Asking Ireland’s lowest earners to pay income tax would be “very, very difficult politically” – but the option should be on the table, a leading economist has said.
It comes after several Irish economists warned that Ireland’s tax base is far too narrow – with just 20% of taxpayers paying 80% of all taxes.
The opening day of the Patrick MacGill summer school in County Donegal yesterday heard from several economists warning that Ireland remains too reliant on corporation tax and should prepare for potential economic shocks in the future.
On Newstalk Breakfast this morning, Trinity College Assistant Professor Barra Roantree said there are several ways Ireland could widen the tax bases – but none are easily achieved politically.
“You will find a consensus across economists in Government, universities and the private sector that our tax base is too narrow,” he said.
“That too much of our tax revenue comes from a small number of taxes and within that, too much comes from a small number of taxpayers.
“You know, 80% of income tax revenue is paid by just 20% of taxpayers, but we're also highly reliant on other concentrated taxes like corporation tax.”
Tax base
Mr Roantree said three companies pay around €10 billion a year in taxes in Ireland – equivalent to about €2,000 per person in the country.
“The issue with this kind of narrowness of the tax base is that it creates risks,” he said.
“It leaves us vulnerable to things happening that we can't control.
“So for example, on corporation tax, it's looking like we're going to have another Trump presidency and who knows what could happen under that?
“One thing that's looking increasingly likely is that he's going to try make more US firms manufacture stuff at home.”
"Very unpopular"
He said asking the country’s lowest earners to pay income tax is not “politically palatable” – but it is “something we should be talking about”.
“It is a very, very difficult to do politically because we spent, essentially, the 2000s taking people out of the income tax net,” he said.
“Then we had the, very unpopular, introduction of the USC which kind of lessened how much people were out of their income tax net.
“But again, it's something that we're going to have to look at if we want to move away from the situation we're in where we’re very, very reliant on corporation tax and then even within income tax, on that small number of taxpayers paying a lot.”
Property tax
He noted that the Government does have other options when it comes to widening the tax base – including raising property tax.
“That’s also a highly politically unpopular [option],” he said.
“On the property tax side of things, we actually know, there's very good evidence to show, that property taxes are the least economically-damaging type of taxes.
“All taxes are economically damaging but property taxes are the least bad – and we have a very low share of revenue coming from property taxes when you look across the country.”
Mr Roantree said the economic collapse saw Ireland forced to make many tough decisions very quickly – and some economist believe we should take unpopular decisions now to ensure we are prepared for problems coming down the tracks.
Currently, workers in Ireland do not pay income tax until they earn more than €18,750 per year.
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