Taxing savers

Mon, Oct 21, 2013, 14:17

Minister of Finance Michael Noonan, in delivering his budget statement, also sought to disarm the mainly international critics of Ireland’s corporate tax regime by publishing a charter clearly outlining the Government’s tax strategy. It includes a commitment to an Ireland that “plays fair” and always acts with integrity in the conduct of its international tax policy.

Mr Noonan might now consider issuing a national tax charter, an equally solemn declaration that might reassure his domestic audience, many of whom are struggling to understand some tax decisions made in this and previous budgets.

Department of Finance secretary John Moran last week outlined the view of Government that restructuring the “hugely flawed” Irish tax system was central both to sustaining growth and raising revenue. And savers and investors, as one category of taxpayers, will certainly second that.

For savers, the rise in Dirt tax to 45 per cent – including PRSI – means that from January 1, they will retain just over half the interest earned on their cash deposits. Interest rates are at record lows, and with higher inflation forecast – 1 per cent next year and 2 per cent in 2015 – depositors will receive negative real returns. Tax and inflation will combine to erode the real value of their savings.

By using what has come to be called “financial repression”, the Government is penalising savings. In doing so, it aims to raise more revenue from savers by the higher tax which is also designed to discourage saving and to encourage spending. The tax rate on savings has more than doubled in five years.

The 4 per cent PRSI levy on the unearned income of those under 66, while paid into the social insurance fund, will not provide any extra benefit. The pension levy on private sector pension funds, due to end next year, is set to continue, at a higher rate in its current form, and at lower rate thereafter. Clearly, a national tax charter is urgently needed.

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