Money Express with Jill Kirby - Busting a tax myth

Many years ago my husband forbade me from discussing money issues – the collapse of house prices, the floundering economy, the national debt, bankrupt banks, the endless black hole that is the public health service, pension ponzi schemes and the eye watering conceit of politicians who accumulate private wealth at the public’s expense – when we socialise with friends.

Many years ago my husband forbade me from discussing money issues – the collapse of house prices, the floundering economy, the national debt, bankrupt banks, the endless black hole that is the public health service, pension ponzi schemes and the eye watering conceit of politicians who accumulate private wealth at the public’s expense – when we socialise with friends.

And that’s only a small part of the taboo topics. He’s right of course. I have plenty of outlets, including this column to vent my anger, confusion and disgust, including the most recent, the amazing (and highly addictive) Twitter without inflicting such grim opinions on people who seldom get out these days, and when they do, want to leave their problems (and the country’s) behind them.

It’s hard to veer away from all these subjects over the course of a long evening and so long as I don’t originate the conversation (I steer towards cookery, holidays I keep putting off, the joy of teenagers, movies and books) I’m allowed to participate in – but not dominate – someone’s else’s rant about the economy/public service/central banks etc.

Which is how I came to discuss the jolly topic of Irish tax rates with some friends and acquaintances one recent sunny evening at a last minute barbeque.

“We really don’t collect enough income tax in this country, certainly not compared to Scandinavia or Germany, or even Canada,” said the private sector management consultant whose comfortable earnings are generated by the substantial fees his company earns from public procurement contracts. His wife was a teacher (and doesn’t share his view). He wasn’t referring to ‘the rich’ – the very high bracket earners or the millionaire tax exiles. He was actually referring to anyone outside of the lowest earners.

This guy drives a company car. The company picks up the cost of his family’s private health insurance. His business travel is sometimes arranged to coincide with a private weekend break in London or Paris or some other nice spot where he is joined by his wife. He enjoys the box seats the company has at Croke Park and other sporting events and the theatre tickets that he gets along with the corporate guests he will bring along.

The firm provides him with a generous pension. He earns annual bonuses for completing, on time and within budget, his work on those state contracts. (In my business, probably just like yours, I don’t get paid at all if I miss deadlines and my article doesn’t appear. I certainly don’t get paid more for just doing what I was hired to do.)

I pointed out that in the non-subsidised domestic economy, if there haven’t already been job cuts in a firm, then wages have been cut slightly or more likely frozen. Any pay increases are usually directly related to productivity increases or overtime.

I also pointed out that between marginal income tax rates of 41%, 4% PRSI on all pay, the (average) USC levy of 7%, (10% on earnings over €100k) the marginal rate of tax for someone earning a half decent salary is 52% and 55% for only slightly higher earners.

When you toss in a 23% VAT on most goods, excise on fuel and alcohol that accounts for up to half the price of the item, the 1% life insurance product levy, the 2% general insurance product levy (thank you, Quinn Insurance) on top of the 3% stamp duty, the €160 compulsory levy/licence fee to RTE and the €285 and €95 compulsory health insurance levy for every adult and child which goes to subsidise the state owned health insurance provider, the VHI, I rather think the poor old worker pays rather a lot of tax already.

My dinner companion wasn’t referring to the very rich not paying enough tax (though the 10% richest already pay nearly 50% of all income tax.) There may be a case that they should pay more, but most of their wealth is generated capital gains – shares dividends and asset sales, not by their salaries.

No, he was actually saying that Irish workers don’t pay enough tax.

There’s no question that this guy, who genuinely doesn’t see himself as a state insider, pays substantial tax already. But in addition to his income, it is his generous company pension, the volume of expenses, bonuses and other perks he gets (especially the ones not subject to benefit in kind tax) that are enough to cushion the tax and cost of living squeeze that is being deeply felt by workers who don’t enjoy this indirect access to state largesse.

These are ordinary people who are forced to sacrifice paying into their own pensions to the greater good of the defined benefit pensions that state employees are entitled to and that people who work for companies with cosy state contracts also receive by default.

His comments were frivolous. Uninformed. The sort of stuff you hear spouted from a typical panel of academics, left leaning politicians and trade unionists (all beneficiaries of the state) on programmes like Tonight with Vincent Brown. A 60% or 65% marginal tax rate like they have in Denmark or Sweden would, Hey Presto! – cure many of our social woes, they say.

This back garden conversation was one that my husband, for once, didn’t try to scupper with his usual kicks under the table.

Some myths are worth challenging, it seems, even if they break the rules for marital harmony.

jill@jillkerby.ie