With the General Election 2020 date of 8 February fast approaching, Ireland’s political parties have released their election manifestos. The policies signal tax choices that could be made by Ireland’s next government and which are of course only one part of the decision put before the electorate.

Liam Lynch, KPMG Partner and Head of Private Clients takes a look at the choices presented by the parties on personal tax matters and which are likely to be central to any negotiations on a programme for government following the election.

In making tax policy choices, the parties find themselves in an environment where Ireland’s economy continues to grow but the pace of projected growth is uncertain. With an EU budgetary framework which requires future governments to minimise the risk of budget deficits and an international environment which poses threats, there is narrow scope for manoeuvre.

Other factors also limit some of the choices that future governments can make on personal taxes:

Ireland has a highly progressive tax regime with the top 1% of taxpayers (those earning over €200,000) paying 26% of income tax and the universal social charge (USC). If the top rates of tax are reduced, this will have a disproportionate impact on exchequer income tax receipts.

The personal tax regime is used to redistribute wealth across Irish households. A recent study by the Economic and Social Research Institute (ESRI) found that one of the effects of the highest earners paying higher personal taxes is that Ireland ranks in the middle of European Union (EU) member states for income inequality when measured on a post-tax basis. Before redistributions under the tax regime, Ireland is ranked at the top of income inequality rankings.

Income tax and USC currently form approximately 38.5% of annual Irish tax revenues (€22.9billion for 2019) with increased revenues projected for 2020. These taxes could account for a proportionately larger percentage of total tax receipts in the future if there is a reduction in corporation tax receipts.

There is considerable uncertainty surrounding the sustainability of corporation tax receipts in Ireland (€10.9billion in 2019). Corporation tax receipts are concentrated in relatively few taxpayers which means that firm-specific shocks to corporate profitability could negatively impact those receipts. Recent government reviews found it was not possible to be conclusive on whether the high levels of corporation tax receipts collected in the last few years have been windfalls or are representative of longer-term structural changes within the economy.

In the table below, we have summarised the personal tax choices signalled by four of the political parties in their election manifestos.