Clare Daly (Dublin North, Socialist Party)
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32. To ask the Minister for Finance the reason he has not introduced a third band of taxation for high earners. [1507/14]

Michael Noonan (Limerick City, Fine Gael)
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As the Deputy is aware, a progressive taxation system ensures that the burden of taxation falls most heavily on those with a higher ability to pay. The latest OECD data indicates that Ireland already has the most progressive tax system of the 21 EU countries which are members of that organisation. It is in this context that the Government has committed in the Programme for Government not to increase the marginal rate of income tax.

The Revenue Commissioners estimate that in 2014 the top 5 per cent of income earners will pay 44 per cent of the total income tax collected and those earning €50,000 or less, which represents 77 per cent of income earners, will only pay 19 per cent of the total income tax collected. In addition, 856,000 individuals, representing approximately 39 per cent of the income tax base, will be exempt from income tax altogether.

Since 2008 marginal rates of taxation on income have increased from 43.5% for PAYE workers and 46.5% for the self-employed, to 52 per cent and 55 per cent, respectively. Moreover, single employees incur this relatively high marginal rate where their income exceeds €32,800 per year. From an international perspective, Ireland is already considered to have a high marginal rate of tax on income. According to the latest data, Ireland has the 9th highest marginal tax rate out of the 34 members of the OECD.

Marginal tax rates are important because they influence individual decisions to work, or indeed to work more. A further increase in the marginal rate would reduce the incentive for income earners to work extra hours or for the self-employed to expand their business and take on more employees. Higher marginal rates of taxation undermine the competitiveness of businesses operating in Ireland, and act as a disincentive to future foreign direct investment. The OECD in its working paper ‘Tax and Economic Growth’ points to the “possibility that high top marginal rates will increase the average tax rates paid by high-skilled and high-income earners so much that they will migrate to countries with lower rates resulting in a brain drain which may lower innovative activity and productivity” .

For all of the above reasons, I have decided not to introduce a third band of taxation for high earners.