Based on the standard OECD measure, Ireland has the most progressive income tax system (including social insurance contributions) in the EU and the second most progressive in the OECD.
This note examines the latest OECD data on the progressivity of the Irish income tax system in comparison with other OECD countries. It finds that according to OECD measures the Irish system is one of the most progressive.
Progressivity of Irish Income Tax System
The OECD method of judging the progressivity of the tax system is to compare the tax due by a single person on 167% of average income with that payable on 67% of average income. Tax includes employee social security contributions.
The data are set out below:
On this measure Hungary has the least progressive system in the OECD while Mexico followed by Ireland has the most progressive. Ireland has the greatest absolute difference between the two examples at 20.1 % of income compared with an OECD average of 9.6 %.
Only Mexico, Korea and Israel have a lower tax burden at 67 % of average income. If the average single worker in Ireland on an income of just under €33,000 paid tax at the rates applicable in Denmark, they would pay over €6,800 more in taxes.
The degree of progressivity in the tax system is, in the final analysis, a matter for political judgement. The fact that the evidence suggests that Ireland is an outlier does not necessarily imply that the correct course is to make the system less progressive..