Lies, Damn Lies – and politicians quoting EuroStat

Posted on | July 26, 2010 | 6 Comments

“50% of Workers not paying any Income Tax”

This little snippit of fact has been one of the most frequently  quoted up and down the country by Politicians in this last month.  We hear it quoted as from the Commission for Taxation Report, or as being sourced from EuroStat Reports, EuroStat being an EU agency providing statistical reporting on the 27 members of the EU.

While the direct statement is broadly accurate, It is a very selective quote for political expediency that counters how EuroStat measures the financing of a states activities. 

But the suggestion that any worker contributes 0% through their employment to the state, is insulting to anyone who has ever received a Payslip. 

Lets look at Why

Eurostat measurement of Goverment Revenue – and where Income Tax fits in.

EuroStat categorises Government Revenue by economic function under 3 broad headings:

• Labour – Revenue’s garnered direct from a persons employment
• Consumption – VAT and excise duties effectively
• Capital – that being income from businesses and assets

This is a very important way of looking at where our government Revenue comes from.  It asks the questions “What are the primary drivers of income for the government“.  The answer being:

• We can generate money from employment in the Country (Labour),
• We can generate money from what we spend (Consumption) and
• We can generate money from the assets of the state (Capital)

Within the Labour category, our government collects revenue from the following mechanisms:

• Personal Income Tax
• Employer Social Insurance Contributions &
• Employee Social insurance contributions.  

EuroStat does split this into what is collected from each mechanism.  This is likely done to illustrate the effectiveness of each mechanism, but if your job is worth €X and your deductions are €Y, it’s an irrelevance to the ordinary taxpayer what name the government puts on €Y since you are never going to see it.

In the context of this discussion, it’s an irrelevance what money is collected through Income Tax:  the politicians should be talking about how much money you contribute to the government through the work you do. 

Government Income from your Labour.

So we’ve ascertained that if we are trying to generate more money from your employment and it doesn’t really matter what name you put on it. 

So lets illustrate how government deductions on employment operate for some low income levels.

Wow!  As we can from above, if you are a single person on standard tax credits earning either €10,000, €20,000 or €30,000, Income Tax is a relatively small part of the overall ‘tax’ burden on your Job. 

For a job worth just 30,000, you will end up contributing 25% of the value of your job to the government.  Even on €10,000 a year, you are contribution 8%. 

In fact there is no situation in which you do not contribute anything to the state from your employment!

So are we paying enough Tax on our labour?

The above is not a case for increasing or decreasing tax on employment.  We may all need to look at how much tax we pay on our wages and we may need to pay more.  The ‘mix’ of taxation may also need to looked – but at a cursory review of the mix on low paid workers above, their seems to be a lot of taxes being collected through what are largely regressive sources of taxation.

But as someone who sits and trawls through hundreds of P60’s and P45’s a year, for some politicians to imply that 50% of workers in Ireland do not contribute to the state is not acceptable.

Whether enough is being contributed will be part of the governments Budget 2011 calculations.

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