Single workers bear brunt in Ireland’s personal tax system

Single workers with no children are bearing the brunt of Ireland’s personal tax regime, a new study shows. And Ireland’s experience reflects the position across the 35 OECD states where households with children face a lower personal tax burden than those without.

However, in all cases, the tax burden on workers in Ireland is among the lowest within the OECD states.

Taxing Wages 2018 measures the so-called tax wedge – the difference between a person's take-home pay and what it costs their employer to employ them. Bigger tax wedges are seen as a disincentive to employment.

It also calculates the net personal average tax rate, or the amount of amount of tax and social contributions deducted, as well as the cash benefits received.

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The new study shows that one-income families on the average wage (€ 36,358) and with children give up just 1.2 per cent of their income on tax. That is one of the lowest tax burdens in the OECD. However, it is on the rise.

The survey also reveals the chasm that has opened up between families with children and single earners without.

Fiscal preference

Ireland’s “fiscal preference” for families is highlighted by the report, published on Thursday. The 1.2 per cent net personal average tax rate for the average one-income family with two children contrasts with a rate of 19.4 per cent for a single worker on the same wage, This is the third lowest of the 35 countries surveyed, alongside Canada, and behind only the Czech Republic (0.7 per cent) and Poland.

However, Ireland’s personal tax burden for one-income families not only rose in 2017, it recorded the largest increase anywhere, at 2.9 percentage points. In contrast, the largest decreases were in Poland (5.1 percentage points) and Luxembourg (one percentage point).

The study also reveals that the tax wedge for this cohort increased by 2.6 percentage points in Ireland, to 10.8 per cent, as a result of lower cash benefits, such as child benefit (€140 per child) and the family income supplement (FIS).

While neither of these changed between 2016 and 2017, the income of a one-earner family on the average wage with two children increased by 3 per cent, which means that payments of the income-tested FIS fell.

In comparison, the tax wedge for families fell by 4.35 percentage points in Poland as a result of increased cash benefits, while Finland also saw a decrease, due to reduced income tax.

In contrast, the tax wedge for single people in Ireland was much higher, at 27.2 per cent.

In 2016, Ireland was the only OECD state where lower-income families received more back from the state – in the form of child benefit – than they contributed in tax. This year that honour goes to Poland, the only OECD country in this 2017 study where the net average personal tax rate (NAPTR) is negative (-4.8 per cent), as cash benefits actually exceeded the amount of income tax and employers’ contributions paid.

Where a married couple in Ireland has two incomes (one at 100 per cent and the other at 67 per cent of the average wage,) and two children, the NAPTR rises to 10.3 per cent. That is also below the OECD average of 19.4 per cent, and far below countries with a higher tax burden such as Denmark (31.1 per cent), Belgium (31.2 per cent) and Germany (31.6 per cent).

In fact the Irish tax burden for two-income couples is the fourth lowest in the OECD, behind only Mexico (8.6 per cent); Switzerland (10 per cent) and Chile (6.7 per cent).

Single and childless

For single people without children, the tax burden is significantly higher. According to the survey, across the OECD, the average single worker paid just over a quarter of their gross wages in income taxes and social security contributions, a ratio that has remained relatively stable over the last two decades, the OECD said.

Belgium, at 40.5 per cent had the highest rate, while Ireland came mid-table with a rate of 19.4 per cent.

Single people with children, however, fare better, as the average tax rate for single workers with children fell by 22.7 percentage points between 2000 and 2016 in Ireland, due to increases in the single parent tax credit, child benefits and the household income supplement, since 2002.

The study shows that the tax wedge for a single parent with two children, earning 67 per cent of the average wage or €24,359, is negative in Ireland, at -17.1 per cent. Other countries in a similar position include New Zealand (-13.5 per cent), Canada (-15.2 per cent),and Poland (-20.6 per cent), due to the cash benefits received by these families. This means these families gain more from the State than they contribute in tax.