BROKERS CALL ON MINISTER FOR FINANCE TO END DISCRIMINATION ON SAVINGS
Thu Oct 3 2019
Brokers Ireland today called on Minister for Finance, Paschal Donohoe, to remove discriminatory levies against prudent consumers in next week’s minimal Brexit budget.
Rachel McGovern, Director, Financial Services at the organisation which represents 1,250 Broker firms said the Minister should remove the 1pc life assurance levy and decrease the 41pc exit tax in line with the DIRT changes in next week’s Budget. The DIRT rate is currently 35pc and will drop to 33pc from January.
“If nothing else, the Minister should remove these discriminatory levies against prudent consumers and those who want to get away from bank deposits which pay little or nothing,” she said. “The State is prioritising short term savings over those that give better returns to the consumer over the longer term.”
Ms McGovern said such a move would actually expand the tax base long term by increasing investment returns. “A slightly lower tax rate will still yield more revenue long term for the Minister.”
She said it’s likely that policymakers spotted the booming investments markets from 2009 and calculated that the exit tax would yield bonanza tax in the years past 2017.
“This is likely why they’ve failed to reduce the tax in line with the DIRT regime, but it’s hugely unfair to long term savers and will deter them from taking appropriate risk reward decisions,” she said.
The Department of Finance published a comparison of DIRT and Life Assurance Exit Tax (LAET) in December 2018 arguing that deposits and investments are different products and not substitutable for one another.
“Nobody argued that they are different products but rather queried the rationale for applying a different tax regime. The way it is structured now it encourages people into short-term savings and away from long-term products.” Ms. McGovern said.
From 2010 to 2017, the annual yield on DIRT fell from €446m to €118m whilst the yield from exit tax increased from €31m to €184m over the same period.
“The issue may be that exit tax is an easy tax for Government because it’s a silent one, removed from the gain of policies and paid over to Revenue without touching the hands of consumers. But that doesn’t make it right, it is every bit as unjust as the pension levy,” she said.
“The link should be retained on the basis that it facilitates consumers in terms of choice, diversification and optimum outcomes, principles that underpin sound financial planning.”
She added “it’s incumbent upon the life assurance industry and all experts in financial services to highlight this egregious policy.”