The same rates of tax? Yes, but for very few.

On last Monday’s Claire Byrne Live, commentator Eamonn Dunphy made the following comment:

“As we do in Ireland, the French pay a high rate of tax but in return they receive the kind of services that the average Irish citizen can only dream of.”

The only evidence to support this was some limited figures from a two-earner family with children in both Ireland and France.

The top figure is each case is “joint income” while the bottom figure reflects “tax and PRSI after tax credits and pension contributions” for the couple living in Ireland (on the left) and “income tax and social insurance” for the couple living in France (on the right).  It is also possible that the comparison is clouded as being between public and private sector workers.

A major issue is that these households cannot be considered representative – they are from the top of the income distribution and probably in the top decile of the distribution.

Ros says:

“I believe the taxes we are paying should be sufficient to provide a ‘world-class’ public service unfortunately it doesn’t seem to be that way it seems our taxes are being used to pay for other things.”

The suggestion in the discussion was that earners in Ireland were paying similar taxes to those in France but getting far less in return.  The reality is somewhat different.  The truth is that most earners in Ireland pay far less income tax and make far lower social contributions than their French counterparts.  The only cases in which this is not true is high earners and that was the only “evidence” presented.  And this ignores employer’s social insurance contributions which are about three times higher in France than in Ireland.

Here we will look at the impact of the tax and transfer system on eight household types using the Tax-Benefit Calculator of the OECD.  The latest year of the calculator is 2012 but there have not been fundamental changes in how each country tax income in the interim.  All the data used here is taken from the calculator so queries can be sent to the OECD!

The following Average Industrial Wages (AIW) are used for 2012:

• Ireland: €32,514
• France: €36,248

The household types for which a measure of “effective tax rates” are presented for incomes ranging from 50-200 per cent of the AIW are:

• Single Person, 0 Children
• Single Person, 2 Children
• Couple, 1 Income, 0 Children
• Couple, 1 Income, 2 Children
• Couple, 2 Incomes, 0 Children (Income 2 = 67% AIW)
• Couple, 2 Incomes, 2 Children (Income 2 = 67% AIW)
• Couple, 2 Incomes, 0 Children (Income 2 = 167% AIW)
• Couple, 2 Incomes, 2 Children (Income 2 = 167% AIW)

First are two charts for a single person, one with no children and then with two children.  The income range in Ireland is €16,257 to €65,029 while for France it is from €18,124 to €72,495.  At almost all incomes levels the impact of the tax and benefit system is much less in Ireland than in France. 

Up to 110 per cent of the AIW it means that net pay is higher in Ireland even though gross pay starts out lower.  For example at 110 per cent of the AIW, gross pay in Ireland is €35,766 and in France is €39,872.  Net pay is calculated to be €28,301 in Ireland and €28,131 in France.

The progressive nature of the Irish system means that the gap between the rates narrows and is all but eliminated at 200 per cent of the AIW.

For a single person with children the gap at lower incomes is even more pronounced.  For instances where the earner gains from the tax and benefit system (due to Child Benefit or the Family Income Supplement in Ireland) the rate is set to zero rather than show negative rates.  The gap below 100 per cent of the AIW is even greater than shown above.  Again the gap is eliminated at high incomes. 

Next we look at married couples with one income.  The income ranges are as for the single person charts above.  The story is largely the same: a large difference at low incomes levels which is eliminated at high income levels.

The next two charts concern a dual-income household where the second income is 67 per cent of the AIW.  For Ireland the combined income ranges from €38,042 to €86,814 while the French figures range from €42,410 to €96,781.

At a gross pay level of €60,000 a 2-earner, 2-child couple with in Ireland will have a net pay around €6,800 lower after taxes and benefits.  In France the gap would be €13,600.

Finally we come to the higher earners.  Here the second income is 167 per cent of the AIW.  The income range for Ireland is €70,556 to €119,328 and €78,675 to €133,029 in France.  For both the no child and two children couples the rate in Ireland is lower and the gap is small at the upper end of the range.

So, yes there are some people in Ireland who do pay a similar high rate of tax and social insurance to earners in France – those with high income.  The vast majority of people pay much lower rates than earners in France. 

What do the French do with all this extra money they collect from people? They give it back to them in pensions, with those who paid the most getting the most back.

The French health system also got an airing.  France has a universal health system.  This does not mean it is free; it means everyone is treated the same.  The French system can be summarised are “pay and get reimbursed”.  Everyone pays the (regulated) prices for medical services and then is partially reimbursed.

A typical visit to a GP costs €23 up front with €16 later reimbursed to the patient.  The net cost is thus €7  - for everyone.  For medicines, the standard reimbursement is 65 per cent of the cost, though the reimbursement is applied by the pharmacist rather than subsequently.  Again everyone faces the same prices.  More details here.

In Ireland we have a binary system where some patients face zero, or near zero, prices and others face the full prices (though can get some reimbursement through the tax system).  Free comes at a high cost as was usefully explained a number of years by a public health nurse in a letter to the Irish Independent.

We can have a “French-style” system in Ireland but it must be recognised what it would entail:

• The vast majority of people (i.e. except high earners) paying much more in tax and social insurance, and
• A large amount of people (the 1.9 million with medical cards) facing a price for medical services that were generally “free”.
• Using a good part of the social contributions from high-earners to fund contribution-based pensions which go largely to high earners.

There was no mention of these details last Monday though.