Some media outlets are running a story that taxpayers have been cheated since 2016 and are paying higher tax than they used to pay before. This is absolute nonsense, as can be verified by anyone with access to the internet (where tax rates are published by year on the Commissioner for Revenue site) and the ability to make a few calculations using excel or even a calculator.
Some in the media are repeating a fable peddled around by Member of Parliament Robert Arrigo some years ago that single taxpayers earning over €19,500, taxpayers on the parent rate earning more than €21,200 and taxpayers on the married rate computation earning more than €28,700 have been paying more tax since 2016.
Let us take for example, one of these three types of taxpayers earning €35,000. Anyone can verify that using the 2015 tax rates a single taxpayer would incur €6,025 in tax, a parent taxpayer would incur €5,700 and a taxpayer on the married rate would incur €4,845. Surprise surprise if one works out the tax bill using 2022 rates for the same individuals, there is no change. Moreover, the single taxpayer will get a refund cheque of €60, the taxpayer on the parent rate will get €60 while the one on the married computation will receive €110.
The overpayments claimed by the Opposition are not just a figment of imagination but a blatant lie, as compared to 2015 these three types of taxpayers are all better off as they will be receiving tax refund cheques which they previously did not get.
Today, taxpayers are better off as they will be receiving tax refund cheques which they previously did not get.
Now let us look at how these same three taxpayers fared in 2012. Back then, the same Nationalist administration that Robert Arrigo formed part of, imposed a tax bill of €7,575 on the single taxpayer, a bill of €7,155 on the parent taxpayer, and a bill of €5,475 on the taxpayer on the married computation.
Of course, these taxpayers did not receive any tax refund cheques back then. So, a single taxpayer earning €35,000 today is €1,610 better off than in 2012. A parent taxpayer on the same income is today €1,515 better off than in 2012. A taxpayer on the married tax computation earning €30,000 is €740 better off than in 2012 thanks to the income tax policies undertaken by Labour administrations since 2013.
It may appear from the table above that those benefitting the most from the income reductions are those earning more. However, this only reflects the progressive nature of taxation which means that those earning more pay more tax. If one looks at the impact of Labour’s tax policies on disposable incomes, that is income less tax, there is a different perspective.
A parent taxpayer earning €10,000 in 2012 would have incurred €105 in income tax. Today he or she pays no income tax and also receives a cheque of €135, meaning that he or she is better off by €240, a 2.4% boost in disposable income. A parent earning €15,000 in 2012 would be liable for €855 in income tax, while today their tax bill is €675 a reduction of €180. On top they receive a tax refund cheque of €135, which means that their net tax bill is 37% less than in 2012. In relative terms the best result has been for taxpayers on the married rate on €15,000.
This year they will be paying €345 in income tax instead of the €465 they were paying in 2012, and on top they will also get a tax refund of €140. In net terms their tax burden will have fallen by more than half, or by 56%. In relative terms this is three times the relative benefit for a taxpayer on the married rate earning three times as much income, i.e. €45,000.
Now one could argue that the bulk of reductions in income tax occurred before 2016, as Labour was reducing the tax band to 25% for those who were previously paying 35% on that income. However, the change in income tax policy, which included raising the lower tax band by up to €800 and subsequently the introduction of tax refund cheques, still made a material difference to many families, of up to 2.2%.