IMF国际货币组织全球-Ireland_Selected-Issues_25页_1mb

Summary of the Document on Ireland

Core Content

The document provides an analysis of Ireland's personal income tax system and the non-bank financial sector, focusing on their evolution, structure, and implications for public finances and financial stability.

Personal Income Tax Reform: Past and Present

Main Points

• Tax System Overview: Ireland's personal income tax is based on two schemes: the Income Tax and the Universal Social Charge (USC). The system is characterized by a high administrative burden and a narrow tax base.
• Procyclical Nature: Personal income tax policies have been procyclical, meaning they have fluctuated with the economic cycle, potentially increasing volatility.
• Historical Changes:
  • During the 2004-2007 boom, tax rates were reduced, especially for lower income earners, and tax credits were expanded.
  • During the 2011 crisis, the USC was introduced to broaden the tax base and increase revenue.
  • From 2015-2019, the USC was gradually reduced, which led to a narrowing of the tax base and a decline in its yield.
• Current Tax Burden: In 2017, income tax accounted for 9.5% of GNI, while the USC added 2%, making the overall tax share higher than the EU average.
• Tax Reform Recommendations:
  • Replacing the USC with a re-calibrated Income Tax could simplify the system and reduce administrative burden.
  • A more substantial reform could broaden the tax base, improve work incentives, and maintain progressivity.
  • The reform should avoid reliance on cyclical corporate income tax (CIT) revenues to ensure a stable and equitable tax system.
  • Means-tested cash transfers could help mitigate the impact of broader tax distribution on low-income households.

Non-Bank Financial Sector in Ireland: Linkages and Risks

Main Points

• Sector Overview: The non-bank financial sector in Ireland is large and growing rapidly. By 2018:Q3, its total assets reached €3.9 trillion, which is 12 times the annual GDP.
• Composition:
  • Investment funds and other financial intermediaries are the main components.
  • Money market funds (MMFs) and non-MMF investment funds (IFs) are the largest subsectors.
  • Pension funds and insurance companies are not included in this analysis.
• Linkages:
  • Domestic Linkages: Investment funds and vehicles are closely linked to the domestic economy, especially through household savings and consumption.
  • Global Linkages: The sector is highly interconnected with the euro area, the U.K., and other global markets.
• Risks and Vulnerabilities:
  • Increased liquidity and maturity mismatch in funds can lead to financial instability.
  • High leverage and concentration in certain subsectors raise concerns.
  • The sector's reliance on market finance poses risks, such as fire sales and runs during unexpected redemptions.
  • Interconnectedness with banks and other financial institutions can amplify systemic risks.
• Policy Implications:
  • Better understanding of risks is needed, especially given the sector's size and complexity.
  • Market-based alternatives to bank financing can be beneficial for economic growth and stability.
  • Regulatory coordination with international bodies like the ECB, ESRB, ESMA, and IOSCO is essential for monitoring financial stability.

Key Information

• Tax Yield: In 2017, the combined yield of income tax and USC was close to the 10-year average.
• USC Impact: The USC was initially effective in broadening the tax base but has since been reduced in rates and widened in bands, leading to a decline in its yield and effectiveness.
• Income Tax Progressivity: Ireland's personal income tax system is among the most progressive in the OECD, contributing to income redistribution and poverty alleviation.
• Tax Credits: Tax credits have played a significant role in reducing the effective tax burden on lower and middle-income earners, but they also contribute to high marginal effective tax rates, potentially discouraging work.
• Administrative Burden: The current system is complex due to the coexistence of two tax schemes, which could be simplified by replacing the USC with a re-calibrated Income Tax.

Conclusion

The document concludes that reforming the personal income tax system by replacing the USC with a re-calibrated Income Tax could yield benefits in terms of simplicity, stability, and equity. It also emphasizes the need for better risk management and regulatory coordination in the non-bank financial sector to ensure financial stability and support economic growth.