Was listening to newstalk business this morning and they were doing the show from the Irish stock exchange. The point was made again that 160 billion sitting in deposit accounts doing nothing and the government needs to start getting real about changing the taxation system to encourage some of this money into stocks.
They said Ireland needs to set up an ISA tax free investment account threshold like UK . . .
Honestly, I don't know that ISAs have that much role to play in reviving the Irish stock exchange.
Think this through. There are about 2.2 million taxpayer units in Ireland, but many of them pay no tax and so can't be incentivised with tax exemptions.
In 2019, of the 2.2 million taxpayer units about 800k claimed a tax deduction for pension contributions. (I don't have more up-to-date figures, but I doubt the picture is very different today.) But, of those, a significant proportion would be claiming deductions becaus they're in a pensions cheme related to their employment. The average annual pension contribution was €3,700.
If you introduduce tax credits for investing via an ISA, I think the take-up would be much smaller, partly because you wouldn't get people who only pay pension contributions because their employment either requires it or encourages it, but mainly because you wouldn't get people who already save by contributing to their pension scheme, and weren't motivated to switch some or all of their savings to an ISA instead.
Of course, some would be motivated to switch some or all of their savings to an ISA. But there is no reason to suppose that they would be more prone to investing their ISA savings in Irish equities than they are to investing their pension savings in Irish equities, so this wouldn't result in any inflow of money to the Irish stock exchange.
So you're really only looking at the additional savings that people put into ISAs. It's impossible to know how many people this would be, but lets make a generous assumption and say that 20% of the people who contribute to pensions would decide to maintain their pension contribusions contributions
and contribute to an ISA; that's 100k ISA. And lets also generously assume that the amount put into ISAs that wasn't simply diverted from pension contributions was an additional €1,000 per year. So you're looking at total ISA contributions of €100 million.
But only some fraction of that would go into Irish equities; in a single market with a single currency there is no particular reason for an equity investor to be overweight in Irish equities simply because he himself is in Ireland. Despite this I think people
would be overweight in Irish equities, but it would still be some relatively small fraction of the €100 million that would go into Irish equities. Lets say a third; €33 million.
Total market cap of Euronext Dublin is €148.6
billion. Total annual volume of trades is €65 billion. I think my estimates above are quite generous, but even if I double them the new money that ISAs would bring to the Irish stock exchange each year is just 0.1% of its existing annual trade.
The Irish stock exchange, even back in the 70s and 80s when IPOs were common, never relied very much on individual investors. It has always been institutional investors. I don't think ISAs would change this. Even on this board, most people who call for ISA envisage them as a vehicle for investment in ETFs and other pooled funds rather than individually selected shares, so even with ISA money it's largely the fund managers who would determine the asset allocation. While lots of ETFs are registered in Dublin, they are just vehicle for investment in underlying shares, very few of which are listed in Dublin. There are EFTs that track the Irish stock exchange or some subset of it, but they're tiny, and Irish pension fund investors seem to have no appetite for them. There's no reason to think that Irish ISA investors would take a different view.
