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The economy of the Republic of Ireland is modern, relatively small, and trade-dependent with growth averaging a robust 10% in 1995–2000. Agriculture, once the most important sector, is now dwarfed by industry, which accounts for 46% of GDP, about 80% of exports, and employs 29% of the labour force. Although exports remain the primary engine for the Republic’s robust growth, the economy is also benefiting from a rise in consumer spending and recovery in both construction and business investment. The annual rate of inflation stands at 2.3% as of 2005, down from recent rates of between 4% and 5%. House price inflation has been a particular economic concern (average house price was €251,281 in February 2005). Unemployment is very low and incomes have been rising rapidly as well as service charges (utilities, insurance, healthcare, legal representation, etc.). Dublin, the nation’s capital, was ranked 16th in a worldwide cost of living survey in 2006 (up from 22nd in 2004 and 24th in 2003). Ireland has been reported to have the second highest per capita income of any country in the EU next to Luxembourg, and fourth highest in the world.

Taxation in Ireland

The present government (1997–) has favoured a low taxation policy to encourage foreign direct investment in Ireland. Consequently, the government opposes moves by the European Commission to restrict tax competition. (The corporate tax rate is only 12.5%, versus between 20% and 60% in the rest of Europe). The income tax system is designed to redistribute wealth from the richer to the poorer segments of society. There are 2 tax bands, based on income levels. These range from a maximum top rate of 41%, to a maximum bottom rate of 20%. In reality, however, a generous tax credits system ensures that the lower rates of taxation are normally 4% to 12%. The top rate of tax never exceeds 35% in practice.

The government receives much of its revenues from taxes on goods — these include a 21% VAT rate on most consumer goods, high levels of excise duty on tobacco, petrol, and alcohol and several smaller taxes on items such as plastic bags, cheques, ATM cards, credit cards and debit cards. The taxes in the personal financial sector, as well as the television licence, are often seen as regressive.