Irish tax regime needs to reward work, say recruitment leaders
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Workers need an income tax regime that rewards work, as well as greater to access upskilling and affordable housing, according to ERF president, Donal O'Donoghue.
In its pre-Budget submission, the Employment and Recruitment Federation (ERF) is calling upon the Government to deliver measures that will make Ireland a more attractive and competitive place to work.
The largest representative group for Ireland’s recruitment sector, the ERF points out that most employers, including the public service sector, are struggling to fill vacancies. Unemployment in Ireland is back at 4.1%, its lowest since 2001, and they are also facing into further inflationary pressure on pay on the horizon.
“When you look at the Irish economy, overall we are in a good place,” said Donal O’Donoghue. “Corporation tax is up 10% in the Government’s latest report and it’s projected to deliver over €27.6bn to the Exchequer by 2026.
“We know that we have a hugely well-educated, talented workforce. We need to hold onto these people and make it more attractive for them to work here. Ireland’s marginal rate of personal tax is high by international standards at 52% for employees and is even higher for self-employed individuals at 55%.
“That 3% gap doesn’t make any sense. The country needs entrepreneurs as they are the people who create jobs. We need to set up a tax regime that makes Ireland attractive and rewards workers. The PRSI system is also too complex and needs to be revised.”
The ERF believes that Ireland's high marginal personal tax rates, especially for top earners, is hindering economic growth and talent attraction, the ERF submission reads.
Reducing the overall level of the 52% marginal tax rate, and revising the entry point before it applies, will make Ireland more competitive on the global talent stage, say ERF’s recruitment agency membership.
Acknowledging that it is vital to broaden the tax base, to allow for increased public spending, targeting various exemptions and credits is recommended, along with more streamlined cost-effective revenue collection.
The ERF’s pre-Budget submission calls for a five-year roadmap for substantial reform of income tax code, PRSI code, and Universal Social Charge (USC), to reassure employers and support FDI.
“Reducing the number of PRSI classes, capping PRSI for employees and employers, and introducing automatic indexation based on inflation, is essential to maintain real value,” said Mr O’Donoghue.
To foster innovation and growth in STEM fields, the income tax credit for STEM third-level programmes should be enhanced, he maintains.
“Removing the cap on the credit, and making it available at the individual's marginal rate, for all STEM courses, will encourage more people to pursue these critical disciplines,” he says. “Workers need access to free training, and employers need supports to offset training costs.
“People should be looking at training every few years to stay ahead of A.I. and other new skills requirements. The construction sector constantly needs people to train in new skills. Only around 10% of people are committed to upskilling. People need to be encouraged to see the benefits of reskilling.”
The ERF also highlights that workers are struggling to find affordable homes to buy, while many are also priced out of the rental market.
“We have insufficient affordable housing, childcare provision, and public services in sectors like healthcare and education. These social issues are a product of the talent shortage, and are also, in turn, major contributors to the diminishing workforce,” said Mr O’Donoghue.
To address essential skills shortages and prioritise sectors in need, the work permit and visa system needs further simplification and reform, according to the ERF recommendations.
Recruitment agencies also believe that investing in English language training for migrants seeking employment will improve their employability, and integration in the workforce, and significantly benefit the economy, the budget submission reads.
“Our ability to attract back the non-Irish nationals who departed during Covid, along with younger Irish nationals who emigrated, and to generate new inward migration, is severely impacted by the cost of living, housing and, for some, childcare.
“Investing some budget surplus in social issues will take the pressure off the labour market and help restore competitiveness in Irish industry.”
Meanwhile, the ERF also highlights growing concerns across the business community about rapidly increasing labour costs, which affect competitiveness. The ERF says significant political commitments on labour policy issues are also driving this overhead.
“The potential additional cost implications of Government proposals for a new living wage, a possible 12.4% increase in the national minimum wage from 2024, pensions auto-enrolment, the recent legislation on statutory sick pay, a new public holiday from 2023 and other statutory leave changes, could reasonably increase the average wage bill by up to 10% by 2030,” said Donal O'Donoghue.
The ERF argues that in domestic sectors like retail and logistics, pensions auto-enrolment and living wage costs will increase pressure on employers, impacting the viability of many jobs in these sectors.