Low Tax Economy for Slow Learners

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No matter what the evidence, regardless of what the data tells us, there are some who are determined to assert the opposite.  Take taxation – the evidence is absolutely clear:  we are a low-tax economy.   Don’t forget what this debate is about:  we are a low-waged and low-taxed economy and there are vested interests, politicians and commentators who are determined to keep it that way.

So let’s go through this again (it’s been discussed here and here) but this time from a different angle, avoiding the difficult comparisons using GDP, GNP, hybrid GDP, etc.  Let’s look at taxation on labour (i.e. wages and salaries, excluding the self-employed).


This represents the total amount of taxation on wages and salaries – income tax, employees’ social insurance and employers’ social insurance.  This is the total taxation on labour.

Look at where Ireland lies – 25th out of 27.  We’re above Bulgaria and Malta and that’s about it.  In Ireland, total taxation on labour is equal to 30.1 percent of total wages and salaries.  We are well below the average for the entire EU, 34.7 percent below average.

How can anyone claim that we are a high-taxed economy?

Let’s break this down further.  The following looks at taxation on labour paid by employees (i.e. income tax and social insurance).  To ensure there’s no confusion, this includes the Universal Social Charge in Ireland.


The gap closes significantly.  Irish employees pay 21.3 percent of total tax (income tax, USC, PRSI) on their wages and salaries.  This compares to the EU average of 25.6 percent.

However, turning to employers’ taxation (essentially social insurance or PRSI in Ireland), we find that Irish employers make one of the lowest contributions in the entire EU.


There’s Irish employers, down at the bottom – ahead of the UK and Malta (Denmark doesn’t have a social insurance system).  Employers’ social insurance contributions would have to more than double to reach the EU average.


And here’s the bottom-line:  to reach the EU average, total taxation on Irish employees would have to increase by approximately €10.2 billion.  But its employers who would have to do the heavy lifting.

To reach the EU average, tax contributions from employees would have to increase by €2.7 billion (or about 20 percent).  However, the contribution from employers – through social insurance (or the social wage) – would have to increase by €7.5 billion, more than double what they contribute now.

So let’s have a debate about taxation – is the top tax rate threshold too low?  Do those on low-pay contribute enough?  Is there scope for increasing taxation at the higher levels?  Are there too many tax reliefs?  How regressive are they?  What is the best balance between income tax and social insurance?  What is the best tax balance between employees and employers, between property and labour, between profits and wages? What is the optimal distribution of tax contributions throughout all income groups? All these questions should be debated with the evidence brought forward to ensure the most informed decision-making possible.

But this debate must take place against the single verifiable and indisputable fact:  that Ireland is a low-tax economy, one of the lowest in the EU. Anyone who claims that we are high-taxed either doesn’t know what they’re talking about or is deliberately misleading the debate.

That is the starting point.

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