Minister for Finance Simon Harris has once again spoken about his plans to establish tax-efficient investment accounts for individuals. The fact that it feels like the umpteenth time he has done so since the start of the year reflects Harris’s penchant for serially announcing policies he thinks will resonate with his party’s voters.
But the Fine Gael leader is not wrong on this occasion. Irish households have around € 170 billion sitting on deposit with the banks, earning 3 per cent a year or less and subject to 33 per cent tax on the interest. It is not a very good deal.
Despite this, we remain deeply suspicious of alternative products that invest in financial markets. The reasons are varied but a long list of collapses and scandals is part of the problem. Taxation is also an issue. Rates are high and establishing what tax you owe is far from straightforward.
Harris’s latest outing, at an investor forum hosted by the Central Bank, has added a little to the sum of knowledge about the likely form of the new products. He would appear to have confirmed that they will be modelled on similar accounts introduced in Sweden in 2012 which have proved successful.
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The Swedish accounts have a simple tax structure with a small annual charge of around 1 per cent levied on the value of the fund. This avoids having to calculate and then pay taxes on gains in the value of the different assets held in the fund. The first 300,000 SEK (roughly € 27,500) in the fund is tax-free.
Whether this approach or something similar proves sufficient to coax Irish savers away from their deposit accounts is an open question. But the experience in Sweden – which faced similar cultural obstacles – has been encouraging. More than one in three Swedes has an ISK account, most of them with balances under the tax-free threshold.
If Harris can replicate the Swedish experience he will have succeeded in making the better-off even more so. That is in keeping with his party’s policies and its obsession with “middle Ireland”. But the inequality inherent in his project will create problems of its own and may be an impediment to support from his coalition partners in Fianna Fáil.
The secondary goal of the scheme – to encourage investment in the Irish economy – should in theory benefit everyone. However, the evidence is that most of the money going into the funds will be invested outside of Ireland because that is where the best returns are to be had.
This is pretty much the extent of what we know about Harris’s thinking. There is a lot of conjecture and very little detail.
It is time for the Tánaiste to stop trailing his one big idea and set out the details of what he actually has in mind.
