Irelands Workers benefit from some of the biggest reductions in income taxes over the last two decades

Irelands Workers benefit from some of the biggest reductions in income taxes over the last two decades

December 20, 2016

Income taxes fall for high earners by 9 percentage points – faster than European average

GDP growth outperforms global average over last 30 years

Ireland’s high net worths are among those who have benefitted the most from global reductions in income taxes over the past two decades, according to a new study by UHY, the international accounting and consultancy network.

The research reveals that the effective income tax rate for Ireland’s high earners with a salary of USD 1million has fallen at a faster rate (down 8.6 percentage points – from 47.5% in 1996 to just 38.9% today) than the global average (down 5.6 percentage points from 41.4% to 35.8%) in the last twenty years.

Income tax cuts in Ireland have also been more substantial than in most other European economies, which have seen average reductions of 8 percentage points since 1996 – from 49% to 41%.

This puts it within the top half of the fastest income tax cutting countries in UHY’s study. UHY studied tax data in 26 countries across its international network, capturing the effective income tax rate for higher and lower income workers*.

UHY notes that each working citizen in Ireland is entitled to a personal tax credit of €1,650, and an employee tax credit of €1,650. This study does not include social insurance or other taxes impacting people’s net income.

Ireland’s workers on lower incomes – those earning USD30,000 – also benefitted from significant tax reductions. They have seen their tax rates fall 25 percentage points, from 33% twenty years ago to 8% today.

Russia has seen the biggest cuts of any major economy for higher earners, who have seen their income tax rate fall by nearly two-thirds (from 35% to 13%).

The UK imposed the biggest increases of any major economy in the study (see table below) – one of the few countries to do so. British workers earning USD1million saw their tax bills rise by 4 percentage points over the period, from 39% to 43%.

Comments Alan Farrelly, Partner at UHY Farrelly Daw White Limited: “Many governments around the world have tried hard to ease the tax burden on take home pay in the past twenty years – and Ireland has been leading the way.”

“By making bold cuts to income tax rates, policymakers have sought to bolster consumer spending power, improve their country’s attractiveness to an increasingly internationally-mobile workforce and boost economic growth.”

He adds: “It’s an approach which has contributed to Ireland’s robust GDP performance in recent decades.”

“While this study did not take account of social security and other taxes such as USC impacting individuals’ net income, the reduction in USC rates in consecutive budgets and the 2016 decrease in the higher rate of income tax from 41% to 40% are positive steps in increasing the net income of individuals that we would encourage the Government to continue going forward.”

UHY’s data also reveals the extent of global economies’ GDP growth in the last thirty years, since the UHY network was founded in 1986.

Their figures show that Ireland’s GDP has grown by 278% in the past thirty years, outstripping the global average of 135% GDP growth (see third table below). The European average was 74%.

Income tax rates for higher earners (USD 1 million)

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Income tax rates for lower earners (USD30,000)

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Change in Gross Domestic Product (GDP) since the UHY network was founded in 1986

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GDP data from the United States Department of Agriculture.

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