ideas, its just that they became so broad and vague in nature (hotel investment, investment in even remotely poorer-than-average areas) that they stopped being about policy goals and just became random-investment-for-tax-sheltering schemes. 90% of them probably now fall under this label.

This comment forum must be full of individuals who either are single with no dependents or families with grown up children, because no one here seems to understand the current costs of raising a family or appreciate the importance children have as regards to future tax revenue.

As a returned emigrant having worked in the U.S. for 8 years I am amazed at how little I take home from my salary as a single income family compared to what I would keep in the U.S. (and that’s allowing for the higher health insurance costs in the U.S.). I can ensure you my tax burden is closer to 22% of my take home pay allowing for child benefit. At the end of each month I am dipping into savings to make ends meet – so I don’t know where all the wise owls here are getting there figures on a vast pool of rich families to tap. I am private sector, no pension, and pay all of my families costs such as basic-level V.H.I.

The devil is in the details. In Ireland, children receive ‘benefit’ i.e. we all pay in and families get money back per child – in the U.S. children are ‘credits’, you file your tax and pay less if you have children. The distinction is minor but critical. The broad consensus amongst the forum contributors and the non-families at large is to hack away at child benefit; in the U.S. it would never even be considered to reduce the tax credit per child. Individuals have forgotten the purpose of the benefit is for the child, not the parents. Last time I looked children don’t run on solar power so they have to be fed, clothed, educated and all-to-frequently sent to the doctor! These are costs – critical costs necessary to raise future high PAYE contributors. It’s this for which I play my part. The consequences of not doing so is what we see happening in Japan today.

Families – like mine – have already taken a considerable hit; loss of the early childcare supplement, the widening of the PRSI net and health levy, the extra levy charge. These are burdens we all have but are burdens which hit families hardest because – as is our case – there are two adults and two children to support from one pay cheque. We have no mortgage – so no mortgage relief – but we have probably “saved” my family 50-100K from not owning an underwater property. For that I am grateful, but at the same time it wasn’t rocket science to figure out the world was in a property bubble, it was just a matter of waiting for it all to collapse.

I think it’s fair to say I am doing the majority of the family-bashers a favour by taking on the costs of raising children who hopefully will grow to become PAYE contributors of their own. In twenty years time my children will start contributing and eventually work towards covering the costs of myself, my wife and the forum members of this board will become on public services.

Of course, nobody here – or more critically – in government has stopped for one second to think outside of their own selfish considerations. The solutions been put forward have come from the very same minds which created the economic mess we are in.

Families should be the last group been taxed.


@ Declan

not sure if your post was directed at me, amongst others, but let me clarify where i stand.

I am NOT in favour of tax hikes. I want very very big cuts in public sector wage and benefit expenditure. If we believe that some sort of stimulus is required, then these public sector wage savings should be re-focused on private sector job re-training, productive but vulerable job protection, or simply long term infrastructure investment.

However, if we as a society decide that we need tax hikes, then from a long term sustainable tax model perspective, we simply cannot keep a situation going where 75% of the whole workforce, and the vast majority of middle class families, pay little or no income tax (ie sub 10%) after child benefit is taken into account. This isn’t ‘family bashing’, its simply recognising the reality of a situation where at the moment about half of the workforce pay more or less zero. This obviously does not include you if you say you pay 22% or so in income tax, but working through the maths i would say you earn a semi decent income a good bit above the average, no?

(getting my figs from the following: – Annex A, page 11 or so, subtract back mortgage interest relief, child benefit, and any other common reliefs).

From a very cold-hearted view as well, middle class families are the least likely to leave the country given how tied in to the country they are (ie mortgage, kids in school etc). Young single people or the very wealthy are both much more mobile and could easily leave the country for other countries with lower tax. As such, any significant tax increases on them is more than likely going to see material amounts of these people leave the state for pastures new.

I’m not talking about massively taxing middle class families, but simply raising their average tax paid to something closer to 15% rather than the 0-10% they currently do, and this would be done at the same time as increasing the portion paid by those at the top towards 40% (they already pay above 30%). At the moment almost all low income workers and most lower-to-middle middle class families essentially exist out side of the tax net, and it seems bizarre to ask everyone else to take the burden of any tax adjustment without including them.

Married, 2 teenagers (1 started college), no mortgage but set up my own business two years ago and living off savings (lost a fair bit on our beloved banks)

As with Eoin my beef is with those who don’t pay tax at all effectively and there are a lot of them. They should be paying some tax. I also want to see the public sector pay bill down significantly. I’m not averse to a property tax replacing stamp duty even though that will hit me but will give steadier income to the government.

So, not selfish considerations but a desire to see the country I live in get back on its feet and provide a future for my children who are closer to emigration than yours. Where I am selfish is I want them to stay here.

By the way when I was at your stage there was no early childcare supplement, children’s allowance was a lot lower, taxes were higher, interest rates hit 17% at one stage. And if John the Optimist is reading this he’ll be able to prove our average saleries were much lower. We have to adjust our lifestyle.

@Aedin Doris

“I think you’re confusing marginal and average tax rates here. Marginal rates have risen significantly, but average rates will have risen a lot less.”

Have they though? At the top-end, which is what we were discussing.

As I said the “levies are immune to sheltering”. By that I meant, the levies come off the top with no tax relief applied. For ultra-high earners, surely the biggest downward pressure on the average tax rate is the availability of such reliefs? (as opposed to tax credits with have a much bigger impact on low earners)

Reliefs seem to be the factor that caused in 2006 the average tax rate of someone on more than 250k to be slightly *lower* than someone on 200k-250k. So I’d suspect the inescapability of the levies will cause a much bigger jump in average tax rates at the top end, than would be the case if the PAYE rate was increased by the same number of percentage points.

@Declan, Eoin, Stuart Blythman

“From a very cold-hearted view as well, middle class families are the least likely to leave the country given how tied in to the country they are (ie mortgage, kids in school etc). Young single people or the very wealthy are both much more mobile and could easily leave the country for other countries with lower tax. As such, any significant tax increases on them is more than likely going to see material amounts of these people leave the state for pastures new.”

Stuart Blythman:
“By the way when I was at your stage there was no early childcare supplement, children’s allowance was a lot lower, taxes were higher, interest rates hit 17% at one stage. And if John the Optimist is reading this he’ll be able to prove our average saleries [sic] were much lower. We have to adjust our lifestyle.”

Declan has a serious point. I am also a “returnee” (though I was away for much longer than Declan) of two years standing. “Middle class”, two children, and we have seen our savings eroded over the past two years, despite two PAYE incomes for most of that time. Euro 1,000 per month creche fees (at a university creche), Euro 600 per month for 2pm-5pm after-school care, astonishing rents for, by international standards, very average housing, etc., etc. Like Declan, it was clear to us when we arrived that there was in Ireland the mother of all housing bubbles, and we did not even think about buying (Kiwi friends who bought an astonishingly overpriced shoebox two years ago who now cannot return to NZ without writing off their Euro 200k life’s savings, and having perhaps an additional Euro 100k of debt following them).

We leave at the end of the year, and are very pleased that our EU passports allow us to live in an economically more mature European country. A familiarization visit revealed the following – state-funded schooling for children of a quality similar to private schooling in Ireland (including, 20 students per class max class size, well-maintained and extraordinarily well-funded infrastructure, regular school hours); housing cheaper than Ireland today – at the bottom now? – and of better quality (care of govt. anti-speculation measures and housing development policies that clearly have not been formulated for the past fifty years, by intent or mere neglect, with a primary focus on the interests of “property developers”), efficient, widely-avaliable, pleasant-to-use (even in rush hour) public transport (in which trams dominate), and so on. Our take-home pay will also be better, since tax deductions for children and rent/mortgage are significant, and while marginal tax rates are higher and more progressive than in Ireland, we will not fall in the highest marginal bracket on incomes that are roughly the same we earn in Ireland.

My point is that there is much that is very attractive to any middle class family with children in this, and perhaps a dozen more, countries in the EU, and despite the recession, there is still a job market in much of the EU. So, thinking that middle class families who have children are locked in to pay whatever increase in tax and decrease in public service that is required to “make the bond-holders whole” and keep the banks and developers in pocket and out of goal, may be premature (and yes, I agree with the implied argument that those on the average industrial wage and less certainly can’t afford to pay all that now needs to be paid to ensure the uninterrupted and continued transfer of wealth to the land-owners, speculators, bankers, bondholders, tax refugees, and the rest of the clients).

@ Tony

(a) the notion about the bondholders being made whole causing this entire crisis are weak and myopic. Bondholders didnt cause our public sector spending to hit 47bn last year, and nor did they cause our tax revenue to hit 36bn this year. We made that deficit gap all by ourselves. We’ve been running a structural deficit for the last 6 or 7 years at least. It would have to be closed by us regardless, though ill admit the process may be easier were it not for the banking crisis.

(b) families can of course leave this country, but my point was that its far easier for single people to leave than families. As such, they are far more likely to, and they’re the ones currently paying a higher proportion of their income in tax. Ceterus paribus, if they leave, your tax bill goes up. Thats all.

(c) most of your arguments relate to the cost of things in this country, which is an entirely seperate, though no less important, issue to the taxation policy of the state. Things you buy being quite expensive doesn’t seem to be a good reason to tax me more.


(c) Cost of things and tax regimes are not unconnected; but no, most of my argument does not relate to the cost of things in the RoI. You mention earlier that you paid 37% of your income, presumably in 2008, in tax. We paid 34% – lower because of our lower salary than yours, perhaps, and also lower because we received Euro 4482 in untaxed child-related benefits. However, our 34% hardly means we pay, as you put it, “little or no income tax”, especially compared to you.

Nowhere do I suggest that I think that the relatively high cost of the things we buy in Ireland, compared to their cost in many other countries in the eurozone and elsewhere, means that you should pay more tax.

(b) I do not disagree that it is easiest for young childless persons to leave Ireland. My point was that older persons with children may find it not too difficult either, and that there are very significant economic and social-support reasons for doing so, perhaps particularly for those who have professional occupations. The implication of this point is that if you are going to use the realpolitik argument that you should not burden the extremely wealthy or the childless with high taxes, since they will simply leave to live in a lower-tax regime, then it may be wishful thinking to think that the couple-with-children (and, indeed, the single working person with children) may not find other tax/welfare/social-infrastructure environments in Europe also relatively easy to move to.

(a) Nowhere do I suggest that the entire crisis in Ireland was caused by bondholders being made whole. My point, which may not have been clear, is that this act is symptomatic of a long history of such ill-conceived acts. The huge structural deficit, of which we are all now well aware, clearly (to a relative outsider at least) has its origins in a long history of behaviour, priorities, and ways of thinking. Fintan O’Toole’s recent book “Ship of Fools” does a superb job, in my view, of describing some of that history and some of its consequences.

I think the two facts that the Government needs to publish first page and centre in the next Budget are:
(1) We are undertaxed. Two thirds of earners pay less than 10% in income tax. The person in the middle pays 4%, compared to 20% on average in the OECD.
(2) We are overspending. The Irish government-GNP ratio this year will be about 55%, the *largest* in the EU (yes, you read that right). And for all that spending, we don’t get nearly as much in the way of publicly-provided services as other countries.

The amazing thing about Ireland’s boom was consensus. You could ask a taxi driver or the Minister for Finance, and they would give you very similar accounts of Ireland’s overall economic strategy.

The Government needs to drill the above two facts home, so that we can a counterpart consensus, similar to the 1987 PNR, for how to recover.

(References, so to speak: The first point about who pays what in taxes has been linked to above. For those interested in the latter point, see


The graph I keep hoping you’ll plot would compare the Irish tax take at each income decile with the average across the EU and/or the EU-15.

@ Tony

the whole point of my posts has been that lower-to-middle middle class couple pay little or no tax. If you pay 34% of your income in tax, than you are quite clearly, per the DoF link i provided, earning an income that is not in this bracket. To clarify, per this same link, as a single person, when you include child benefit, i would earn significantly less than you (i’d say 30%, maybe more) and yet still pay a slightly higher actual income tax rate.

Also, per “the realpolitik argument that you should not burden the extremely wealthy or the childless with high taxes”, i have repeatedly stated that these demographics should pay more in income tax than ‘families’, but in our current discussion about how to close the structural deficit, we need to acknowledge that we already tax these groups far more than ‘families’, and dont tax around half the working population at all. As i said, if we have seperate groups of people paying 0%, 10% and 35% effective income tax rates, does it really seem sensible or fair to add to the 35% group without doing something with the other two first?


This is tedious, but nevertheless raises an interesting point re income tax rates and their reportage and discussion in Ireland. Married persons are treated as a unit of income. This can lead to silly conclusions. From your comments above, and the tables you provide, my wife and I together do earn more than you. But, each of us earns almost the same as you (and almost the same as each other), and on our incomes, we each pay 34% tax (and, therefore, of course, 34% tax on our combined income). You pay 37% tax without children, and you would pay 3% or 4% less if you were in receipt of child benefits for two children of the ages of our children. You may think that child benefits are unreasonable (since having children is a choice, etc.), or reasonable (since the pope has a view, and since children are needed to support the economy in the future, etc.).

@ Tony

you’re right that this is getting tedious, though i’d argue that that’s not my fault. In fact, im not even that sure what exactly we are arguing about.

Way up above you contended that “However, our 34% hardly means we pay, as you put it, “little or no income tax”, especially compared to you.”

Given that we can have a reasonable idea of how much you earn as a family unit, you are not a member of the lower-to-middle middle class soceio-economic group i have been noting pay very little in income tax. Therefore i never suggested that you pay little or no income tax. You are quite clearly well above the average in terms of household income. Given the cost of raising kids in this country, it may not always feel this way, but as i noted earlier, i think we need to seperate costs from taxes in terms of public policy. In many ways the government tried to use tax policy as a way of placating families feeling the pinch from the costs of this country, and that could be argued for one of the reasons we are where we are in terms of both the property market bubble as well as the fiscal gap, public sector pay and the extremely narrow tax base.

You originally came into this conversation believing that Declan had a point, and you believed i, amongst others, had been unfair to his argument.

Declan suggested that families be the “last group being taxed” and that we were essentially “family bashers”. I am not a “family basher”, but we need to at least be honest about how much many families currently pay in taxes, how families currently receive many tax breaks and social transfers as is, and that no tax base is going to be in any way sustainable unless we include within the tax net many of the families who are currently outside of it. Thats the only point im trying to get across.

@Tony, Eoin
One aspect that is skewing the tax rate substantially is the PAYE tax credit. Tony has already stated he is self-employed. In addition to higher bands on PRSI, the PAYE tax credit pushes up the tax rate for a self-employed person a fair amount.

You should bear in mind that a household with two average incomes compared to a single income household:
From the 2006 figures:
32k income – 2,524 tax
Times two add in two children and you have an effective transfer
66k income – 11,407 tax
More than four times the tax burden of the lower earning double income household.


I wish I were self employed, and it’s not clear to me where you think I say that. I’m a wage slave, as is my wife, like most of the rest of the working population.


Taking your argument that your concern is not about families on well-above average incomes gaining a few percentage points of income-tax advantage, but about families on average incomes escaping the income-tax net (they don’t, of course, escape the “tax net”), the following comes from the tables you referenced earlier:

2009 figures:

Tax paid by single earner on Euro 30,000 – 16.9%
Tax paid by married couple, 2 children, on single income Euro 30,000 – 9.1%
Tax paid by married couple, 2 children, on dual incomes, each of Euro 30,000 – 15.5%

The single-income family receives a tax advantage over the single-income person earning the same salary of 7.8 percentage points, reflecting the child-benefits transfer. However, the dual income family, where each earner in on the same salary as the single earner, gains a small 1.4% tax advantage.

Only if the single income family with two children earns Euro 15,000, do they pay no tax and they are outside the income-tax net. But the single-earner (no children) also pays no income-tax, and is outside the icome-tax net. Where’s the problem? The table you references assumes a 65/35 skew, and on an average wage each of Euro 15,000 (actual wages of Euro 19,500 and Euro 10500), this family pays 3% income-tax. No ‘family advantage’ there.

So, what is your point? Are you advocating that the incomes of two people who work, merely because they choose to marry should have their incomes combined and taxed as if the combined income were one income?

I don’t think you could be advocating this social-awareness-circa-1950’s scenario, so the small income-tax advantage of the single-income family, derived from fixed tax-free child-benefits, must be the issue. This advantage probably persists for the dual-income family, but if there is an income difference for the two earners in a two-income married couple, it erodes.

It’s clear to me that the child-welfare aspect of the child benefit payment hugely outweighs the tax loss, given the reality of the high fixed costs of raising children in Ireland that impact very severely on those on industrial-average wages or lower.

Taxing the benefit, and eliminating it for higher income earners, is clearly the way to kill the anomaly in the current tax regime.

As for closing the structural deficit … removing all tax anomalies is obviously a requirement, and even changing the conditions under which tax is payable. In the US, for example, a general taxation principle is that a US citizen who lives outside the US still pays income-tax to the US on locally earned income (with deductions for local income-tax paid, etc), or gives up US citizenship. Makes being a “tax exile” less attractive (US citizens living in low-income-tax countries complain bitterly about the historical irony of paying to the US “tax without representation”).

Oh and being self-employed is not much different to being a wage-slave, just without the JB, the redundancy pay and a boss hovering over your desk…

@ Tony

“The single-income family receives a tax advantage over the single-income person earning the same salary of 7.8 percentage points, reflecting the child-benefits transfer.”

The figures provided in the DoF link, as far as im aware, do not include child benefit allowances. They only include standard tax credits for single people and married people, and as such essentially represent just the differences caused by these and the accompanying tax bands. Regardless of having children or not, simply being married allows you to pay a good deal less tax than a single person on the same salary by virtue of the married persons tax credit, and this affect is obviously magnified at the lower income levels. If you include the children and the child benefits transfer, the gap between single people and married couples balloons for lower income tax units.


I think you are right re the figures in the DoF link. And I agree that there is no good reason for mere marriage (or co-habitation or any other living arrangement) on one income to trigger different thresholds on tax bands. I’ve not seen this type of tax arrangement in any other of the half-dozen tax jurisdictions in which I have paid income-tax over the past 25 or so years. Clearly this tax arrangement also provides an incentive to generate a second, smaller, income in the black economy. However, my arguments re significant child-support benefits for lower-income families remain, and I think you may agree with me on that.

@ Tony

i dont have a problem with some sort of method or process to help out families with children, particularly your idea of child tax credits, and i should state that im not suggesting taxing just these groups more. My broader point is that unfortunately we are going to have to tax all those who currently pay little or no tax (in relative terms) by a substantial amount more if we wish to create a wider and more sustainable tax base. The top end simply can’t (mathematically – check out Karl W’s post)) take the majority of the burden, and so lower-to-middle middle class families are going to have to be majorly involved in the adjustment, particularly when they currently pay a very low level of actual net tax after child benefit is included.

I suppose i’m focusing on the family angle more directly because it is obviously the most politically unpalletable, and most public representatives (union or government) won’t touch the idea with a 200ft barge pole. That doesn’t make it any less true or important however.

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