According to Ireland’s independent budget watchdog, strong growth in high-paying jobs has dramatically raised the state tax and could do so in the coming years.
The Irish Fiscal Advisory Council, which usually issues warnings on the risks of overspending, says a sharp increase in taxes paid by employees in 2021 means the share of income going to the exchequer will increase from 22.4 pc to 24.4 pc Done, which is the highest since the record began. 1995.
Income tax receipts grew twice as fast as labor income, generating €26.7bn for the year, which was €4bn or 17pc higher than forecast in Budget 2021.
The state budget watchdog attributed the unusual growth in employment and wage growth to high-wage sectors such as IT and finance, which did well through the pandemic.
The Fiscal Council also said that these strong tax receipts are likely to last for many years and income tax could be 5 per cent higher than the government’s projections in 2025.
The Fiscal Council said this shift towards income benefits in high-wage sectors could boost tax receipts.
A surprising jump in income taxes and an increase in high-paying jobs could prompt tax cuts or further changes in the tax band to bring back the effective tax rate, as an increase in the effective rate means that higher-income workers take a bigger risk. are working burden even without change in tax policy.
Similarly, the government also has the option of capturing windfall gains to reduce debt or increase spending.
However, the Fiscal Council cautioned that the risks of the recent increase in the effective tax rate could be reversed.
The recovery from the pandemic in many sectors is likely to reduce effective tax rates as people return to lower-wage and lower-tax jobs, the research said.
While the boom in high-income employment so far has compensated for what is happening at the lower end of the income distribution, there was no guarantee that the current situation would persist.
The most recent treasury returns show that tax tech remains exceptionally strong, with higher than expected revenues from income taxes, corporate taxes and value-added tax as the economy continues to recover from Covid.
The deficit has narrowed to around €1bn so far this year, well below the Budget 2022 estimate, as taxes increased by 31 percent more than expected.