Ireland: Selected Issues

IMF Staff Country Reports, June 17, 2019

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Personal income in Ireland is taxed under two distinct schemes.
Changes in Ireland’s personal income taxation have been procyclical and created vulnerabilities to public finances.
The reduction in personal income taxes during the boom has been broad based, albeit more for low-income taxpayers.
With somewhat shrinking corporate profits during the crisis, personal income taxation was increased.
The reformed income tax would reduce the vulnerability of public finances to interplay of corporate (CIT) revenues and reduce procyclicality.
A robust, stable income tax system performs a stabilizing role over the business cycle.
Additional CIT revenues during booms could be saved as buffers to be used for smoothing downturns or to reduce the still high public debt.
Post-2014, income taxes have been reduced again, fueling the recovery in domestic demand.
The Income Tax could be further amended to enhance incentives to work, while safeguarding the progressivity of the system.

Procyclical changes in personal income taxation amplified fiscal vulnerabilities through interaction with corporate income tax (CIT) cycles.
Broad-based tax cuts during booms disproportionately benefited low-income taxpayers.
During the crisis, shrinking corporate profits coincided with higher reliance on personal income taxation.

The reformed income tax is projected to:
- Reduce vulnerability of public finances to CIT revenue swings.
- Reduce the procyclicality of tax revenues.
- Provide a more stable fiscal anchor over the business cycle.

Maintain a robust, stable income tax system to perform a stabilizing role over the business cycle.
Save additional CIT revenues accrued during booms as buffers to smooth downturns or to reduce public debt.
Consider further amendments to the Income Tax to:
- Enhance incentives to work.
- Safeguard the progressivity of the tax system.

International Monetary Fund. European Dept. "Ireland: Selected Issues", IMF Staff Country Reports 2019, 165 (2019).

Ireland: Selected Issues; IMF Country Report No. 19/165; May 30, 2019
- Ireland: Selected Issues; IMF Country Report No. 19/165; May 30, 2019 (Markdown version)
- Ireland: Selected Issues; IMF Country Report No. 19/165; May 30, 2019 (PDF)