LONDON: A Government proposal to taper the PAYE credit would create an effective marginal tax rate of 64.1 per cent on income of between €100,000 and €120,000, a UK independent research institute has warned. It is the first time that the Institute for Fiscal Studies (IFS), an independent micro-economic research institute similar to Ireland’s ESRI, has made its thoughts on the Irish budgetary process public.
Responding to the recent publication of the Department of Finance’s Tax Strategy Group papers, the IFS said it did so in the “hope that our comments can assist the department in improving the design of the tax system in Ireland”. One of the proposals in the papers is to remove the PAYE and earned income tax credits from taxpayers with higher levels of income, as previously espoused in the Government’s Programme for Partnership Government published back in 2016.
The proposal is inspired perhaps by a similar decision in the UK to cut allowances on income of between £100,000(€109,064)– £123,000. However, researchers at the IFS have found that a tapering of the PAYE and earned income tax credits in Ireland would actually create an effective marginal tax rate of 64.1 per cent on employment income between € 100,000 and €120,000.
