Are We Paying Enough Tax To Have Good Public Services ?

In a recent RTE television programme1, Eamon Dunphy, who is a broadcaster, author, sports pundit and former professional footballer, argued that Ireland’s public services were inferior to those in France because our tax burden was significantly lower than in France. What does the evidence tell us about his contention?

Government Spending

Total Government spending in France in 2012 was 56.6 per cent of GDP compared to 51.7 per cent (of GNP) in Ireland – a difference of 4.9 per cent. Total taxation in France was 44 per cent of GDP compared to 33.4 per cent (of GNP) in Ireland- a difference of 10.6 per cent. So at first glance Mr. Dunphy has a point. (Source : Revenue Statistics 1965-2013 : OECD & Eurostat)

 Tax Burden

The main reason the tax burden in France is higher than in Ireland is that PRSI in France is significantly higher at 16.5 per cent of GDP (5.1 per cent of GNP in Ireland). Most other taxes in Ireland are higher on average. Indeed excluding PRSI the tax burden in Ireland is higher than in France (27.5 per cent v 28.3 per cent in Ireland (GNP))

Table 1 shows the amount of income tax and PRSI paid by workers in Ireland and France in 2013.

Table 1: Income Tax and Employee PRSI, Single Earners 2013

50% Average Income

100% Average Income

250% Average Income

France

17.4

20.2

25.6

Ireland

2.6

16.9

34.8

Ratio

6.7

1.2

0.7

Source : Taxing Wages 2014 OECD

Single workers in France on half average earnings pay almost 7 times as much as in Ireland, those on average earnings pay 20 per cent more while those in France pay 30 per cent less at two and a half times average earnings. To get to French levels, a single worker on half average earnings would pay over €5,300 more while a person on two and a half times earnings would pay about €3,300 less.

PRSI entitles one to certain benefits. For example, in France one gets a pay related pension for one’s contribution2 whereas in Ireland one has to pay privately3 for this as the State pension is not earnings related.  If we look at the burden of income tax excluding PRSI the position is as shown in Table 2.

Table 2: Income Tax (Excluding  PRSI), Single Earners 2013

50% Average Income

100% Average Income

250% Average Income

France

5.8

10.4

16.7

Ireland

2.6

13.3

31.2

Ratio

2.2

0.8

0.5

Source : Taxing Wages 2014 OECD

Single workers in France on half average earnings pay over twice as much as in Ireland excluding PRSI, those on average earnings pay 20 per cent less while those at two and a half times average earnings pay half as much in France as in Ireland.

The position for a one earner couple with two children shows a similar pattern as shown in Table 3

Table 3: Tax Burden (Excluding PRSI) on a One Earner Couple with Two Children

50% Average Income

100% Average Income

250% Average Income

France

-3.2

3.1

10.1

Ireland

-68.4

-6.5

22.9

Source : Taxing Wages 2014 OECD

The tax paid in Ireland is substantially less than in France in the bottom half of the income distribution and higher in the top half of the income distribution.

VAT Rates in Ireland at 23 per cent, 13.5 per cent and 9 per cent are higher than in France at 20 per cent, 10 per cent and 5.5 per cent.

 Demographic Structure

Perhaps the most significant difference between Ireland and France is the age structure of the population. In Ireland 12.4 per cent of the population are over 65 compared with 18 per cent in France4. Mainly because of this, the proportion of Irish people reporting good or very good health at 83 per cent is much higher than in France (68 per cent)5.  The proportion of Irish people reporting bad or very bad health is 3 per cent compared to 9 per cent in France.

Our research shows expenditure on health in Ireland if we adjust for demographic structure is significantly higher than in France.

Our social spending on pensions  is also much lower. France pays 13.8 per cent on pensions compared to 5.3 per cent in Ireland – a difference of 8.6 per cent

Conclusion

Taxes and public expenditure in France are higher than in Ireland. Leaving aside the question of pensions, and taking account of the current age structure of the population, the current tax payable in Ireland should be sufficient to provide public services of a standard at least equal to France (assuming equal efficiency of delivery).

 


1 Claire Byrne Live 9 February, 2015

2 Pensions at a Glance 2013 OECD and G20 Indicators, OECD

3 Private Pension contributions in Ireland attract substantial Tax Relief. Latest Revenue estimates put this at €1.5 billion.

4 OECD Country Statistical Profiles 2014
5 Health at a Glance ;Europe 2014, OECD

Image Source: RTE Player

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