BY JOHN ELLIS, FINANCIAL ADVISOR
The most recent tax statistics for the year 2021 have been released by the Central Statistics Office (CSO). According to the report COVID-19 restrictions impacted some tax revenues in 2020 but in 2021 we see a return to more normal tax receipts. A total of €93 billion in tax was collected by the Irish Government in 2021, an increase of 21% on 2020 revenue. A total of 48% of all tax receipts are generated through taxes on income, in 2021 this amounted to €45 billion.
In 2021 €23 billion in Pay as You Earn (PAYE) revenue was collected, compared to €7 billion in 2000 and 28% of total revenue is from taxes on products which amounted to €26 billion in 2021; of which €17 billion was from VAT an increase from €8 billion in 2000.
Analysis of the report make plain two issues that should cause concern. How fair is the Government being to PAYE workers and is the Government relying too heavily on corporation tax? Almost half (48% or €45bn) of the Government’s tax take for 2021 was generated from taxes on income with corporation tax and PAYE being the two biggest contributors. Of the €45bn generated from taxes on income, €23bn came from PAYE workers nearly three times as much PAYE tax as the amount raised in 2000 (€7bn).
Is this an indication of the increased wealth and higher earning power in the country or proof that Irish workers are being hit with much higher taxes than was the case in over a decade ago?
Much of the tax hikes of the austerity years of 2009 to 2013 are still with us today. The Local Property Tax remains. The Universal Social Charge add a hefty amount to the tax bill for many today.
We also lost valuable tax breaks during these years, such as the amount of tax relief you can claim on medical expenses – which was halved during those years and has yet to be reversed. The tax relief on bin charges gone! Tax relief on trade union subscriptions gone! State maternity pay has been taxed since 2013 and mortgage interest relief has been abolished for homes purchased since January 1, 2013 – and was abolished in full at the end of 2017.
In addition, the average Irish workers wage is still being hit with the higher rate of income tax. Granted the Government, in Budget 2023, did allow people to earn more money before hitting the higher rate but more should be done to put hard-earned money back into the pockets of workers. Furthermore, the Ireland Tax Statistics Report 2021 shows that corporation tax receipts have almost doubled in the last five years – from €8 billion in 2017 to €15 billion in 2021.
There is fear that Ireland has become too reliant on corporation tax receipts and the State coffers could become severely undermined in the event of a recession or a spending reduction in the multinationals and the tech sector. We have already seen something of this with thousands of tech job gone worldwide in recent weeks and Ireland has not been unaffected. If the tide is now turning for the tech industry this will not bode well for Ireland as we seem to continue to rely too heavily on these companies for employment opportunities and tax receipts.
Another interesting finding from the report is that more than twice as much VAT (€17bn) was collected in 2021 as was the case in 2000 (€8bn). This is not just an indication that we are spending more but it also shows that VAT rates are much higher. The standard VAT rate for much of 2021 was 23% compared to 21% in 2000; while the reduced VAT rate is higher today (13.5%) than it was in 2000 (12.5%).
Marian Ryan, consumer tax manager with Taxback.com, says: “Given the huge pressure that people are up against now as result of the cost-of-living crisis with so many struggling to afford grocery bills and other essential items, not to mention the cost of Christmas, it beggars’ belief that the Government has not yet acted to reduce the standard rate of VAT – as well as the reduced rate.”