02.12.06
Taxman greedily eyes my nest egg, but is blind to the rich
I stole some money from my husband a few years ago and now the Revenue Commissioners are planning to steal it back. Exploiting my position as household administrator, some of his cash magically became mine. The proceeds of my budgetary management are now resting in an account in my name in the Irish Nationwide.Since I made my underhand investment, I have closely followed news reports of the building society’s much anticipated demutualisation. The latest calculations are that account holders can expect between €12,000 and €15,000 in a windfall. Given that my deposit is earning an interest rate that is downright embarrassing, this one-off bonus represents a significant part of my underground nest egg-building strategy.
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Technically, the windfall is a potential capital gain on which us windfallers will be obliged to pay 20% tax if the taxman comes looking for it.
The Revenue Commissioners were driven demented when First Active shareholders received payments of around €6,000 after Royal Bank of Scotland bought the company. They had to launch a big advertising campaign asking shareholders who normally paid all their tax via PAYE, and who were perhaps unaware of their obligations, to step forward voluntarily. Given the measly amount involved, you have to question the financial sense of the whole exercise.
Somebody at the Revenue Commissioners must have wondered about it as well, because they’re leaving nothing to chance this time. Under a new piece of legislation the Irish Nationwide is being forced to obtain and hand over the Personal Public Service numbers of all its shareholders. So the taxman won’t have to bother about spending millions on advertising to encourage the newly enriched Irish Nationwide customers to pay their capital gains. He’ll just do a simple mail merge to all shareholders and we’ll have to cough up.
Damn, that could work out at three grand. My one chance to make some proper money has been foiled by the state’s greed. Why do they covet my few quid when there’s much more money out there to get their hands on?
Rich people pay hardly any tax. In fact, the Revenue Commissioners have two offices. One is filled with mean inspectors who dream up ways to get paltry sums of money from the moderately middle class. The other is filled with sunny, generous people who dream up ways to enable millionaires to pay as little tax as possible.
The first crowd believe that non-compliant taxpayers deserve a special circle of hell in Dante’s Inferno. The second lot believe that if rich people don’t pay tax, they will invest their spare money and produce “growth” for the economy.
The Department of Finance published three reports last week, which showed that the state has lost, or mislaid, billions of euros in revenue. The beneficiaries are a relatively small group of high- income individuals who have profited from tax reliefs arising from government-promoted schemes. The key phrase there is “government-promoted”.
For example, the urban renewal scheme resulted in €1.43 billion in taxes forgone. Consultants said the scheme had “strong negative income distributional effects”. I’m not entirely sure what that means, but it sounds like some people got away with murder. The scheme is benefiting investors in property developments that would have been built anyway.
Urban renewal is just one of those schemes. There are dozens of others. Car parks, hotels, nursing homes, art purchases, boats; you name it. If it helped some rich bloke get his tax bill down, the Revenue Commissioners were only too eager to help.
Pensions have turned out to be the greatest tax haven of all. Joan Burton, the Labour TD, has pointed out that two individuals each accumulated a fund to be valued at retirement at €100m. Now that’s what I call a nest egg. Not content with this, 25% of the fund can be taken as a tax-free lump sum. That’s €25 million, tax-free, on retirement.
Worst of all, the report warns that “the major impact on the exchequer is yet to come”. It seems investment in these schemes “will give rise to claims for tax relief for a considerable future period”. This means that even if all these tax havens are abolished tomorrow, we’d still be looking at a bill of nearly €1 billion in taxes foregone.
But not to worry, Brian Cowen has a few trinkets for the lower orders. He has proposed that people who pay tax at 20% and those paying no tax at all can transfer €7,500 from their Special Savings Incentive Accounts into a pension, getting a €2,500 bonus from the government and avoiding the 23% tax that must be paid when the scheme comes to an end.
If you pay 42% tax, as half the people in the country do, you get nothing. So, €7,500 tax-free if you are really poor, nothing if you are half poor, and €25m if you are rich. The question is not whether our tax system is fair or not, it’s more a case of why don’t we build a guillotine on Merrion Square and settle down with our knitting.
I don’t know why Irish people, rich or poor, have such an aversion to paying tax. Perhaps it is a remnant of our colonial history when non- co-operation with the state was a patriotic act. Maybe it’s just in our DNA.
There’s no point in PAYE people whingeing about having no choice but to pay, because these are the same people you’ll hear bragging about getting deals with tradesmen for cash. The tradesmen mightn’t be paying income tax, but the PAYE person just avoided paying VAT.
So if we can avoid it, we will. The only difference between rich and poor is that the rich can employ professionals to help them do it and the government plays along.
Our national love affair with non-compliance was best summed up by Albert Reynolds. When he was running dance halls back in the 1950s, he was in dispute with an overenthusiastic tax inspector. After one meeting the inspector warned: “If people like me have to wait until people like you are on your deathbed, we’ll get our money,” he warned. To which Albert responded, “If I can have the use of the money until then, that’s fine with me.” Me, too.
Pete said,
February 13, 2006 at 10:54 am
Colbert, a 17th century French finance minister, said that the art of taxation consisted of plucking the goose to get the maximum of feathers with the minimum of hissing.
The lack of comments to this post (ie. hissing) suggests that the Irish government is pretty good at the art of taxation.
Gerry said,
February 13, 2006 at 12:22 pm
the silence might be beccause It’s a bit boring writing about the irish attitude to tax. this article appears to be; poor me, the tax man wants me to pay tax on some windfall that’s coming out of nowhere and it’s not fair because some rich guy somewhere probably isn’t paying much tax. and then goes on to complain about the Irish attitude to paying tax!
How about writing an article about how fantastic it is to live in a country where the conditions have been created for someone to pay so much to demutualise a building society and then deliver to me E15000 of which it is a privilege to pay E3000 back to help pay for the nurses I am always whingeing about the lack of? Honestly, it’s pathetic.
Sarah said,
February 13, 2006 at 12:33 pm
Well there’s an interesting thing there. The main point I wanted to make in the article was that it is completely outrageous that all those tax shelters have been created for what the independent consultants have observed was not for the benefit of the economy. e.g. the apartments would have been built anyway. It is unjust that they get away with literally paying NO tax. There should be an effective minimum tax rate and I won’t apologise for making that statement.
However, I also wanted to do other things (like knock the PAYE-ers who bitch about not having the opportunity to avoid tax but pay cash to tradesmen).
The thing about paying the CGT on the Nationwide was a device I thought would be good to use to illustrate how the Revenue genuinely operate on different levels. Make sure to wring small amounts from small payers while devoting considerable energy to creating internal tax havens for the rich. It is not equitable.I thought my point was that people would be happier to pay if they thought everyone was paying. But once they think that the rich get richer by legally not being obliged to cough up, then it encourages everyone else to cheat where they can. So I’ll pay if you pay.
Leon said,
February 13, 2006 at 12:56 pm
It just makes you sound like a bit of a whiner. Who pays tax if they can avoid it?
We aren’t Danes THANK GOD.