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You are being taxed far more than you might imagine

Taoiseach Micheál Martin has advised that the carbon tax increase, which kicks in from May 1, will not be pulled back despite spiralling costs and pressure on the pocket of Joe Public.

At the same time, Leo Varadkar has said that a VAT reduction on fuel is not possible. “It’s not lawful, not legal” he told Pearse Doherty during Leaders’ Questions in the Dáil, indicating the limited sovereignty that exists for individual countries in the EU.

The Consumer Price Index (CPI) latest publication shows that prices for consumer goods and services have increased by 6.7pc on average when compared to March 2021. This is the highest in more than 20 years. It seems that the Irish public is trapped between global impacts leading to inflation and a neutered executive and legislature in Ireland.

There will be more taxes while prices skyrocket. When prices go up – whether on fuel, on food – then the amount of VAT or excise duty goes up with it. It is a double-whammy. The government is hitting the consumer thrice – income tax,  VAT/excise charges on purchases, and tax increases.

Consider how much of your earnings are gone on various forms of tax. The average salary in Ireland is just over €44,202. You can take home €34k of this after all the taxes. Each month you take home €2,850 per month from a salary of €3,682. The difference is your taxes of €878. That doesn’t sound too bad.

But wait, from the money you have left, how much of that goes on tax? You pay €400 per month for food and clothes? Around €80 of that is tax. (Adults under 25, without children, spend €163 per month on groceries, €64 on clothes and €91 on take-aways/eating out. Older adults spend more.)

Suppose the cost of food and clothes increases further as it inevitably will as shortages arise as the breadbasket of Europe (Ukraine) continues under siege, then the government tax will increase with it.

Say, you spend €400 (and more) on petrol: €220 of that is tax.  As fuel skyrockets, the tax goes up at a greater pace. For every €1 euro rise in the base price, taxes cause an additional €1.25 increase.

You have 8 pints a week in Dublin: that’s €200 a month and €20 of that is excise (2nd highest in the EU; 15 countries have NO excise duty); Another €40 is VAT; You get your car/washer/garden/house repaired or renovated or maintained and spend €500: €100 of that is tax.

You drive across the country a few times, then you spend an additional €48 on tolls. That is a tax. Never mind the M50 toll if you are so unfortunate on a twice daily basis. If you smoke ten cigarettes a day, this is 15 packs a month. That’s €225. €170 of that is tax.  You park in Dublin City 10 hours a week – that’s €120 a month. That’s a tax.

You pay motor tax. You pay motor insurance. You pay property tax. Let’s call each of these €30 per month. That’s €90 in total. Essentially a tax. You also have the TV licence. Another €13 a month?  You also have to pay for your electricity and heating. According to that was just under €3,000 a year on average as of November 2021 (The average annual electricity bill for a customer on a standard tariff would be €1,555, while a gas customer on a standard tariff would pay €1,373). Bord Gais and Electric Ireland have increased their prices by between 23 and 39% from March 2022, so we can assume the average energy bills will be close to €4,000 per year. That’s €333 a month. €45 of this is VAT. And add another fiver for carbon taxes.

Don’t forget that VAT is charged on your wifi, your phone bill and probably your Netflix as well. So, call that another €100 of bills. €20 tax. If you pay your car off at €100 euro a month you are paying VRT and VAT on that car. Call it €20. Let’s not even talk about your annual NCT cost and the costs of preparing for it.

Total costs: €2,519 out of your €2,850 that you have left over after your income taxes.

Total tax: €971 on top of the income taxes of €878, call it €1,849

You are left with €331 to rent a house/room. You won’t get much more than a box. Don’t forget that the government treats rent as income to the landlord so it is taking approximately another 30% of that money you pay as well.

An average salary in Ireland and you get to live in an average box, if you are lucky. And you haven’t even gone out for a meal all month. You will definitely need to give up the cigarettes. You certainly won’t be able to go dating. Be wary of getting ill and having medical bills. Of course, many of these expenses (and hidden taxes) can be reduced: cut the food spend; cut the beer; cut the smokes; cycle to work; turn down the heating. Cut the wifi; get a pay-as-you-go phone and don’t use it. Get rid of the Netflix. And the TV. Don’t drink coffee out. Don’t eat out. Sell the car.

This is the challenge of living beyond your means. Some things have to go. But when a big chunk of your outgoings are in the form of taxes – the government is reducing your means. The theory is that we get back a value-add from these taxes; the government enhances the common good. It is often hard to see where the taxes go;  when more money is collected there are no discernible improvements. What will we get in return for the increases in carbon taxes? A retro-fit scheme for our houses that we can’t afford?

Life gets more expensive yet the tax burden on the pocket increases with it, and our government is hamstrung, unable to do anything. Yet it increases its tax intake. There is often a perception that Ireland is a low tax-country, often cited that the effective tax rate is 32% of GDP compared to 41% as the EU average. But this is deliberately misleading as it includes artificially inflated GDP figures due to virtual money that flows to big companies’ HQs but never really exists in Ireland.

When assessed against a ‘modified-Gross National Income’, Ireland is about 2% points above the EU average. Looked at another way, IBEC points out that, as a percentage of national income, income tax in Ireland is 11.6% – well above the EU average of 9.5% – this makes Ireland the 5th highest income country in the EU.

The unwillingness to make any significant moves is summed up in the decision by a state-controlled company that records very significant profits in the energy sector, increasing its unit prices (thus increasing the VAT the government receives), all at the same time it claims 40% of its energy comes from renewable (thus, not affected by fuel price increases) sources.

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*Incidentally, if you earned €65,000 a year in this example, you would earn €5,416 per month, and take home €3,711. Your taxes are €1,705 on your earnings. If you spend the same €2,526 a month, you pay another €971 in government taxes and charges (total €2,676), leaving €1,152 for you to pay for your rent. You might even be able to afford a pension and health insurance. But you won’t be renting a 2-bed apartment in Dublin.

*Assessment of taxes and charges is approximate and not a scientific study. Each person is different and so are their work/life/private preferences. Some may drink more, drive more, eat more, smoke more – or less. Some may have a car. Some may not. But just about anything you spend, you can assume the government is taking 20% of that as value-added tax. What the value add to the transaction is in Dublin with the streets increasingly congested, it is hard to know. If anything, there is value reduced. Then there are the various charges and levies, which are just taxation by another name, as are licenses.

For more detailed and accurate assessments of household spends, the Minimum Essential Budget Standards Research 2021 may be a useful starting point.


David Reynolds

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