Study: Poorer people pay proportionately more tax

Written By Unknown on Kamis, 28 Agustus 2014 | 22.40

New research on the total amount of tax Irish people pay finds that, on average, 24% of gross income is taken by tax - both direct and indirect.

However, it finds that because of indirect taxes such as VAT, the poorest 10% pay a bigger share of their income to the tax authorities than the richest 10%.

In Ireland's income tax system, the more money you earn, the more tax you pay - on average 23% for the top 10%, 0.3% for the bottom tenth.

However, there are also indirect taxes such as VAT or excise that we pay when we buy things.  

Combining direct and indirect taxes produces a different picture.

Research by Dr Micheál Collins of the Nevin Economic Research Institute finds the poorest 10% pay just over 30% of their income in taxes.

This is mostly in the form of indirect taxes levied on the things they spend money on. 

Meanwhile, the top 10% spend 29.5% of their income on tax - mostly in the form of direct income tax.

The combined tax burden produces a u-shaped graph, with the bottom and top of the income distribution paying most, and those on lower middle incomes paying least.

Dr Collins, a former member of the Commission on Taxation, says the Government needs to think more broadly when considering changes to taxation.

Speaking on RTÉ's Morning Ireland Mr Collins said if we were thinking in terms of objectives of giving money back to people, or collecting more money from people, we need to examine that and think about that in a more coherent way.

Mr Collins said if, for example, the Government wanted to assist more people, the indirect tax route would be a better tax route to go, and more people would gain from reductions.

Commenting on the possibility of a cut in the 23% VAT rate, Mr Collins said there would be merit in doing that.

However, he said he was not making proposals, and his research was establishing the facts.

Mr Collins said the real point was that we needed to think more broadly about this, and understand the tax system as a system, not an income tax system.


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