Can we have no more threads about public sector pay

[Complainer]

Mortgage Interest Relief for Landlords was reduced at the last budget.

Orka has closed off the tax relief treatment.

Mortgage Interest Relief was reduced all right - to 75% of an unlimited sum for an unlimited duration, by stark contrast to the relief available to families for their own house. This is still a state subsidy to landlords at a time when we can't afford the basics. The relief needs to go.

Orka didn't 'close off' anything. Orka gave the usual ould 'we need investment' line which is conveniently forgotten when lecturing the public sector about the importance of free market competition and standing on your own feet. If these investments need state subsidies, this is a luxury we can't afford.

Do you mean that FF might not win the next election?

No - what is mean is that the current generation of public servants who have traditionally voted fairly heavily for FF will not be doing so for the foreseeable future. Irish voters have long memories. FF will not just find themselves in opposition - they will find themselves as the 3rd place party (if they are lucky). They have nothing to offer by way of ideaology or principles. The only thing they had to offer the electorate was power. Now they've lost their USP.

 

[DerKaiser]

All the same oul guff on this thread as on all the other - no alternative - cant afford it - no other option etc.

The Minister had plenty of other options - like cutting the €2bn tax relief on pensions, most of which goes to high earners, or cutting the €500m mortgage interest relief to landlords, or cutting any of the 100+ tax reliefs used by high earners to avoid tax (as detailed in the Commission on Taxation report. But instead, he hit social welfare and public servants, including those earning under €30k. This is not about sharing of pain or putting shoulders to the wheel. Big man, Brian.

Firstly I don't see where you're going with the "big man, Brian" quote, that just sounds like a bitter attack on a man whose hand are effectively tied in all of this.

Secondly, there is no concerted campaign by government to turn a blind eye to all kinds of pots of gold you seem to think are out there.

The pension tax relief cost is an estimate of taxation foregone. About €1bn of this is in respect of the fact that investment income on pension funds is not taxed i.e. if they were in a bank account there would be DIRT payable on the money. This cannot be cut as it is already invested in tax free funds.

Of the remainder, I'd suspect public servants would again be hardest hit as their average employee contributions to pension schemes would be higher than the general population, as would their tax free lump sums on retirement.

Quick example is that an average public servant on €50k pays about 12-13% as pension contribution with 41% tax relief. Scrapping this relief would therefore be tantamount to a 5% pay cut. Not exactly spreading the burden away from public servants is it?

As for the interest offset on investment properties, we've been through this. Taxing rental income rather than rental income after interest costs is unfair in that it's not based on the actual gain.

In any case there's a lot of ordinary people, many in the public service (seems to be a lot of guards for some reason), with investment properties and lots of negative equity who are a far cry from the fat untaxed landlords you envisage. If they have to pay full marginal tax on rental incomes whilst at the same time paying the mortgage repayments on a property they've already paid massive stamp duty on then something is going to give. I'd stick by the general rule that if someone had made a loss on an investment they should not be screwed by the taxation system.

 

[Sunny]

No - what is mean is that the current generation of public servants who have traditionally voted fairly heavily for FF will not be doing so for the foreseeable future. Irish voters have long memories. FF will not just find themselves in opposition - they will find themselves as the 3rd place party (if they are lucky).

See I knew the crisis was all the public sectors fault. They are responsible for FF being in power!!

If you are right and I am no FF supporter but then I think the budget actually reflects well on them that they made the cuts knowing that they were committing political suicide. Shows they learnt from last year.

FG have actually done well recently because they managed to keep Enda quiet. Their pre budget plans were well thought out. Labour have been abysmal starting with their pre budget proposals which was the usual waffle. Its a shame because I was beginning to think Eamonn Gilmore had something about him. As for Joan Burton, if she thinks making Tiger Wood jokes during her budget speech reflects well on her and her party, she is sadly mistaken.

 

[VOR]

Taxing rental income rather than rental income after interest costs is unfair in that it's not based on the actual gain.

Agreed. This has implications for all business. If we take it that an individual renting a property is undertaking a commercial venture then, under normal accounting rules, interest paid can be offset against earned income.

One can ask why let a retail/manufacturing business offset interest paid and not this type of commercial undertaking? And as you said, there is no actual gain to tax.

It could be a far deal fairer to tax the sale of the asset (if at a profit) as opposed to the income earned.

 

[Complainer]

Firstly I don't see where you're going with the "big man, Brian" quote, that just sounds like a bitter attack on a man whose hand are effectively tied in all of this.

This (admittedly bitter) quote relates to Brian's attack on the blind persons allowance and the disability allowance, while providing an extra subsidy to imported products (car scrappage) and continuing the existing subsidy to landlords.

Secondly, there is no concerted campaign by government to turn a blind eye to all kinds of pots of gold you seem to think are out there.

The pension tax relief cost is an estimate of taxation foregone. About €1bn of this is in respect of the fact that investment income on pension funds is not taxed i.e. if they were in a bank account there would be DIRT payable on the money. This cannot be cut as it is already invested in tax free funds.

Of the remainder, I'd suspect public servants would again be hardest hit as their average employee contributions to pension schemes would be higher than the general population, as would their tax free lump sums on retirement.

Quick example is that an average public servant on €50k pays about 12-13% as pension contribution with 41% tax relief. Scrapping this relief would therefore be tantamount to a 5% pay cut. Not exactly spreading the burden away from public servants is it?

1 billion could be saved by standard rating tax relief on pension contributions. You don't consider 1 billion per annum to be significant in the light of our current situation? Currently, over €8 out of every €10 of tax relief goes to taxpayers in the top one-fifth of the income distribution. I don't really care whether they are public or private sector - to leave this tax relief in place while attacking people with disabilities and those on social welfare is outrageous.

As for the interest offset on investment properties, we've been through this. Taxing rental income rather than rental income after interest costs is unfair in that it's not based on the actual gain.

In any case there's a lot of ordinary people, many in the public service (seems to be a lot of guards for some reason), with investment properties and lots of negative equity who are a far cry from the fat untaxed landlords you envisage. If they have to pay full marginal tax on rental incomes whilst at the same time paying the mortgage repayments on a property they've already paid massive stamp duty on then something is going to give. I'd stick by the general rule that if someone had made a loss on an investment they should not be screwed by the taxation system.

Agreed. This has implications for all business. If we take it that an individual renting a property is undertaking a commercial venture then, under normal accounting rules, interest paid can be offset against earned income.

One can ask why let a retail/manufacturing business offset interest paid and not this type of commercial undertaking? And as you said, there is no actual gain to tax.

It could be a far deal fairer to tax the sale of the asset (if at a profit) as opposed to the income earned.

All fine and dandy in theory, until you look at what actually happens on the ground. Look at the advice from this esteemed expert. The interest being paid on the mortgage is not a legitimate business expense. It is a financial device used to maximise tax relief - the interest is maximised on the investment property while other loans are paid off. This subsidy used by investors had a huge inflationery effect, and pushed prices out of reach of many ordinary couples trying to put a roof over their heads. And Brian has ensured that this subsidy continues, which he cuts back on the blind persons allowance.

Brian's hands were not tied. He had many other options, and he chose the soft targets.

 

[z107]

Brian's hands were not tied. He had many other options, and he chose the soft targets.

Soft targets? Are you joking?
You mean the most represented group the country, who will now no doubt be going on strike?

The real soft targets are not the well represented public sector, but people like SMEs, and micro-enterprises who can't afford IBEC or ISME membership. You know that these are soft targets because they've always been hit in the past. They weren't hit this time because there's nothing left to take from them.

 

[Complainer]

Soft targets? Are you joking?
You mean the most represented group the country, who will now no doubt be going on strike?

The real soft targets are not the well represented public sector, but people like SMEs, and micro-enterprises who can't afford IBEC or ISME membership. You know that these are soft targets because they've always been hit in the past. They weren't hit this time because there's nothing left to take from them.

Who represented blind people in the talks? Who represented disabled people in the talks? And given that the 'most represented group' is the only group that has been hit with two across-the-board cuts within 12 months, I'm not sure that the value of representation os so obvious.

Interesting to note that you ignored the €1.5 billion left on the table in the property and pensions area - €1.5 billion is considered 'nothing left to take' while swiping the last few coins from the pockets of blind people and disabled people.

 

[sandrat]

This budget is leaving me with 50 euro less a week take home but i'd rather it was 60 euro if it meant that blind and disabled people could keep the current rate. I agree that pensions should have been changed to marginal rate like the medical expenses were. There was no huge hit for the higher paid whereas when you are on social welfare due to blindness or a disability you cannot work to improve your income and cutting it like this is harsh.

 

[z107]

Who represented blind people in the talks? Who represented disabled people in the talks? And given that the 'most represented group' is the only group that has been hit with two across-the-board cuts within 12 months, I'm not sure that the value of representation os so obvious.

Sorry. I misread your post, I thought you were implying that public sector were the soft targets.

Interesting to note that you ignored the €1.5 billion left on the table in the property and pensions area - €1.5 billion is considered 'nothing left to take' while swiping the last few coins from the pockets of blind people and disabled people.

I'm sure they'll eventually give this €1.5billion to the banks over the next couple of years as well. It won't impact me anyway.

 

[Complainer]

Sorry. I misread your post, I thought you were implying that public sector were the soft targets.

I was referring to all of the above.

I'm sure they'll eventually give this €1.5billion to the banks over the next couple of years as well. It won't impact me anyway.

Here's a mad suggestion - don't just get concerned about the things that impact you. Try getting concerned about things that impact others unfairly.

 

[Purple]

Interesting to note that you ignored the €1.5 billion left on the table in the property and pensions area - €1.5 billion is considered 'nothing left to take' while swiping the last few coins from the pockets of blind people and disabled people.

It has already been explained to you that your proposal on pensions is naive and unworkable since people would just not put the money in if the tax-deferral was not there.

The same for property; taxes are levelled on profits, not turn-over. The problem with the investment sector is that banks gave out mortgages designed for PPR's on commercial loans. The term on an investment loan should be shorter than that on a mortgage for a home that the owner will live in and the interest rate should be higher since the risk to the bank is greater.

 

[Purple]

Here's a mad suggestion - don't just get concerned about the things that impact you. Try getting concerned about things that impact others unfairly.

Good advice, I agree. That's why I was so against Benchmarking.

 

[DerKaiser]

1 billion could be saved by standard rating tax relief on pension contributions. Currently, over €8 out of every €10 of tax relief goes to taxpayers in the top one-fifth of the income distribution.

Could you give us a source for this? I just wonder if the figures you quote are:
a) Reflective of the fact that pensions contributions are down significantly over the last couple of years
b) Reflective of the pensions levy introduced in last year's budget?

All fine and dandy in theory, until you look at what actually happens on the ground. Look at the advice from this esteemed expert. The interest being paid on the mortgage is not a legitimate business expense. It is a financial device used to maximise tax relief

No complainer, it's not a device, it's actually real money.

The reality on the ground is that you have people who paid tens of thousands in stamp duties up front and are now having to cough up money to subsidise their loss making investments because their interest and capital repayment costs are far higher than any rent they might earn.

But the fairest thing to do is take half of their revenues in tax and let them shoulder 100% of their costs?

 

[Complainer]

Could you give us a source for this? I just wonder if the figures you quote are:
a) Reflective of the fact that pensions contributions are down significantly over the last couple of years
b) Reflective of the pensions levy introduced in last year's budget?

Source is here: [broken link removed]

The pensions levy has no relevance here because it has nothing to do with pensions. It was just a device to cut salary without calling it a salary cut. But yes, it was considered in the report.

No complainer, it's not a device, it's actually real money.

The reality on the ground is that you have people who paid tens of thousands in stamp duties up front and are now having to cough up money to subsidise their loss making investments because their interest and capital repayment costs are far higher than any rent they might earn.

But the fairest thing to do is take half of their revenues in tax and let them shoulder 100% of their costs?

And perhaps you could give your source for your claim of tens of thousands of loss making investments. Are you forgettting about the many landlords who bought their properties before prices peaked and are doing quite nicely thank you?

 

[DerKaiser]

Source is here: [broken link removed]

The pensions levy has no relevance here because it has nothing to do with pensions. It was just a device to cut salary without calling it a salary cut. But yes, it was considered in the report.

Thanks for the link.

I checked out the original publication. The information is a bit dated so I'm not sure the €1bn would be very accurate. In any case it does not consider the future tax revenues lost or, more importantly, increased dependency on medical cards, etc. But then again, how could it? In 50 years time we may have even more means testing of benefits.

The one thing that is sure is that we can certainly reduce the reliefs that are availed of by higher income earners, and it would save money now. It's a step that needs to be seriously considered, however, in the context of giving people incentives to engage in socially desirable behaviour i.e. working harder now to provide for themselves in retirement.

I see the levy was considered. I don't think it would automatically be exempted from standardisation of relief on pension contributions without specific action. There is also the issue of employer contributions being potentially considered as benefit in kind for taxation purposes. From a legal and fair point of view, we must be consistent in our application of taxation changes i.e. the taxation system should not discriminate against those trying to fund retirement from their own income versus those whose employers provide them with retirement benefits.

And perhaps you could give your source for your claim of tens of thousands of loss making investments. Are you forgettting about the many landlords who bought their properties before prices peaked and are doing quite nicely thank you?

I don't think i need a source to say that there are many people who've paid tens of thousands in stamp duty who've lost money on their investments.

I'm not quoting any numbers here just the observation that many of these people exist. It's never justifiable to impose unfair taxes, but in practical terms at the moment it would be an even less sensible course of action given the amount of ordinary people who have bought investment properties in recent years.

I'm not forgetting about people who are making a gain. They currently pay tax on their actual monetary gains through the normal channels. Any excess of income over expenses is taxed at marginal rates and capital gains on sale are also taxed

 

[Complainer]

Thanks for the link.

I checked out the original publication. The information is a bit dated so I'm not sure the €1bn would be very accurate. In any case it does not consider the future tax revenues lost or, more importantly, increased dependency on medical cards, etc. But then again, how could it? In 50 years time we may have even more means testing of benefits.

The one thing that is sure is that we can certainly reduce the reliefs that are availed of by higher income earners, and it would save money now. It's a step that needs to be seriously considered, however, in the context of giving people incentives to engage in socially desirable behaviour i.e. working harder now to provide for themselves in retirement.

I see the levy was considered. I don't think it would automatically be exempted from standardisation of relief on pension contributions without specific action. There is also the issue of employer contributions being potentially considered as benefit in kind for taxation purposes. From a legal and fair point of view, we must be consistent in our application of taxation changes i.e. the taxation system should not discriminate against those trying to fund retirement from their own income versus those whose employers provide them with retirement benefits.

Strange how when it came to public sector cuts, or blind persons allowance cuts, or disablity allowance cuts, there was no huge clamour to investigate the downstream impacts of these cuts. But when it comes to pension relief (largely used by high earners), the downstream impact is suddenly so important as to delay proceeding. Some double-standards going on here, I think.

But regardless, if the €1bn is not accurate, what's your best bet ? €800m? Maybe just €500m? How much money do you reckon Brian has left on the table here?

I don't think i need a source to say that there are many people who've paid tens of thousands in stamp duty who've lost money on their investments.

I'm not quoting any numbers here just the observation that many of these people exist. It's never justifiable to impose unfair taxes, but in practical terms at the moment it would be an even less sensible course of action given the amount of ordinary people who have bought investment properties in recent years.

I'm not forgetting about people who are making a gain. They currently pay tax on their actual monetary gains through the normal channels. Any excess of income over expenses is taxed at marginal rates and capital gains on sale are also taxed

Sorry, I thought you had said that there were tens of thousands of investors in loss-making situations. My error. I'm sure there are some property investors in loss-making situations, just as there are many other investors and ordinary home-owners in loss-making situations. So maybe there should be some phasing out of this relief over 2-3 years.

But once again, it is simply untrue to say that the expenses claimed are "legitimate expenses". Any accountant with a grain of sense will advise their property investor clients to maximise the interest on their property investments for tax relief purposes. These are not real costs - just an atrifical device. The real costs are much lower, and decline steadily over time.

 

[Purple]

But once again, it is simply untrue to say that the expenses claimed are "legitimate expenses". Any accountant with a grain of sense will advise their property investor clients to maximise the interest on their property investments for tax relief purposes.

So accountanta have been advising people to buy expensive loans in order to minimise their profit so that they pay less tax... are there any accountants out there like to explain that one?

 

[Bronte]

. Are you forgettting about the many landlords who bought their properties before prices peaked and are doing quite nicely thank you?

Sorry, I do believe property has nearly halved in value? What have you got against landlords, it's just a normal business like any other? Do you not like to see anyone suceed or just landlords?

You have implied that landlords don't have real costs only make believe artificial devices to avoid tax, do you have any idea of the cost of buying, maintaining and running an investment property? There's hefty stamp duty on purchase, income tax on profit and capital gains on sale, what more taxes do you think should be paid. If you can't write off the interest, a legitimate business expense, the business would not be viable.

 

[DerKaiser]

But regardless, if the €1bn is not accurate, what's your best bet ? €800m? Maybe just €500m? How much money do you reckon Brian has left on the table here?

I actually think that more than €1bn would be raised due to the recent introduction of the public service pension levy

 

[Complainer]

I actually think that more than €1bn would be raised due to the recent introduction of the public service pension levy

Bring it on....(though we really have to do something about the damned levy!)

Sorry, I do believe property has nearly halved in value? What have you got against landlords, it's just a normal business like any other? Do you not like to see anyone suceed or just landlords?

I love to see people succeed, provided that they pay a fair share of tax on their gains. Landlords are a long way from paying their fair share. Yes indeed, some property property prices have come close to halving, but this comes after the prices have tripled over the preceeding ten years. Some landlords are in loss-making situations, but many are still making very good money.

You have implied that landlords don't have real costs only make believe artificial devices to avoid tax, do you have any idea of the cost of buying, maintaining and running an investment property? There's hefty stamp duty on purchase, income tax on profit and capital gains on sale, what more taxes do you think should be paid. If you can't write off the interest, a legitimate business expense, the business would not be viable.

I didn't say that landlords 'don't have real costs'. What I did say was that the standard accountant's advice to landlords to maximise their borrowings on their rental property and invest elsewhere rather than paying off their loan is indeed an artificial devise, not a legitimate business expense.

And don't get me started on CGT - the 20% rate fuelled our property bubble, and encouraged investment in non-productive property assets over productive businesses. But that's a thread for another day.