Housing in Ireland: A broken system.

[clinteastwood]

Of course average earnings in 1994, 30 years ago now were 18000 euros now they are 45000 , I doubt anyone was paying the high rate of tax on 18,000 in 1994 but they are paying the high rate at 40000 now raised to 42000 in last budget. 40,000 in 1994 is equivalent to over 100000 euros in today's money. You were not comparing like with like in that table. That would be like a statistic that varadker would pull out to try and suggest misinformation

Hi Joe.
There's no need to doubt check out the table in post #110, with the tax rates? You can google it easy to find the table.
Anyone with income over 10k IR,which is 12700E in 1994 paid 48% and PRSI of 7.75%

18k salary was a very good wage in 1994, in the top 20% or so

When Varadker was in short pants I for one was paying 48% on crap wages. In 1980 there were PAYE protests as the top rate was an unbelievable 65%.

The issue is the amount of capital wealth by a generally older population is skewing the market for 1st time buyers.

I bought a 3bed semi, 120msq front and back garden in South Dublin for 59950 in 1994.No chance that would happen today


PAYE have always got shafted, forget about politicians promising differently, the public service and vested interests call the shots.

 

[joe sod]

Hi Joe.
There's no need to doubt check out the table in post #110, with the tax rates? You can google it easy to find the table.
Anyone with income over 10k IR,which is 12700E in 1994 paid 48% and PRSI of 7.75%

18k salary was a very good wage in 1994, in the top 20% or so

Fair enough, Clint, yes people were paying the high rate of tax at relatively low incomes back in 1994, I didn't realise it was that low. I was responding to the other poster putting an extremely misleading table and using 40,000 as the benchmark with no account for inflation saying that the effective tax rates were falling since 1994 based on 40000 euro . I think the socialist parties put out stuff like that in order to justify more taxation.

Everyone can cherry pick statistics to back up their own particular view point. The government is not short of tax revenue because of the corporation tax bonanza. They are distorting the housing market because this money allows them go into the market and buy up or rent the limited stock. Another factor is that they are also distorting the jobs market because the relatively high welfare rates and plethora of schemes acts as a disincentive to work thereby reducing productivity in the domestic economy, reducing housing output etc . The productivity in the real economy is camouflaged by the huge productivity of the multinationals which is not Irish related but is more to do with where multinationals declare profit for their worldwide operations.
I'm in Spain on holiday at moment I noticed at night time the streets are all powerwashed at night, last night I saw a young woman doing it. So obviously the Spanish system incentives this woman to do this work which doesn't exist in Ireland. Obviously the Spanish welfare system is not as good as Ireland, therefore this woman is incentivised to do this by relatively high pay for working anti social hours. You wouldn't get workers in Ireland for that work, why is that?
Obviously the combination of high taxation and high welfare are stopping workers from doing this work

 

[Premos]

We are at what is consider full employment. We don't need to create new jobs like that. We can't recruit for the jobs that exist. Unemployment rate in Spain is at nearly 12 per cent.

 

[clinteastwood]

Since Franco days , Spain has had very high levels of unemployment, especially in the south.

Joe I get your point, thans

 

[The Horseman]

Fair enough, Clint, yes people were paying the high rate of tax at relatively low incomes back in 1994, I didn't realise it was that low. I was responding to the other poster putting an extremely misleading table and using 40,000 as the benchmark with no account for inflation saying that the effective tax rates were falling since 1994 based on 40000 euro . I think the socialist parties put out stuff like that in order to justify more taxation.

Everyone can cherry pick statistics to back up their own particular view point. The government is not short of tax revenue because of the corporation tax bonanza. They are distorting the housing market because this money allows them go into the market and buy up or rent the limited stock. Another factor is that they are also distorting the jobs market because the relatively high welfare rates and plethora of schemes acts as a disincentive to work thereby reducing productivity in the domestic economy, reducing housing output etc . The productivity in the real economy is camouflaged by the huge productivity of the multinationals which is not Irish related but is more to do with where multinationals declare profit for their worldwide operations.
I'm in Spain on holiday at moment I noticed at night time the streets are all powerwashed at night, last night I saw a young woman doing it. So obviously the Spanish system incentives this woman to do this work which doesn't exist in Ireland. Obviously the Spanish welfare system is not as good as Ireland, therefore this woman is incentivised to do this by relatively high pay for working anti social hours. You wouldn't get workers in Ireland for that work, why is that?
Obviously the combination of high taxation and high welfare are stopping workers from doing this work

I completely agree our welfare system is a disincentive to work for some. I don't accept that there should be intergenerational welfare receiptents or intergenerational social housing.

By the above logic it suggests welfare is too generous otherwise receiptents would better themselves than remain on welfare.

 

[joe sod]

We are at what is consider full employment. We don't need to create new jobs like that. We can't recruit for the jobs that exist. Unemployment rate in Spain is at nearly 12 per cent.

that's true, but I think a lot of jobs are bureaucratic, so many people are employed but employed in jobs that don't really add much value, there is an awful lot of bureaucracy associated with all the regulations the government has brought in for years, most of it is of questionable value. I would say there was a lot less bureaucracy 30 years ago, simply because the country couldn't afford it then. Now it can afford it but is it adding any real value ? The famous joke about all the people employed in the bureaucracy of digging a hole, but only one guy actually digging the hole, maybe 30 years ago we could only employ the guy to dig the hole, now we can employ a lot more people for that same job.

 

[Sophrosyne]

Would it be best to back-annotte todays 40k salary to what it would have been in 1994.....only very very well paid professions would have earned 40k in 1994 - hence the effective rate is skewed. I would guess it was ~12k from memory, if you could buy a 3 bed house in 1995 in Dublin for 59k..

The average weekly industrial wage in 1994 was 336.64 – 17,505 per annum.

If in the table in #110, 17,505 were substituted for 40,000 in 1994, that would produce an effective rate of 31.08%.

Were the CPI Inflation Calculator used instead, 40,000 would be worth roughly 21,500 in 1994.

Were that substituted, the effective rate would have been 53.44%.

I think the average industrial wage is a better indicator as pay can lag behind inflation

It ought to be self-evident that even were inflation applied, the rates but more importantly, the narrowness of the standard rate band - 8,200 in 1994 compared to 42,000 today for a single person - the burden of taxation was much higher in 1994.

 

[joe sod]

@Sophrosyne I accept your point that we were paying higher effective tax in 1994 compared to now, it's not easy to find out what the tax bands were in 1994 so I accept your figures because you must have access to this data which I don't.
However it was a different world in 1994, we had genuinely high unemployment rates, we didn't have a welfare state and welfare was a lot lower compared to average earnings than it is today.
Lots of things have happened since then , the ff government late 90s reduced personal tax rates got the economy firing and set the stage for the Celtic tiger etc.
But we also had benchmarking where the public sector got large pay rises , large social welfare increases etc. Therefore relative to private sector workers they have a much better deal whereas in 1994 there wasn't the huge differences.
Internationally ireland pays the higher rate if tax at lower incomes than our international compatriots, that is the more fair and apt comparison ,young people can leave and work in uk Australia etc and benefit from those systems and they are, they can't up sticks and travel back to 1994.

 

[Premos]

Ireland was so great 30 years ago. Now we are told there was no emigration in the early 1990s

 

[clinteastwood]

Joe

In the '90s and 80's - from memory, the shafting of PAYE workers compared to international esp England and US was worse. Rem, Britain had over 18 yrs (1979-1997) of a low tax setup from Thatcher and then Major. US had the Regan years of low taxes. The State was broke, highly indebted so taxes were very high for very modest wages.. We were the Albania of the EU.

Wages were much higher abroad , we were poor and Britain was awash with the loadz money yuppie culture of the City of london, sydney was booming, new york booming and loads immigrated to US illegally. Anyone who had a trade or a degree was heading abroad - simply because there was zero opportunity - it didnt matter about the price of housing / rent .

When I worked in england in the mid '90s , I was stuck by how wide the 20p in the £ level was....in effect we were really keeping most of our wage wheras the 55% over 10 grand was a real kick in the nads here - imagine doing overtime when you would get only 45p in the £ here.
Meanwhile the rate was something like 20p in the £ up to something like 30,000£ in England - an absolute fortune for us.

We paddies were delighted, with that and the free NHS system to boot, we all had our teeth fixed while we were living over there. The one drawback was rents were high over - a sympton that would come to haunt here -we all doubled up in our houses to keep the rent / person as low as possible.

The Achilles heel of today is we're wasting opportunities provided by the golden goose corporation tax (24 billion) that previous generations could only dream about.....irish wages are high internationally, quality of life is good, high quality of jobs , except we are beholden to the corrupt construction industry and this will be the downfall - the price of houses and rents are outrageous and totally out of kilter since capital wealth has increased at a much faster pace than take home pay....so someone on a fantastic wage of 100,000 cant even afford a house in a reasonable distance to their place of work!

 

[T McGibney]

You were going well until this bit.

except we are beholden to the corrupt construction industry

It was the State's actions to prevent a resurgence of residential construction after the 2008 economic collapse that created what is now a permanent housing crisis.

Blaming the construction industry for the resulting dysfunction is like blaming restaurants for the rash of closures in their sector since the new year.

 

[clinteastwood]

You were going well until this bit.

It was the State's actions to prevent a resurgence of residential construction after the 2008 economic collapse that created what is now a permanent housing crisis.

Blaming the construction industry for the resulting dysfunction is like blaming restaurants for the rash of closures in their sector since the new year.

If Banks were bust, state in IMF - all due to cosy cartel of construction / banking / public administration .

What course of action should have been taken to fund new housing ...thanks.?

 

[T McGibney]

If Banks were bust, state in IMF - all due to cosy cartel of construction / banking / public administration .

What course of action should have been taken to fund new housing ...thanks.?

The banks were no longer bust by 2015.
There was no construction cartel at that stage either.

The country was awash with money available for investment. Practically none of that went into new housing or renovation of derelict housing because the State had since 2009 created a whole raft of regulations to block new investment in housing.

It's beyond obvious those should have been repealed.

The housing disaster will continue until they are repealed.

 

[Sophrosyne]

@Sophrosyne I accept your point that we were paying higher effective tax in 1994 compared to now, it's not easy to find out what the tax bands were in 1994 so I accept your figures because you must have access to this data which I don't.

@joe sod see this link FA 1994.
Tax rates are in section 2.

 

[clinteastwood]

The banks were no longer bust by 2015.
There was no construction cartel at that stage either.

The country was awash with money available for investment. Practically none of that went into new housing or renovation of derelict housing because the State had since 2009 created a whole raft of regulations to block new investment in housing.

It's beyond obvious those should have been repealed.

The housing disaster will continue until they are repealed.

Agree except for one point. The construction industry, planning and murky world of local authority politics was and is corrupted by vested interests.
It's a disaster for sure

 

[T McGibney]

Agree except for one point. The construction industry, planning and murky world of local authority politics was and is corrupted by vested interests.

Is it your argument that a corrupt construction industry has conspired to prevent itself from building houses and apartments for all of the last 15 years?

If not, what is your argument, as I'm baffled?

 

[Purple]

It is the effective rate that matters.

No, it is the marginal tax rate that matters. It acts as an incentive or disincentive for additional labour, for up-skilling to increase labour value etc. I started work in 1990. By the time I was a third year apprentice I was on the higher rate of tax. That's mainly because I was working over 60 hours a week and so getting well over 80 pay hours a week. By October I hit my PRSI Ceiling and stopped paying PRSI. A few years later the PD's 9God bless them) in coalition with FF had reduced the higher marginal tax rate to 41%. As far as I remember that's 41% with no USC and no PRSI. Now that was an incentive to work. At 23 I bought my first apartment near Christchurch in Dublin for £56k. With Monetary Union and the resulting big reduction in interest rates coming a year or so later I thought that property prices would increase significantly.
Now it's against the law to work more than 48 hours a week, the State takes an additional 20% of marginal incomes and property prices are at least twice as high relative to pre-tax incomes. That's not a recipe for an egalitarian society built on the principle of equality of opportunity.

 

[Sophrosyne]

However it was a different world in 1994, we had genuinely high unemployment rates, we didn't have a welfare state and welfare was a lot lower compared to average earnings than it is today.
Lots of things have happened since then , the ff government late 90s reduced personal tax rates got the economy firing and set the stage for the Celtic tiger etc.
But we also had benchmarking where the public sector got large pay rises , large social welfare increases etc. Therefore relative to private sector workers they have a much better deal whereas in 1994 there wasn't the huge differences.
Internationally ireland pays the higher rate if tax at lower incomes than our international compatriots, that is the more fair and apt comparison ,young people can leave and work in uk Australia etc and benefit from those systems and they are, they can't up sticks and travel back to 1994.

I agree it was a different world in 1994.

The unemployment rate was 14.54%, which entailed high welfare costs to the exchequer.

The average house price in 1994 was IR£57,281.

The “Celtic Tiger” years were fuelled by property-based tax incentives in areas designated for urban renewal. At one point, there were 12 Urban Renewal schemes running concurrently all over the country. Millions of IR£ in tax reliefs were available for construction and site development costs.

Probably influenced by Thatcherism, thousands of people bought properties for eventual flipping with mortgages they couldn’t possibly afford based on a rising market.

All of this ended with the banking and subsequent economic collapse in 2008.

We have recovered, better than forecasted, perhaps mostly due to income & corporation tax receipts from our multinationals.

However, that was the past.

As @T McGibney has been at pains to point out, today’s problem is supply and what should be done one-by-one to eliminate, as far as possible, barriers to supply.

 

[Sophrosyne]

No, it is the marginal tax rate that matters. It acts as an incentive or disincentive for additional labour, for up-skilling to increase labour value etc. I started work in 1990. By the time I was a third year apprentice I was on the higher rate of tax. That's mainly because I was working over 60 hours a week and so getting well over 80 pay hours a week. By October I hit my PRSI Ceiling and stopped paying PRSI. A few years later the PD's 9God bless them) in coalition with FF had reduced the higher marginal tax rate to 41%. As far as I remember that's 41% with no USC and no PRSI. Now that was an incentive to work. At 23 I bought my first apartment near Christchurch in Dublin for £56k. With Monetary Union and the resulting big reduction in interest rates coming a year or so later I thought that property prices would increase significantly.
Now it's against the law to work more than 48 hours a week, the State takes an additional 20% of marginal incomes and property prices are at least twice as high relative to pre-tax incomes. That's not a recipe for an egalitarian society built on the principle of equality of opportunity.

We shall have to agree to differ on this.

The effective rate is the real amount of tax one pays on their income.

Take the example in post #127 above.

By increasing the income from 17,505 to 21,500, which is only 3,995 the effective rate is increased by 22.36% not just on the higher slice of taxable income, but on the entire taxable income.

 

[Purple]

We shall have to agree to differ on this.

The effective rate is the real amount of tax one pays on their income.

Take the example in post #127 above.

By increasing the income from 17,505 to 21,500, which is only 3,995 the effective rate is increased by 22.36% not just on the higher slice of taxable income, but on the entire taxable income.

It is the marginal tax rate that influences people's decision to work additional hours, strive for better skills that will increase their labour value, move to better paid but harder jobs etc. That's what matters. It's "How much will I be left with if I do X?". High marginal tax rates disincentives hard work.