Increase in pension age will not proceed

[Purple]

It covers redundancies dozens of times over.

I'm just interested in your claim that:



Can you back it up?

For me the question is something like: "Assuming there was an investment strategy, do total PRSI contributions (employer and employee) cover, in actuarial terms, social benefits paid out over the long term?"

PRSI was a tiny bit under €10bn in 2019, which is not a well publicised figure.

Details here.

 

[AAAContributor]

So if I inherit a big house (that's where most wealth is in this country)

It's not though, is it. Yes, there are a few "big" houses, but the median house in Ireland is of a more modest value.

I agree with you that most wealth is property, in the aggregate, but this is shelter we are talking about - the roof over your head. How does the individual on good wages with 4 kids that you spoke about monetise their house to pay a wealth tax on it?

Thereafter I'll pay nothing on that wealth but will pay some tax on the income I get from it if I invest it but less than I'd pay if it was earned income.

I am not sure I fully understand what you mean by "if I invest it", but if you mean that you could rent it out, don't you have to reside there and use it as your main residence for a period of 6 years otherwise the dwelling house relief is clawed back? Even if you do rent it after 6 years, surely the equivalent amount of earned income is taxed less, no? If this person rents it out for €24k per annum (and it is their only income), they only have their personal tax credit to use against this income whereas someone earning the same amount through wages has a personal credit and PAYE credit and can make pension contributions on their wages thereby paying much less tax than the landlord. Also, this lucky recipient of property will have to live somewhere. They will have to pay tax on the rental income and so the net amount leftover will only allow them to rent a lesser place somewhere else.

Also, individuals availing of dwelling house relief are most likely in a dependent situation. They cannot have an interest in another property and this is a way for a disponer to make a provision for a dependent. Surely someone concerned at societal inequity like yourself would be generous here?

There have been instances of the dwelling house relief having been used as a tax planning tool and used aggressively but amendments have been brought in. If the dwelling house exemption was being abused and draining the country of tax revenues you can be sure it would be discontinued.

As for pensions, if there is such a quantum of wealth in them, then the government has levers to claw this back by reducing the pension fund threshold and means test future state pension entitlements against people's massive pension assets. There are no policies in place to do this - I wonder why? Could it be that the median private pension provision is actually quite modest?

in 2008, after reading about the subprime market in the USA I thought there would be a property crash so I sold up. So it was a combination of luck and a little bit of foresight but it was almost completely unearned. The €100k a year I pay in income taxes sort of balanced things out.

Balanced what out? You paid tax didn't you on your property gain when you sold? Weren't the rates of stamp duty in 1998 when you bought even higher than they are today? There was nothing to balance out. You paid your dues. Paying chunky income tax today is not balancing anything out unless you didn't declare the gains on the property to Revenue.

So, you have divested your investment property assets and your current source of wealth accumulation is through income and you now want property taxed more and less income tax to be paid?

It makes sense now.

 

[Purple]

How does the individual on good wages with 4 kids that you spoke about monetise their house to pay a wealth tax on it?

The person with the 4 kids probably has a mortgage and isn't in the high wealth group.

I am not sure I fully understand what you mean by "if I invest it", but if you mean that you could rent it out, don't you have to reside there and use it as your main residence for a period of 6 years otherwise the dwelling house relief is clawed back?

If I get an inheritance and sit on the money I'll just pay DIRT, if there is any due with low to negative interest rates. If I buy shares and make a profit I'll pay 33% CGT as opposed to a marginal tax rate of over 50%. If I invest in property I'll pay income tax on my income, and a proportion of my costs (which is crazy) and CGT on any capital gain. Still lower than the marginal income tax rate


.

As for pensions, if there is such a quantum of wealth in them, then the government has levers to claw this back by reducing the pension fund threshold and means test future state pension entitlements against people's massive pension assets. There are no policies in place to do this - I wonder why? Could it be that the median private pension provision is actually quite modest?

I'd say it has a lot to do with the fact that there would have to be an accurate valuation of DB pensions which would hit the people who run the departments and advise the ministers hardest. The Public Sector Unions would also exercise their veto over any such proposals.

So, you have divested your investment property assets and your current source of wealth accumulation is through income and you now want property taxed more and less income tax to be paid?

It makes sense now.

I think the tax band for the higher rate is way too low and the overall higher rate of all payroll taxes should be below 50% but no, I'm not advocating that I should pay a lower rate not as the country can't afford it. I'm pointing out that the State Pension age should be 68 because the current age and rate is unsustainable and an unfair burden on younger people. With the demographic changes we are facing the situation will get much worse. There has never been a better time to be retired and there probably never will be. With no real wage inflation for the last 20 years the split of wealth between labour and capital has become totally unbalanced. I own a house worth about a million Euro (with a big mortgage still on it) but I pay just under €100 a month in property tax. That's way too low. I can stuff money into my private pension because it's tax efficient and then draw a State pension I didn't pay for. That's wrong. I'd like to see a move towards taxing wealth retention rather than wealth creation.

 

[Purple]

PRSI was a tiny bit under €10bn in 2019, which is not a well publicised figure.

Just on that. My understanding is that's total social contributions and includes PRSI, USC and Pension Levies. I'm open to correction though. For the purposes of this discussion all contributions made by State employees need to be subtracted as they have their own unfunded pension liability.

 

[AAAContributor]

If I get an inheritance and sit on the money I'll just pay DIRT

No you won't. You'll pay a lot more. If you sit on the money, the government/monetary authority is actively pursuing policies to reduce the amount of goods and services that this wealth buys.

I'd like to see a move towards taxing wealth retention rather than wealth creation.

Governments everywhere pursue policies that target a level of inflation in order to discourage the wealth retention you speak of. This gets people spending and consuming. This spurs transactions and then those transactions are taxed.

If I buy shares and make a profit I'll pay 33% CGT as opposed to a marginal tax rate of over 50%

But you are buying the shares with money that is already taxed and you are the one taking risk to boot - it makes sense that the share due to the party that already got a slice and that does not take any risk gets less. Most taxpayers are not paying much tax at the marginal rate. Also - you need to look at the position after social transfers. Once this is taken into account the system is much fairer.

If I invest in property I'll pay income tax on my income, and a proportion of my costs (which is crazy) and CGT on any capital gain. Still lower than the marginal income tax rate

The money you invest in property is funded from after-tax income. It has already been taxed. If you borrow money to finance the investment you are taking a leveraged risk. It doesn't make any sense that tax rates in this situation would be as high as marginal rates.

I don't often agree with Michael Healy-Rae but he said in the Dail recently that "people think property lands at the feet of the landlord." This is what you are doing. You're assuming property (wealth) lands at the feet of the person. It hasn't - it has been through the tax sieve.

I'm pointing out that the State Pension age should be 68 because the current age and rate is unsustainable and an unfair burden on younger people. With the demographic changes we are facing the situation will get much worse. There has never been a better time to be retired and there probably never will be.

I agree. We are living longer and the system does need a redesign of course. I do not see free travel in my future and pension levels falling in real terms, even if the age was to be increased.

The Irish system is not perfect but it is not as unfair as you think it is. The house that you want to pay more tax on - what on earth makes you think that the proceeds will be used prudently to correct unfairness in the system and not get siphoned off to improve the perks and benefits of the public sector that you despair against.

I have hi-jacked the thread and gone off topic. My apologies.

 

[Purple]

On a side note The State pays pension for GP's working in the private sector; they get an average of €200,000 a year income from their GMS (Medical card) patients with a top up of 10% directly into their pension fund. The average payment per patient is €240 a year but their payment per patient for the over 70's medical card is €640. (That on an average working week of under 30 hours) With our demographic changes that will become very lucrative for them. Why on earth is the State paying this?
Hospital Consultants have a pension fund worth €3.7 million and retire at 63. Gardai have a fund with €1.8 million and retire at 60. Source.
Everyone should retire at 68.

 

[Purple]

No you won't. You'll pay a lot more. If you sit on the money, the government/monetary authority is actively pursuing policies to reduce the amount of goods and services that this wealth buys.

What policies?

Governments everywhere pursue policies that target a level of inflation in order to discourage the wealth retention you speak of. This gets people spending and consuming. This spurs transactions and then those transactions are taxed.

There's been no real inflation for a decade or more. That's at the heart of the problem.

But you are buying the shares with money that is already taxed

Not if it's an inheritance under the tax threshold.

The money you invest in property is funded from after-tax income.

see above.

The Irish system is not perfect but it is not as unfair as you think it is. The house that you want to pay more tax on - what on earth makes you think that the proceeds will be used prudently to correct unfairness in the system and not get siphoned off to improve the perks and benefits of the public sector that you despair against.

I don't want to pay any tax but I see the necessity of doing so.
Reform of the State sector is a different issue but the fact that the State wastes vast amounts of money doesn't justify an inequitable method of collecting that money from citizens.

 

[Purple]

I have hi-jacked the thread and gone off topic. My apologies.

You're in good company.

 

[NoRegretsCoyote]

Just on that. My understanding is that's total social contributions and includes PRSI, USC and Pension Levies.

Nope, that's just PRSI.

 

[AAAContributor]

There's been no real inflation for a decade or more. That's at the heart of the problem.

Really? Rents? Property prices? The things that actually matter? Sure, TVs and furniture might be a bit less. Great. Who do you think is stoking these increases? Government policy is. Negative equity and falling prices are no bueno as far as it is concerned.

Not if it's an inheritance under the tax threshold.

We're all getting rich buying assets from inheritances. Right.

Sinn Fein are brain-washing you!

 

[Purple]

Nope, that's just PRSI.

Yep, just found it. The employers contribution is the lion's share. Given that it funds far more than pensions, and that the combined liability is €231 billion for non-government schemes and €113 billion for State employees I can't see that €10 billion plus the half a billion they get from the PRD (formerly the pension levy) cutting it.

 

[Purple]

We're all getting rich buying assets from inheritances. Right.

Where did I say that? I'm saying that assets such as houses have increased in value far faster than the rate of wage inflation and the net result is a concentration of wealth in capital and away from labour. That suits me but it's not good for society.

Sinn Fein are brain-washing you!

I wouldn't vote for the child killers if my life depended on it (which it might if they got into power). They are morally and economically bankrupt but their brand of destructive populism is gaining appeal with a disenfranchised younger generation and unless we want bombers and murderers from a foreign country pulling the strings in the Dail we had better start thinking about the people on the Deliveroo Bikes who, unless things change, will never have a house and probably never have a pension or even a proper job and stop telling them they are snowflakes who have it easy.

 

[Purple]

Really? Rents? Property prices? The things that actually matter?

Yes, asset price inflation causes both of those things. The people who own those assets are seeing their incomes go up. That's the issue; capital items are appreciating faster than labour is inflating (in the whole developed world).

 

[AAAContributor]

capital items are appreciating faster

If we just take the 'capital item' of Irish property as an example, the market is dysfunctional but that can be solved by political will, not an outright wealth tax.

If the government gets its act together and releases the land it is sitting on in prime areas for housing and increases investment in apprenticeships in the construction trades, it is possible to get a handle on it. With the increase in supply you won't be long seeing prices levelling off and maybe falling in real terms.

I'm sympatico with you on a lot of what you say and your heart is in the right place but I don't concur that a statutory wealth tax is the solution.

I want to be in a million euro house, paying €100,000 tax a year at your age, like you. I want to build wealth for my family and harness that dynamic of capital appreciation that you speak of as a means to bettering my situation.

You are at a nice station in life and thinking along the lines of "something must be done" and "would someone think of the children" and can afford to pay a slice of what you have now while pulling the ladder up from the rest of us by making the journey to wealth accumulation longer and harder.

You say, but it will only be above a decent threshold that a tax will kick in. For a wealth tax to make any meaningful difference, it will have to kick in at a very low level. €1mill + is a waste of time.

We need to counter the Sinn Fein narrative for sure. But how on earth do you ever expect a Deliveroo biker to have a house or pension. This is a job to get you started on your way, gain a bit of work experience or to provide a flexible income. More power to anyone making a living this way. It will never be possible to achieve the milestones you speak of through this route.

 

[Purple]

If the government gets its act together and releases the land it is sitting on in prime areas for housing and increases investment in apprenticeships in the construction trades, it is possible to get a handle on it. With the increase in supply you won't be long seeing prices levelling off and maybe falling in real terms.

No it won't. The problems within the construction sector run much deeper than that. The small number of entities that control the stock of building land, the structure of the industry amd entire process of building a house, the rubbish standard of the apprenticeship training etc. Nothing that the government can do will change anything much in the next 5-8 years from a labour constraint perspective. If car manufacturing had evolved at the same speed as construction we'd still be driving Model T's.

I'm sympatico with you on a lot of what you say and your heart is in the right place but I don't concur that a statutory wealth tax is the solution.

I want to be in a million euro house, paying €100,000 tax a year at your age, like you. I want to build wealth for my family and harness that dynamic of capital appreciation that you speak of as a means to bettering my situation.

You are at a nice station in life and thinking along the lines of "something must be done" and "would someone think of the children" and can afford to pay a slice of what you have now while pulling the ladder up from the rest of us by making the journey to wealth accumulation longer and harder.

I don't want the government to raise the overall tax burden I just want a small shift away from taxing labour so much, you know, like every economist who looks at Ireland recommends, like the EU and Troika and IMF recommend. In the longer term I'd like to see significantly less tax collected after the State starts actually caring about it's citizens money and stops wasting so much of it.
I want to provide for my family and make sure my children don't want for things but I want them to grow up in a safe and stable socially progressive and liberal society. That won't happen as long as we continue to concentrate wealth in the hands of older people.

 

[NoRegretsCoyote]

Details here.

It shows unfunded social security benefits of €226 bn, but a lot of this will be means-tested pensions, so let's say €180bn for the state's contributory pension liability.

In 2019 PRSI was €9.8bn, and all contributory benefits excluding pensions such as illness benefit, unemployment, etc was €3.8bn. So there is €6bn being taken in every year that you could plausibly hypothecate for contributory pensions.

Using the standard multiple of 30 for an annuity we see that €180 bn would buy an annual income of €6bn. The inverse also applies. Voila, PRSI contributions would cover contributory state pension liabilities if it was run as a funded scheme!


Please don't bring public sector occupational pensions into it. This wasn't part of your original claim that PRSI doesn't cover the cost of pensions.

 

[Purple]

It shows unfunded social security benefits of €226 bn, but a lot of this will be means-tested pensions, so let's say €180bn for the state's contributory pension liability.

In 2019 PRSI was €9.8bn, and all contributory benefits excluding pensions such as illness benefit, unemployment, etc was €3.8bn. So there is €6bn being taken in every year that you could plausibly hypothecate for contributory pensions.

Using the standard multiple of 30 for an annuity we see that €180 bn would buy an annual income of €6bn. The inverse also applies. Voila, PRSI contributions would cover contributory state pension liabilities if it was run as a funded scheme!

Read this. Funding of pensions is based on what the cost will be when the pension is paid.
This points out that not increasing the pension age to 67 now will add a half a billion in costs to fund it and not increasing it to 68 in 2028 will add a further €1.5 billion per annum.

Please don't bring public sector occupational pensions into it. This wasn't part of your original claim that PRSI doesn't cover the cost of pensions.

So the PRSI that Public Servants pay shouldn't be factored in when looking at the funding of their own State pension, is that what you are saying? If their PRSI contributions go towards their own pensions (which I assume they assume is the case) then that total amount has to be removed from your €6 billion figure.
Your figure just about funds the State pension now, as long at you include a big chunk which is actually funding something else (Public Sector Pensions), but will be grossly inadequate in the near future as the proportion of the population which is retired increases.

So, the vast majority of people do not fund their own State Pension, they might, using your very dubious figures, pay just enough to fund the cost current State Pension provisions.

The solution is to increase the retirement age a bit and increase Social Insurance a bit or increase one of them significantly.

 

[AAAContributor]

I want to provide for my family and make sure my children don't want for things but I want them to grow up in a safe and stable socially progressive and liberal society. That won't happen as long as we continue to concentrate wealth in the hands of older people.

You are not a Shinner but I don't understand how you are still buying the narrative that there is fundamental unfairness and that we don't live in a "safe and stable society."

Ireland is a very good place to live (yes there are hard cases but we are talking in general here). The social safety net is a hell of a lot better than it is in somewhere like the United States and it is a credit to a relatively young country with no legacy of generational or colonial wealth. Socially-democratic Ireland is not the appropriate proving ground for a statutory wealth tax when anyone with a basic knowledge of the tax system already knows that wealth and transactions are plenty taxed. Yes there are pinch points such as property in the cities, but a wealth tax will do nothing to solve that if the problem is as intractable as you say it is.

You are looking at headline rates of tax like the marginal income tax rate and comparing this to what looks like lower CGT, DIRT etc. Your analysis stops there and the conclusion is that it ain't right. But you are looking at things before social transfers take effect.

Go on citizensinformation.ie. See the range of tax credits and benefits available to people. Take this recent AAM post that I commented on:

Pay increase - how to maximise pension?

Age: 33 Spouse’s/Partner's age: 33 Annual gross income from employment or profession: Husband is currently on 41K, proposed new salary €52,383 Annual gross income of spouse: In receipt of Carers Allowance, €217.50 per week - €11,310 P/A Monthly take-home pay: Husband - €3133.95, my carers...

askaboutmoney.com

Here is a married couple earning €63k per annum through their labour.
They pay €4,420 in taxes.
That's a tax rate on their labour of 7%.
Outside of that calculation the family also receives DCA of €3,714 per annum.
Net that against the taxes and their tax rate is now down to 1%.
If you then add Carer's respite grant which has gone up in the recent budget into the equation you are now into a negative tax rate.

How is wealth being concentrated in the hands of older people? That's a natural function of time. Older people have accumulated more than younger. It was always thus. It's a lifetime of earning mainly.

Even if you do bring in wealth tax, that dynamic of the older generation having more than the younger will not change. This picture you present of older folk hoarding wealth is laughable.

Open your eyes - wealth transfers are going on all over the place but they are private financial matters that nobody shouts from the rooftops. Parents giving sites to children. The bank of mum and dad stepping in to help children with deposits. Even those parents with no material assets to give are giving of their time to help mind grandkids and save their children childcare costs. In time, a person of your means will also do the same for your kids. Those penny-pinching older people that are hoarding wealth? They will depart their mortal coil in time - the wealth goes back into the system and gets spent and taxed eventually.

The system looks very fair to me. It's a great country.

 

[Purple]

You are not a Shinner but I don't understand how you are still buying the narrative that there is fundamental unfairness and that we don't live in a "safe and stable society."

Ireland is a very good place to live (yes there are hard cases but we are talking in general here). The social safety net is a hell of a lot better than it is in somewhere like the United States and it is a credit to a relatively young country with no legacy of generational or colonial wealth. Socially-democratic Ireland is not the appropriate proving ground for a statutory wealth tax when anyone with a basic knowledge of the tax system already knows that wealth and transactions are plenty taxed. Yes there are pinch points such as property in the cities, but a wealth tax will do nothing to solve that if the problem is as intractable as you say it is.

You are looking at headline rates of tax like the marginal income tax rate and comparing this to what looks like lower CGT, DIRT etc. Your analysis stops there and the conclusion is that it ain't right. But you are looking at things before social transfers take effect.

Go on citizensinformation.ie. See the range of tax credits and benefits available to people. Take this recent AAM post that I commented on:

Pay increase - how to maximise pension?

Age: 33 Spouse’s/Partner's age: 33 Annual gross income from employment or profession: Husband is currently on 41K, proposed new salary €52,383 Annual gross income of spouse: In receipt of Carers Allowance, €217.50 per week - €11,310 P/A Monthly take-home pay: Husband - €3133.95, my carers...

askaboutmoney.com

Here is a married couple earning €63k per annum through their labour.
They pay €4,420 in taxes.
That's a tax rate on their labour of 7%.
Outside of that calculation the family also receives DCA of €3,714 per annum.
Net that against the taxes and their tax rate is now down to 1%.
If you then add Carer's respite grant which has gone up in the recent budget into the equation you are now into a negative tax rate.

How is wealth being concentrated in the hands of older people? That's a natural function of time. Older people have accumulated more than younger. It was always thus. It's a lifetime of earning mainly.

Even if you do bring in wealth tax, that dynamic of the older generation having more than the younger will not change. This picture you present of older folk hoarding wealth is laughable.

Open your eyes - wealth transfers are going on all over the place but they are private financial matters that nobody shouts from the rooftops. Parents giving sites to children. The bank of mum and dad stepping in to help children with deposits. Even those parents with no material assets to give are giving of their time to help mind grandkids and save their children childcare costs. In time, a person of your means will also do the same for your kids. Those penny-pinching older people that are hoarding wealth? They will depart their mortal coil in time - the wealth goes back into the system and gets spent and taxed eventually.

The system looks very fair to me. It's a great country.

The social transfer is coming from working people and going to other working people and those who think they are working class but are in fact parts of the welfare class. Those who have wealth in the form of capital assets have almost nothing taken as part of that social transfer. The welfare system creates a massive disincentive to work hard and do well. We are taking over 50% of the marginal income of people on relatively modest incomes and giving it back to them and those on lower incomes, less what amounts to a massive administration cost in the form of the 6000 people employed in the DSP.
Parents giving to their children is part of the problem in that due to the concentration of wealth in capital assets inherited wealth will become a bigger and bigger factor in the coming years.

Yes, older people have always accumulated assets but inflation has always eroded it. There's been no inflation for decades. We are just going around in circles now.

 

[Purple]

Page 6 of this report from KPMG outlines the problem.
The shortfall they talk about is predicated on the assumption that the retirement age increases to 68.