The vulnerabilities in Ireland’s personal tax system
As things stand, Ireland’s personal tax system is a crucial source of Revenue for the Exchequer. It accounts for 37% of tax revenues forecast in 2023. Although it is one of the most progressive tax systems globally, respected commentators have indicated that particular aspects of the income tax system have made its continued sustainability and yield more vulnerable in future downturns. These issues broadly revolve around the following:
- The erosion of the tax base from 2012;
- The ‘cut’ point at which marginal rates of tax apply relative to the employee’s median income;
- Ireland’s greater-than-average reliance on social transfers to address poverty and fairness; and
- The increasing global competition for foreign direct investment and Ireland’s offering’s effectiveness in attracting personnel.
In that context, it is timely to review the effectiveness of the Irish tax system and its resilience for future tax years.
Our personal tax policy recommendations
In response to the Department of Finance’s recent call for submissions on the ‘Public Consultation on the Personal Tax System’, PwC Ireland has proposed solutions for many of these issues. Our recommendations include the following:
- The appropriate use of USC as a means of broadening the tax base or its potential merger with income tax;
- Maintaining progressivity through additional tax bands targeted at lower to median incomes, extending the reach of lower tax bands and moderating any undesired effects through targeted means-tested social transfers for low-income individuals;
- Securing on a more permanent footing Ireland’s expatriate offering and implementing improvements at minimal cost to the Exchequer;
- The merits of pursuing individualisation of the tax system to aid equality and enhance female workforce participation; and
- Specific tax measures that would benefit the Irish economy and its competitiveness.
