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Irish tax system best in EU at reducing inequality - ESRI

Research by the Economic and Social Research Institute has found that the Irish tax system does more than any other system in the EU to redistribute income and reduce inequality.

It also found that raising the point at which taxpayers pay the higher rate of tax, or abolishing the Universal Social Charge, would both favour those on higher incomes most.

Ireland has the most unequal share of income in the EU before social welfare benefits or income taxes are applied.

In new research, the ESRI found that the Irish tax system reduces this inequality by more than any other tax system in Europe.

After tax and social welfare payments, Ireland ranks in the mid-range of inequality in the EU.

It also found that Ireland would become significantly more unequal if the standard rate band was increased to €50,000 or the Universal Social Charge was abolished.

The ESRI concluded that it is because the impact of the system is so bound up with income, that it may no longer be able to deliver any further reduction in income inequality.

Instead, it recommends that tax reliefs and payments like the Family Income Supplement should be examined.

ESRI economist and author of the study, Dr Barra Roantree, said that before taxes, inequality in Irish household income is much higher than the EU average. 

But the economist said the Irish tax system does more to reduce this than any other country in Europe.

"Two particularly progressive features of our tax system are the broad-based Universal Social Charge and the early level that the higher-rate of income tax kicks in," he noted. 

"Together, these bring the level of inequality in take-home income very close to the EU average", he added.

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