Tax revenue resilient throughout pandemic
Despite the fact that some 38 per cent of income earners are exempt from income tax, an October 2021 report by the Parliamentary Budget Office (PBO) found that income tax revenues in Ireland “proved resilient throughout the global pandemic”.
Total income tax receipts fell from circa €22.9 billion in 2019 to €22.7 billion in 2020, an annual decrease of just 1.3 per cent amounting to €293 million. This lower-than-expected decrease is said to be due to the fact that “pandemic-induced job losses were primarily in low-paid, public-facing roles while there were limited job losses in higher-paid sectors such as ICT, finance and pharmaceuticals”.
This comes despite the PBO noting that 38 per cent of income earners were exempt from income tax in 2020, a policy which they concede is “progressive and fair” but also “means that the income tax base becomes narrow”. In 2018, it notes, the top 1 per cent of earners paid over 20 per cent of the income tax revenues and the top 25 per cent contributed over 80 per cent.
The PBO also reiterates the fact that the Irish Exchequer is becoming “increasingly reliant” on corporation tax as a revenue source, with the tax contributing €11.8 billion to Ireland’s coffers in 2020, an 8.7 per cent increase on 2019 amounting to €1 billion. Corporation tax now sits at its highest level ever and accounts for 21 per cent of total tax income, having accounted for 11.7 per cent in 2009.
Concerns around the reliance on corporation tax include the global changes to the tax led by the OECD meaning that any change could have a “significant negative impact” on revenue and that reliance on such a volatile tax mirrors the “experience of relying on stamp duty and transaction-based taxes in the Celtic Tiger era”. There is also concern that within the overreliance on corporation tax is an overreliance on a small number of firms; the top 10 companies in 2020 contributed €5.9 billion, 51 per cent of net corporation tax receipts. Foreign-owned multinationals contributed 82 per cent of net corporation tax revenue, an increase from 77 per cent in 2019.
Elsewhere, the Local Property Tax has “proven to be [a] reliable, relatively stable and sustainable of revenue”, contributing €480 million to tax receipts in 2020. The PBO also states that while “revenue generated from carbon taxes will increase in the short-to-medium-term, reducing carbon emissions as part of a green transition will require alternative sources of revenue to be found over the long term”. In 2020, fuel excises generated €1.8 billion in tax income, with carbon taxes and motor vehicle duties contributing €494 million and €939 million respectively.
