Imposing French-style wealth tax would only yield €22m

ESRI study assesses impact of adopting European wealth tax structures in Ireland

Central Bank, Dublin: the bank actively discouraged certain financial institutions from relocating here on regulatory grounds. Photograph: Matt Kavanagh

Central Bank, Dublin: the bank actively discouraged certain financial institutions from relocating here on regulatory grounds. Photograph: Matt Kavanagh

 

Imposing a French-style wealth tax on Ireland’s super-rich would only yield an extra €22 million a year in revenue, according to a study by the Economic and Social Research Institute (ESRI).

The research, presented at the Department of Finance’s annual tax policy conference on Wednesday, assessed the potential impact of adopting various European wealth tax structures here.

It found that wealth taxes in France and Spain involved relatively high thresholds, applying only to individuals with assets exceeding €1.45 million and €900,000 respectively.

While this meant most of the burden fell on high-net-worth individuals, the revenue generated was modest. If applied in Ireland, the study estimated the taxes would only generate €22 million and €77 million.

Swiss model

Conversely, the alternative Swiss model, which has a much lower wealth threshold and covers a greater range of personal assets, could net the Irish exchequer up to €1.3 billion in additional funds.

However, this was caveated by the fact that a significant proportion of the burden of Swiss wealth taxes, which differ depending on the canton, fall on low and middle-income earners.

In Swiss region of Schywz, for example, a wealth tax is applied to all individuals with assets, including income and property, exceeding €49,824. In the other two cantons assessed by the study, individuals with assets of €66,830 and €83,040 were liable for the tax.

The ESRI’s study found that while most of the wealth tax burden applying in various European states fell on the shoulders of top earners, there were some anomalies.

For instance, the research revealed that a significant proportion of the wealth tax burden fell on older households and single-adult households.

This was because the latter tended to have more expensive property assets and were often sitting on assets that may have once belonged to two individuals.

The study also pointed out that several systems relied on the accuracy of self-reported values and ignored the impact of other wealth taxes.

The possibility of introducing a wealth tax here has been hotly debated since the financial crash with left-wing parties claiming it could used to reduce the tax burden on struggling low and middle-income earners.

Capital flight

Critics have, however, claim it would result in a capital flight and would deter inward investment.

A separate paper on the likely investment impact of changes to Ireland’s 12.5 per cent corporation tax rate was jointly presented by the ESRI and a UCD academic.

It found that Irish Foreign Direct Investment (FDI) from outside the EU and in the area of services was extremely sensitive to changes in the headline rate of corporation tax.

However, the report noted that a competitive tax rate was viewed by companies as only one element of a country’s competitive offering.

Because the UK and Ireland were viewed as similar FDI destinations by companies outside the EU, the research also suggested Ireland could benefit significantly from the current uncertainty regarding the UK ’s position in the EU.

Speaking to reporters before the conference in Dublin Castle, however, Minister for Finance Michael Noonan warned that “brass-plate operations” seeking to relocate to Ireland in the wake of Brexit for tax purposes would not be welcome.

He was responding to reports that the Central Bank had actively discouraged certain financial institutions from relocating here on regulatory grounds.

“There are no restrictions but obviously we don’t want to take everything that comes,” he said. “We don’t want brass-plate operations that simply come here and screw a brass plate on to a door for tax advantages.”