2 thoughts on “Reforming Ireland’s tax system with Ronan Lyons

  1. I accept the general thrust of what’s being said re tax rates at the ‘average’ wage level. However I would like to a general point regarding the calculation of tax on wages. That is that PRSI should be included. Moreover, both employee AND employer contributions should be included.
    The reason the employer element should be included is best illustrated by saying ‘what if’ the employee paid this element as well – the employee’s business model changes not one iota. The amount of money available to meet wage costs likewise. And if the employee is not employed the employer is better off by both their wages AND the employer PRSI contribution. In deciding what wage can be paid to employee all employers must add in the employer contribution. It is a direct tax on employment & matters not who we pretend pays it. If no employee is hired, nothing is paid. Therefore it entirely relates to the working or not of an employee & entirely exists thru’ the toil of an employee. Ergo, as a tax contribution it should all be considered paid by their efforts.
    This employer contribution nonsense represents an incredible ‘sleight of hand’ that has been carried out for years. Now, if we, correctly in my view, transfer the employer element to where it should be, we see that tax rates are significantly higher. Importantly also, when PRSI is capped, employees earning greater than the cap level thereafter gain a significant reduction in their marginal tax rate.
    It can be seen therefore that one reason to continue this charade is perhaps to conceal the real tax rate percentage differences between high & low earners, and to present high earner’s tax contibutions in a better light with respect to lower earners.
    Surely it would be better to abolish PRSI & incorporate it into income tax. Then we can properly compare ‘apple’ with ‘apples’?

  2. Hi Mike,
    Thanks for the comment. In fact, one of those graphs (the OECD one comparing Ireland with other countries over time) was including PRSI, while the other (the Revenue Commissioner one, for different income levels) did not. Either way, inclusion of PRSI or not doesn’t take away from the fact that we’ve an abnormal income tax system.

    I take your point about employer’s PRSI, but really including that means we’re actually talking about the tax wedge, which is a measure of national competitiveness rather than national contribution.

    Your point about the abolition of PRSI and inclusion into income tax ignores the fact that PRSI is a service, not a tax. That is, you receive entitlements based on having paid your PRSI “premium” every month. You could certainly make the case that you no longer want Ireland to separate out social insurance, which has a premium and a payback, from general taxes and general entitlements. But in my opinion that would be going against the spirit outlined in the final video, that there are certain services provided publicly (insurance against unemployment being one) and we should price these as best we can.

    You may have your way, though, come December! Thanks again for the comment.

    R

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