DIRT - 50% rate

clear thinking

This makes an interesting discussion I think. Increasing DIRT on deposits of Irish residents and Irish bank acounts, currently about €170bn, could yield €1.5bn p/a at 50%.

The main points:

• The government should use DIRT as a monetary policy lever.
• There is no cost to banks as interest paid to creditors simply goes to the state instead.
• Most corporates have long fled so the remaining depositors are Irish and will not move capital en masse. You will still, after tax, have more interest from an irish bank than the likes of Rabo.
• If funds are withdrawn they will be used to reduce personal balance sheets or simply be spent domestically.
• It will encourage consumer spending - our savings rate is excessively high - savings need to be discouraged & this action would stimulate domestic demand - the chronic issue in our economy at the moment.
• the funds raised could be put to use on any issue, or reduce the upcoming austerity budget from €3.0bn to €1.5bn.

I have to question why this has not been looked at yet. The best part is we could integrate it into our approach to Europe. A possible direct tax on the interest payable to the European part of the bailout deal would see pretty quick movement on the rate reduction.

Welease

clear thinking wrote: »

The best part is we could integrate it into our approach to Europe. A possible direct tax on the interest payable to the European part of the bailout deal would see pretty quick movement on the rate reduction.

Or more likely.. two fingers from Europe when we ask for more money..

munster nomad

Hang on a minute. Yes I'll agree it does 'sound' like a good idea to 'force' people to stop hoarding their money, but maybe the current behaviour isn't a million miles away from what should be happening in a healthy. i.e balance of savings vs. credit.
Ok, the balance has gone dramatically the other way, but that always happens in every major world economy that hits a recession like we have, it will unwind itself in a couple of years again.

It's a bit unfair to penalise the likes of younger people, who are busily trying to save their 20% (or perhaps due to new scared bank rules maybe even higher! :eek: ) house deposit amounts. We should surely be giving them a break for having the financial fortitude not to get involved in the property rat race a few years ago with their 100% mortgages...

clear thinking

Irish banks are offering 3.80% to 4.20% so you'd still be getting an effective 1.9% - 2.1%. The same as most european savers in the euro zone get.

Ie: Rabo are paying 2.25% AER, so its not much of a difference.

jmayo

clear thinking wrote: »

This makes an interesting discussion I think. Increasing DIRT on deposits of Irish residents and Irish bank acounts, currently about €170bn, could yield €1.5bn p/a at 50%.

The main points:

• The government should use DIRT as a monetary policy lever.
• There is no cost to banks as interest paid to creditors simply goes to the state instead.
• Most corporates have long fled so the remaining depositors are Irish and will not move capital en masse. You will still, after tax, have more interest from an irish bank than the likes of Rabo.
• If funds are withdrawn they will be used to reduce personal balance sheets or simply be spent domestically.
• It will encourage consumer spending - our savings rate is excessively high - savings need to be discouraged & this action would stimulate domestic demand - the chronic issue in our economy at the moment.
• the funds raised could be put to use on any issue, or reduce the upcoming austerity budget from €3.0bn to €1.5bn.

I have to question why this has not been looked at yet. The best part is we could integrate it into our approach to Europe. A possible direct tax on the interest payable to the European part of the bailout deal would see pretty quick movement on the rate reduction.

Great idea, lets penalise people, ordinary people, for being prudent and worrying about the future. :rolleyes:
Ah shure why not just start taking some of the deposits while you are at it?

Has it ever crossed your mind that people will just move their money offshore ?

Oh BTW do you have savings in an Irish bank ?

clear thinking

jmayo wrote: »

Great idea, lets penalise people, ordinary people, for being prudent and worrying about the future. :rolleyes:
Ah shure why not just start taking some of the deposits while you are at it?

Has it ever crossed your mind that people will just move their money offshore ?

Oh BTW do you have savings in an Irish bank ?

How is it prudent to save in institutions that have been junk rated since 18th April?
http://www.bankofireland.com/fs/doc/wysiwyg/18%20Apr%202011_Moody%27s%20downgrades%20Irish%20bank%20ratings.pdf

The offshore point is moot since DIRT is payable by Irish residents anyway.

Why the curiosity about my savings? If you must, I bought a property and used them for a deposit.

beeftotheheels

clear thinking wrote: »

The offshore point is moot since DIRT is payable by Irish residents anyway.

DIRT is not payable by Irish residents. Deposit Interest Retention Tax is a tax collected by Irish resident banks on deposits held by most residents, and paid over to Revenue.

Ireland cannot make foreign banks collect an Irish tax, only Irish resident banking entities have to comply with Irish tax law on Irish deposits/

Irish residents are subject to income tax on foreign interest income, and so should pay this over to Revenue themselves.

But most won't, which is why we have DIRT, so that Revenue can deal with a few banks rather than dealing with many many non-compliant taxpayers.

Godge

The problem with punitive taxes is that they drive aberrant behaviour. A high tax on deposits would lead to more people moving money offshore. As a result the higher tax does not generate higher yields. So the initiative fails. Furthermore, as our banks are struggling to hold onto deposits already it does not make sense from a macroeconomic perspective even if it was to give some revenue increase.

We have the same problem with income tax. Higher income tax rates are not likely to increase return. Yes, there is still some revenue to be gained by reducing personal credits and completely eliminating some others as well as reducing bands but increasing the actual rates is not likely to have any beneficial effect. The same principle applies. We need more people to work and those in work to be more productive. Won't get that with tax increases.

So what do we do? We can't close the deficit through cuts alone (despite what some boards dreamers think) so we need extra taxation. The new levy on pensions is a good idea. A small tax on something that cannot be easily avoided or evaded and has little or no effect on the domestic economy. Similarly, a low tax on all property has the same benefit. Ditto water charges as these are things that can't be avoided.

In general, low taxes on everything mean that economic activity is encouraged but that tax-driven bubbles such as apartments in Carrick-on-Shannon are avoided. I think VAT rates should be lowered but applied to everything. Similarly tax should be paid on all income and credits and reliefs should be reduced or abolished. If social welfare payments are high enough to enter the tax net, they should also be taxed.

clear thinking

@btth: My point that interest collected by resident depositors is owed to Revenue stands, regardless of the mechanism of collection.

@ Godge: The risk of offshore moves is mitigated by the fact that the banks are junk, the elasticity of deposit moves has been reached in my opinion. All the corporates are gone, the rest are here to stay. Additionally, the lower rates abroad, already mentioned, hardly make, it worthwhile even if deposits did move and residents didn't declare the interest income. The other potential impact is that people will actually spend some of the money, get the money supply going again and be a massive stimulus, in addition to reducing austerity.

I agree with low tax, low spend in general, however in this case its an artificial monetary lever that would have a massive impact. This is not different than if we had our own currency, we would be keeping rates down, not upping them as the ECB has.

beeftotheheels

clear thinking wrote: »

@btth: My point that interest collected by resident depositors is owed to Revenue stands, regardless of the mechanism of collection.

Yes, but lets say that I have €1000 on deposit in the UK with a UK bank. I get interest of around €45 out of which 20% UK tax is deducted so I get €36 cash. I owe Irish tax of about €3 after double tax relief. Are Revenue really going to spend time and effort looking for my €3 if I don't declare it?

Unless you are dealing with huge deposits, the marginal Irish tax on foreign deposits is minimal, and while it should be paid, if it is not in fact paid then I won't be losing any sleep over it since the effort to collect it will likely outweigh the tax collected. Individuals with large deposits probably have tax advisors and so should be paying their tax whereas a PAYE worker with €1k in Barclays in Newry probably won't.

DIRT, by contrast, requires limited Revenue resources to collect, so I personally wouldn't be looking to facilitate any more deposits leaving our shores.

Godge

[QUOTE=clear thinking;72395624
@ Godge: The risk of offshore moves is mitigated by the fact that the banks are junk, the elasticity of deposit moves has been reached in my opinion. All the corporates are gone, the rest are here to stay. Additionally, the lower rates abroad, already mentioned, hardly make, it worthwhile even if deposits did move and residents didn't declare the interest income. The other potential impact is that people will actually spend some of the money, get the money supply going again and be a massive stimulus, in addition to reducing austerity.

I agree with low tax, low spend in general, however in this case its an artificial monetary lever that would have a massive impact. This is not different than if we had our own currency, we would be keeping rates down, not upping them as the ECB has.[/QUOTE]


We can only agree to disagree then. I believe that such a move would cause an unacceptable risk of flight of deposits. You believe it won't.

Neither of us seem to have any hard evidence to back it up one way or the other. Maybe the IMF/ECB/Department of Finance or whoever is running the country does have such evidence and we can see in coming budgets what they do.

clear thinking

beeftotheheels wrote: »

DIRT, by contrast, requires limited Revenue resources to collect, so I personally wouldn't be looking to facilitate any more deposits leaving our shores.

That doesnt address the point that you won't be better off by moving - the example above from AIB 4.2% @ 50% = 2.1% vs Rabo's 2.25%.

I'm saying more deposits will not move. 0.15% is €1.50 on your hypothetical €1,000 ie not worthwhile, especially if you are happy in the current situation of depositing in Junk banks.

Agreed, DIRT is a great way to collect, hence - lets use it.

beeftotheheels

clear thinking wrote: »

That doesnt address the point that you won't be better off by moving - the example above from AIB 4.2% @ 50% = 2.1% vs Rabo's 2.25%.

I'm saying more deposits will not move. 0.15% is €1.50 on your hypothetical €1,000 ie not worthwhile, especially if you are happy in the current situation of depositing in Junk banks.

Agreed, DIRT is a great way to collect, hence - lets use it.

AIB @ 4.2% with junk rating backed by our government compared to Rabo's 2.25% rate with investment rating backed by a solvent government... hmmmm

There is a reason why our banks are paying more interest you know, and if our government increased DIRT then the banks might have to offer yet more interest to compete.

jmayo

clear thinking wrote: »

How is it prudent to save in institutions that have been junk rated since 18th April?
http://www.bankofireland.com/fs/doc/wysiwyg/18%20Apr%202011_Moody%27s%20downgrades%20Irish%20bank%20ratings.pdf

It is not and that is why bigger savers have moved their money offshore.

clear thinking wrote: »

The offshore point is moot since DIRT is payable by Irish residents anyway.

I think beeftotheheels answered that.

clear thinking wrote: »

Why the curiosity about my savings? If you must, I bought a property and used them for a deposit.

Well the reason I asked about your savings is that I thought this idea was probably floated by someone with little or no savings.
How about a big property tax ?

Attacking savings and pensions, as they already have, is not a good idea in my mind.
It looks like it is a tax on people who have been putting money aside for a rainy day, to now bailout those who were very liberal with their or rather other people's money. :rolleyes:

As I think was mentioned already, our banks are trying to hang on to deposits and it is one of the reasons our banks have high interest rates.

Your idea will only drive deposits away.

clear thinking

Godge wrote: »

We can only agree to disagree then. I believe that such a move would cause an unacceptable risk of flight of deposits. You believe it won't.

Neither of us seem to have any hard evidence to back it up one way or the other. Maybe the IMF/ECB/Department of Finance or whoever is running the country does have such evidence and we can see in coming budgets what they do.

I suppose thats the point of putting it out there.

However deposit flight is not a risk at all: if the deposits fled (which i do not believe would happen) then the banks would be replacing it with cheap ECB liquidity funding. So the banks would be actually increasing profits & reduce the need for taxpayer funds to prop them up.

I'd come back to the point that the banks are junk and that there is a lack of upside return by moving to a foreign bank.

clear thinking

A big property tax?
A good idea, something like the French have would be good.

Good work with the smiley's, but I'll take you seriously anyway. I put my funds into property, there is risk involved. My decision, I'll take the ups and downs that go with it.

It is no different than putting funds in junk rated banks, there is risk there too.

The top rate of tax is around 55% anyway, so why should additional income not also be taxed at something close to this? Especially when euro banks pre tax rate means deposits won't fly and if it does there is an upside anyway.

hmmm

I propose a 100% tax on the income of people coming up with "innovative" taxation ideas. Seriously. The state seems to be sucking in as much income as possible, yet expenditure levels are barely reducing. Worse, we are loading penalising taxes on useful economic or social activity such as pension savings or overtime wages, and pumping those resources into sectors of the economy which produce far less value to society.

Godge

hmmm wrote: »

I propose a 100% tax on the income of people coming up with "innovative" taxation ideas. Seriously. The state seems to be sucking in as much income as possible, yet expenditure levels are barely reducing. Worse, we are loading penalising taxes on useful economic or social activity such as pension savings or overtime wages, and pumping those resources into sectors of the economy which produce far less value to society.

Explain to me how pension savings that are invested outside of Ireland is a useful economic activity when the money could be spent on goods and services in Ireland.

Sure there are benefits in 30 to 40 years time but the country is broke now and for the next few years.

Manach

Non-expertly, I reckon that monies invested outside the state w'd have a better chance of growing than within it, hence worth more in the long term?

hmmm

Godge wrote: »

Explain to me how pension savings that are invested outside of Ireland is a useful economic activity when the money could be spent on goods and services in Ireland.

Sure there are benefits in 30 to 40 years time but the country is broke now and for the next few years.

Because the proposal is to make short term changes that will cause ongoing behavioural changes (turn people off pensions) to alleviate a short term problem - it's short sighted and in 20 years time we'll be scratching our heads wondering why the government of the day did this. Besides which there are plenty more places which could have been looked at for savings before loading on more tax.

SeanW

clear thinking wrote: »

This makes an interesting discussion I think. Increasing DIRT on deposits of Irish residents and Irish bank acounts, currently about €170bn, could yield €1.5bn p/a at 50%.

Great idea:

1. Punish people for behaving responsibly (i.e. saving for the future) ... after all we want people to spend, spend, spend and party till they're broke ... eh ... isn't that why we're in this mess in the first place?
2. Drive more deposits out of Irish banks ... I don't know, maybe you missed a newscast or two, but our banks are in severe difficulty as a result of the implosion of their loan books, and they need all the savings they can get. Your solution is just perfect for them

clear thinking

SeanW wrote: »

Great idea:

1. Punish people for behaving responsibly (i.e. saving for the future) ... after all we want people to spend, spend, spend and party till they're broke ... eh ... isn't that why we're in this mess in the first place?
2. Drive more deposits out of Irish banks ... I don't know, maybe you missed a newscast or two, but our banks are in severe difficulty as a result of the implosion of their loan books, and they need all the savings they can get. Your solution is just perfect for them

1. Highest saving rate in europe - its panic saving proved by the fact that its saving in Junk banks.

2. I'm arguing that the there would be no flight of deposits as

• It would have already happened, the banks are junk, and yet people stay.
• The interest after tax will still be higher than if you did move it, so why would the average depositor move the funds.
• I dont believe it is punishment to for depositors in Holland and Ireland to end up with the same net interest.
• The benefit of people who spend or invest by moving out of deposit would have a massive impact on the economy and yield those persons a far better return,
• Any loss of deposits would be made up by the ECB at a lower rate, saving the taxpayer money.
• The boost to the economy would boost asset values to the point where a reliable, if depressed, market exists, stability will attract foreign funds more quickly than maintaining the status quo, replacing liquidity dependency through refinances and ultimately packaged Bond, note and VC issues by banks

No need for the tiger, that got us in enough trouble.

Godge

hmmm wrote: »

Because the proposal is to make short term changes that will cause ongoing behavioural changes (turn people off pensions) to alleviate a short term problem - it's short sighted and in 20 years time we'll be scratching our heads wondering why the government of the day did this. Besides which there are plenty more places which could have been looked at for savings before loading on more tax.

If people make ongoing behavioural changes over a short-term limited 0.6% levy, then they weren't really committed to their previous behaviour and will switch their behaviour again quite readily.

It still makes sense long-term to invest in pensions despite the levy. It makes much more sense short-term and long-term to pressurise pension funds into lowering charges to international norms.

The country is so broke that savings are not enough, we need to tax more.

SeanW

its panic saving

Are you sure its actual savings, rather than people simply saving their income to pay off debt? Irish people have a lot of debt.

The interest after tax will still be higher than if you did move it, so why would the average depositor move the funds.

No, but since much of the benefit is gone, they would not deposit as much, leaving the banks with even junkier books.

I dont believe it is punishment to for depositors in Holland and Ireland to end up with the same net interest.

The market has decided (via banks needing cash) that they should have a higher rate. You have decided that they should not.

Any loss of deposits would be made up by the ECB at a lower rate, saving the taxpayer money.

Must ... refrain from swearing ... idiotic point ... ahh, that's better.

You do realise that the ECB has made more than a few noises about withdrawing from its emergency bank lending programmes, right? This is part of the reason the government spent so much money in bank recapitalisation.

No need for the tiger, that got us in enough trouble.

I'm fairly sure that's a regular house-cat. And even Kitty can tell that this is stupid. And if you want to know what "got us in enough trouble" it's your forget about savings mantra.

https://www.youtube.com/watch?v=d0nERTFo-Sk

Nijmegen

From a prudent perspective, people who save are doing the right thing. However, from a short term point of view they are harming the economy by not spending that cash.

It's a classic old conundrum.

I doubt there would be a flight of capital from ordinary people, as the economics of it up to and just below a 50% rate wouldn't make it worthwhile, considering interest rates in the EU.

I think it might encourage more spending and investment in the economy, which would be good.

I think it is terribly unfair - and isn't known as "DIRT" as a tax for just the acronym - but as a realistic way to raise a billion or so, it is a good option on the face of it and I'm sure the DoF is digging much deeper in to see if it would work for real.

hmmm

Godge wrote: »

If people make ongoing behavioural changes over a short-term limited 0.6% levy, then they weren't really committed to their previous behaviour and will switch their behaviour again quite readily.

As has been trashed out on other threads, the rate isn't important - what is important is the principle of arbitrary expropriation of citizens assets by a government.

Arbitrary taxation, which in the case of pensions goes against previous government policy, does not simply impact government income. It also impacts on the reputation of a country as place to do business, and can cause quite perverse impacts as citizens and companies take action to avoid any future potential recurrence. For example, the screwing over of property investors in the last budget means that any future attempts to stimulate areas of the economy through taxation measures will be less likely to succeed. It may lead to malinvestment in the economy as investors seek safety in assets which are outside government control but which provide a poor return, and avoid investing in "good" investments that provide value to society - pensions being an obvious example.

kdowling

if there was a huge flight of deposits from ordinary people could the government freeze bank accounts?

Nijmegen

kdowling wrote: »

if there was a huge flight of deposits from ordinary people could the government freeze bank accounts?

Yes.