Brendan Burgess of AskAboutMoney.com wrote an interesting ‘tax payer’ oriented budget submission, you can make up your own mind on it, details are below.
Mr Paschal Donohue
Minister for Finance
By email firstname.lastname@example.org
2018 Pre-budget submission on behalf of the Irish taxpayer
11th September 2017
Dear Mr Donohue
All the pre-Budget submissions you receive will be calling for increased expenditure. But there is no one representing the unfortunate taxpayer who will foot the bill for this expenditure. There is no one arguing the very obvious point that we are spending well beyond our means. So I have taken it upon myself to make a submission on behalf of the Irish taxpayer.
• With a national debt of €200 billion, there is a clear and present danger to the economy – so tax cuts in 2018 or 2019 would be irresponsible.
• You are making the same mistakes which Fianna Fáil were vilified for making during the Celtic Tiger budgets – increasing permanent spending based on temporarily high tax receipts.
• Social welfare payments are far higher than in Northern Ireland the rest of the EU. These must be cut significantly.
• A person who has worked and paid tax all their life should have a higher Old Age Pension than someone who has drawn the dole all their life.
• Low and middle paid workers must be given priority for social and affordable housing. Those who are not working should be relocated to wherever in the country social housing is available or wherever it can be built quickly and cheaply.
• First time buyers should be allowed to borrow money from their pension fund to fund the deposit and purchase of their home.
• The public service defined benefit scheme should be replaced by a generous defined contribution scheme – the state should match the employee’s contribution up to a maximum of 10%.
• People should be encouraged to pay for their own private healthcare through a restoration of full tax relief on health insurance premiums.
• Reliefs and exemptions for Capital Gains Tax and Capital Acquisition Tax should be severely curtailed. In particular, the exemption from Capital Gains Tax on death should be abolished.
• Our economy is roaring ahead.
• Our exports are booming.
• We have high employment
• We have temporarily high Corporation Tax receipts which will fall.
• We have temporarily low interest rates which will rise.
Despite all this, we are borrowing even more money to live even further beyond our means. This is totally irresponsible and unsustainable.
The economy is very vulnerable
• If just one of the small number of multinationals responsible for our artificially high Corporation Tax levels leaves Ireland, we will have a huge drop in Corporation Tax receipts. There will also be a drop in taxes on employment as a result of the lost jobs.
• If we are forced to change our Corporation Tax rules to make them fair to the international community, there will be a huge drop in government revenues.
• The top 6% of earners pay 49% of all Income Tax and USC. When the next downturn hits, their incomes will fall, and consequently the tax take will fall sharply.
• When interest rates rise, a much bigger proportion of our taxes will have to go to paying interest on our €200 billion of national debt.
• Brexit will probably be devastating for us.
• Trump’s “Putting America First” economic policies will damage international trade generally which will have a disproportionate effect on Ireland.
• We have a growing population which will require us to allocate an ever growing proportion of government expenditure towards pensions and care for the elderly.
When the economy is booming as it is at present, we should not be further stimulating it by increasing government spending and cutting taxes. We should be cutting our expenditure, so that when the downturn comes, there will be room to increase expenditure to boost economic activity.
There is no room for cutting taxes in 2018 or 2019
This might sound strange coming from someone writing to you on behalf of the Irish taxpayer. But with €200 billion of national debt and with multiple large risks facing us, the priority has to be running a significant surplus and bringing down our national debt.
You are making the same mistakes that Fianna Fáil were vilified for making during the Celtic Tiger. Back then the tax receipts were artificially high due to the property boom. And Fianna Fáil based their budgets on the assumption that these high tax receipts would continue forever. Your budgetary position is artificially inflated by temporarily low interest rates and temporarily high Corporation Tax receipts but you are spending money as if these conditions will continue forever. They won’t.
Tax cuts now would be short-sighted and not in the interest of the taxpayer as taxpayers would just be saddled with much higher rates when the next crisis hits.
You must bring down the national debt significantly before we can discuss tax cuts.
You must significantly cut means-tested social welfare payments.
The current model is just not sustainable.
The rates of social welfare in the Republic are far higher than in Northern Ireland – some people on the dole in Dundalk gets twice what they would get up the road in Newry.
Is it any wonder that 20% of Irish people under 60 are dependent on social welfare? The average across Europe is 10%.
• If you pay high unemployment rates, you will get a lot of unemployment
• If you pay high sickness benefits, you will get a lot of sickness
You should put people on notice that you will bring in the following changes:
• The dole will be gradually reduced over the next 5 years to the same rates as paid in the UK, or at least to levels in line with the EU average.
• The dole will be abolished for those who have not made a certain minimum level of PRSI contributions. We currently have 19,600 unfilled vacancies. How come people can come from abroad and get a job within days of arriving here, yet many of our own buckos apparently can’t find jobs?
• Benefits relating to children will be limited to two children. If people want to have more children, they should pay for them themselves.
• The fathers of children will be compelled to contribute to the upkeep of their children and their accommodation needs.
• The means-tested OAP will be reduced to the levels being paid across Europe.
Cutting social welfare would be good for the recipients in the long run
The very high levels of dole and other welfare payments create a dependency culture. They create communities where children see welfare rather than working as the norm. You must break this cycle by sending out a strong message that those who work will be better off than those who depend on welfare.
Welfare recipients will be the hardest hit if the state goes bankrupt again
The current situation is so unsustainable that there is a real risk that the government will run out of money and will not be able to borrow. The big losers in such a scenario will be those depending on the state for social welfare. Their long term interests are best protected by cutting the €200 billion in national debt now.
Child benefit should be abolished
Spend the money saved directly on schools and children in those schools.
Workers should be encouraged to provide for their own pensions and periods of unemployment. Under the current system, a person who has worked hard and paid tax and PRSI all their life, gets the same OAP as someone who has never worked a day in their life. This is wrong. All PRSI should go into an account in the taxpayer’s name. A person’s pension and unemployment benefits would depend on how much they have in their fund. If they have nothing in their fund, they would get no dole. They would have to get a job. If they are retired and have nothing in the fund, they would get a non- contributory pension in line with that paid in other EU countries which would be a lot less than the current level.
Such a policy would have many beneficial side effects:
• It would always be in someone’s interest to work. While they are working, they are building up their retirement pot. While they are not working, they would be running it down.
• While unemployed, they would not be getting welfare payments. They would be getting their own money back.
• The public would appreciate the true cost of providing for their pensions which is a lot higher than the meagre 4% they are asked to contribute at present.
• Tax evaders would lose out. PAYE workers whose income is fully subject to taxation and PRSI would benefit most. People who hide their income would have smaller pensions as a result.
Low paid workers should be given priority for social and affordable housing over those in receipt of social welfare.
A responsible couple who wants to provide for themselves and their family, will hold off having children until they can afford them. If they can afford to buy a house it will probably be a long distance from where they were brought up and from where they work. But those on social welfare do the opposite. They have children because they will be given priority on the housing list. And the more children they have, the higher they go on the list.
How can it be fair that people who pay their own way have to put off having children until they can afford to buy a house, while those dependent on the state have children early so that they will be allocated a house at the taxpayers’ expense?
People who are working, especially in low paid jobs, should be given the first choice of social housing close to their work or their community. If people are not working, they should be allocated housing wherever in the country it is available and cheap. Finish out some of those ghost estates and you could solve the homeless problem and reduce the taxpayers’ hotel bills in a few months. People relying on the taxpayer to pay for their housing should get better housing than the taxpayer who pays for their own home.
Social housing should be recycled to those most in need
Under the current system, social housing is like winning the National Lottery. Once you get allocated a social house, you get it for life. And you can usually pass it on to your children.
People in social housing should be reassessed every 5 years.
• If they are not working, their house should be reassigned to someone who is working and they should be allocated housing wherever it is available.
• If they were allocated a three bedroom house because they were a family of 5 and now it’s one person living on their own, they should be moved to smaller accommodation and the house should be freed up for a working family. Alternatively if someone is living on her own in a three bed house, she should find someone else on the social housing list to share the house with her.
• When a tenant dies, the house should be allocated to the person highest on the housing list and not to their son just because he happens to be living there.
Allow people to take out a mortgage from their own pension fund to get on the housing ladder.
Allow people to borrow from their own pension fund to repay existing mortgages on their family homes.
People are finding it very hard to save up the deposit to buy a house. Why not let them borrow their own money from their own pension fund? Irish borrowers are paying 3.5% mortgage interest to the banks. Why don’t they pay this to their own pension fund instead?
This would have huge advantages
• More people could provide their own housing needs rather than relying on the state.
• It would make the mortgage lenders more secure as the Loan to Values would be lower.
• It would cut the cost of mortgages significantly. Instead of paying 3.5% to swell the profits of the lenders, they would be swelling the profits of their own pension fund.
• It would encourage young people in particular, to contribute to their pension funds as they would see them as a means of getting on the housing ladder.
This would have to be phased in over a few years so as not to disrupt the housing market. For example, it could be limited initially to first time buyers of new houses. It could also be limited to €300,000 or to half of the amount in the pension fund.
Bring back Mortgage Interest Supplement
We have the bizarre situation that if someone is in difficulty with their mortgage, they get no help from the government. But if they sell their home to a private landlord or fund, they will get Housing Assistance Payment to pay the rent to the landlord so that he can pay his mortgage.
If someone is genuinely struggling with their mortgage and their home is suited for their needs, pay the mortgage interest for them. It makes much more sense to pay 3% a year interest on a mortgage on a house worth €150,000 than paying €12,000 a year rent on their behalf to a private landlord. And if someone retains ownership of their home, they are much more motivated to get back on their feet.
Reintroducing Mortgage Interest Supplement would allow you to scrap the Mortgage to Rent Scheme which is just a scam on the taxpayer.
Pensions for the public sector and politicians
The gold plated Defined Benefit pension scheme for public servants should be replaced by a generous Defined Contribution scheme.
The state should be like any other generous employer – they should match the employee’s contribution up to a maximum of 10%.
This would have many advantages:
• It would increase mobility between the public and private sectors which would be good for both.
• It would make comparing private sector and public sector pay much easier and would make it much clearer whether public sector employees are paid more or less than private sector employees.
• We would have to face up to the true cost of public sector pay immediately instead of deferring the pension element to our children and grandchildren to pay.
Politicians, including you Minister, should have the same generous defined contribution scheme as proposed for public servants
It is crazy that you qualified for a ministerial pension after just two years in office. I don’t begrudge you a generous pension. But we should match what you contribute yourself, up to a maximum of 10%.
The state should not pay for nursing home care for those who can afford to do so themselves
If people have the assets and income to pay for their own nursing home care, then they should do so. The taxpayer should not pay a person’s nursing home care, to preserve their children’s inheritance.
Take a person with an income of €12,000 and €200,000 cash. They pay only €25,000 towards their nursing home care, whereas the taxpayer pays the other €35,000.
80% of income €10,000
7.5% of assets €15,000
Total paid by the person €25,000
If the cost of the nursing home is €60,000
The taxpayer will pay €35,000
Why should the taxpayer pay €35,000 on behalf of someone who has €200,000 cash sitting in the bank?
If their children pay their €25,000 contribution on behalf of the parent, they can get tax relief on it.
So the total cost to the taxpayer could be €47,000.
This is not a fair deal. This is screwing the taxpayer.
The Nursing Home Loan Scheme is limited to 22.5% of the value of a person’s home. There should be no limit. Any money lent by the state to a person to pay their nursing home fees should be fully recoverable from their estate.
Private hospitals and medical treatment should be encouraged and not penalised.
At present, a person who pays for private health insurance gets charged €800 a night for a stay in a public hospital bed, 10 times the rate charged for someone without health insurance. This scandalous charge should be scrapped immediately. You should encourage people to take out health insurance, not penalise them for doing so.
Full tax relief should be restored for private health insurance. If more people go to private hospitals, it will reduce the pressure on public hospitals.
Consultants should not be allowed to treat private patients in public hospitals. Every citizen should have a right to be treated in a public hospital, but they should not be allowed to be treated privately in a public hospital.
Bring down the cost of car insurance
The levels of personal injury awards should be brought down. Copy the UK’s Book of Quantum and translate it into euro.
If someone appeals the compensation awarded by the Injuries Board to the courts, then they should pay their own legal fees. This would get the costs of ambulance chasing solicitors out of the picture.
Stop imposing the costs of uninsured drivers on insured drivers. At present, those of us who pay our insurance pay an additional premium to cover the claims of uninsured drivers. Pay these claims from general taxation which would bring down the cost of motor insurance. This might encourage more people to take out insurance.
Abolish or drastically reduce all the reliefs on Capital Gains Tax and Capital Acquisitions Tax
We don’t have a wealth tax. Taxes on capital gains, gifts and inheritances are taxed at only 33% compared to a top rate of 55% tax on incomes.
And to make matters even more disjointed, there are huge exemptions from CGT and CAT.
• When a person dies, their liability to Capital Gains Tax dies with them
• When a person sells their family home, it is completely exempt from CGT even if it’s a mansion.
• When a person inherits or receives a gift of a business or a farm, they pay 3% CAT.
Remove the exemption from CGT on death.
Exempt the first €100,000 of gains on the family home, but not the full amount. Allow people to defer the CGT bill if they are buying another home, so that there is no disincentive to trade up or down.
Change the Agricultural Relief and Business Relief. A person inheriting a farm or other business should be charged the full 33% CAT, but they should be allowed to defer the payment until they sell the asset. If it stays in the family forever, then no CAT would be paid. But if they sell it, the CAT would be paid from the proceeds.
Minister, while we are still in control or our own destiny and while we still have choices, we should make these choices. If we don’t face up to the reality, we will have the Troika back making the choices for us.
On behalf of the Irish Taxpayer
Brendan Burgess is the founder of the consumer website Askaboutmoney.com