Income tax receipts 'exceptionally strong' in 2021 despite Covid-19 restrictions

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Income Tax Receipts 'Exceptionally Strong' In 2021 Despite Covid-19 Restrictions Income Tax Receipts 'Exceptionally Strong' In 2021 Despite Covid-19 Restrictions
A new research paper released by the Fiscal Council shows there was a sharp jump in taxes paid by employees last year, as tax receipts grew twice as fast as labour income. Photo: PA Images
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Income tax receipts were "exceptionally strong" in 2021 despite significant restrictions on activity due to Covid-19.

A new research paper released by the Fiscal Council shows there was a sharp jump in taxes paid by employees last year, as tax receipts grew twice as fast as labour income.

There was an outturn of €26.7 billion in 2021, a 17 per cent increase on what was forecast in last year's budget.

For the first four months of the year, 2022 income taxes grew by 19 per cent compared to January–April 2021.

However, the Fiscal Council urged caution over the significant growth.

"This surprising outturn suggests reasons to be cautious: there are risks that the rise in the effective tax rate could reverse," the council said.

"For instance, in many sectors, the recovery from the pandemic is likely to lead to reduced effective tax rates as people return to low-pay and low-tax jobs.

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"But much of the strength of taxes comes from strong growth in jobs and wages in the high-pay and high-tax sectors, including in information and communications technology and in finance.

"These high-pay sectors continued to do well through the pandemic."

The council found that, although income taxes in 2021 more than recovered above their 2019 levels for middle- and low-wage sectors, the recovery in wages and hours worked was slower.

The council noted that hourly wages are forecast to grow more rapidly over coming years than over the past decade

This is expected the most with sectors that have the highest hourly wages, in keeping with their faster growth since 1995.

"The impact on tax revenues of the long-term shift towards higher-paid workers nevertheless needs to be monitored carefully," the council added.

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