Officials in the Department of Enterprise led by Minister Simon Coveney have raised concerns about Ireland’s income tax rules, citing a “clear competitiveness problem” when it comes to attracting foreign direct investment (FDI). The department’s document highlights that Ireland’s high marginal tax rates could undermine the country’s ability to attract skilled professionals and that the tax burden is disproportionately placed on a “narrow band of high earners.”
The department also expressed worry about the narrowness of Ireland’s personal tax base, as it poses a “serious tax revenue concentration risk.” This concern revolves around the potential problems the government could face if corporate tax receipts were to decrease.
The submission from the Department of Enterprise was made during a public consultation held by the Department of Finance earlier in the year regarding Ireland’s personal tax rules. Finance Minister Michael McGrath emphasized the importance of maintaining a competitive tax regime.
In response to these concerns, the government increased the income threshold at which a single person pays the top rate of income tax and reduced the rate of the Universal Social Charge (USC) in the 2024 budget. However, the issue of personal tax has created tension between coalition parties, with some advocating for tax cuts for middle earners, while others express concern about the impact on tax receipts.
The Department of Enterprise’s submission aligns with the views of major industry groups that have called for changes to the tax system, fearing that Ireland’s competitiveness in attracting FDI could be at risk due to high tax rates. They argue that these high marginal tax rates could discourage staff from coming to Ireland, particularly in sectors with severe shortages, such as ICT and construction.
On the other hand, there are differing opinions within the government, with the Labour party proposing measures that include the imposition of a third tax band on the wealthiest individuals and the phasing out of income tax credits for those earning more than €100,000. These proposals contrast with the Department of Enterprise’s concerns.