Ireland bucks trend by increasing income tax for top earners

Ireland is among a number of countries that have bucked the trend of recent decades by increasing their income tax rate for top earners quite substantially, according to a report published yesterday by the International Monetary Fund.

However, the report also indicates it would be possible to raise more income from top income earners.

Marginal rate
While the top marginal rate for Ireland is now in the mid-50s, it could be raised to close to 70 per cent while still maximising the potential return for the exchequer, the IMF believes.

A review in the report shows that the top marginal rate in most advanced economies, including Ireland, is at the lower end of the range of revenue-maximising rates available.

The IMF's Fiscal Monitor Report for October, published as the Government makes its final preparations for next week's budget, looks at how tax reform could help strengthen public finances around the globe. It notes that tax has played a bigger role in closing public deficits than initially planned, with rates being raised where it might have been preferable to broaden the tax base and introduce new taxes to address environmental issues or correct financial sector inefficiencies.

In its review of fiscal consolidation progress around the globe, it says Ireland is on track to implement its budget for 2013, “although buffers with respect to the 7.5 per cent GDP deficit ceiling have narrowed”.

The report looks at the challenge facing countries that might take 10 years to achieve a primary surplus and then have to maintain it for 10 years in order to bring down debt relative to the size of the economy. It finds that Japan stands out as the country facing the most challenging task, followed closely by Ireland and Spain.

The report says that after the downturn, the issue of sourcing more tax from top earners has emerged with renewed force.