Will ISA's be coming to Ireland anytime soon?

I get the sense that the internet and social media have exposed more Irish people to information about investing. And the impression that this has resulted in more of them getting interested stocks/etfs. So I do hold some hope that this will eventually become something that politicans start getting asked about frequenly enough to have an impact.
 
joe sod said:
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 . . .
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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.
 
If an ISA like product is to be set up here or as an EU-wide initiative I think it would be a good thing as long as there are properly diversified funds available to invest in. My fear though is that it will be used as a tool to make people to invest in Irish/Euro companies or whatever rubbish private equity firms are trying to get rid of at the moment. We're already seeing the start of this in the UK. Governments don't have a great track record on directing where to invest.
 
TomEdison said:
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.
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Yes I agree that probably a small proportion of ISA money would go into Irish shares but that's not the point, it is to change the mood music around investing in Ireland and is only one of a number of changes they recommended like reducing CGT and eliminating stamp duty on Irish share trades which is another impediment that heavily disadvantages Irish stocks because they don't have it in other exchanges . Basically it is to remove the dead hand of the state a bit and let stuff happen in Ireland. We had loads happening back in the 90s with tech and pharma start ups like Elan and baltimore technologies. All that innovation has dried up over the last 2 decades. The government is not listening to entrepreneurs anymore because they have been spoiled by FDI which is very short sighted.

Also regarding market cap of euronext dublin being 160 billion, I think most of that is not stocks but bonds, apparently they seem to have carved out a niche in government bond trading. Maybe you can enlighten me on why that is?
That is why there was the big controversy recently over trading in Israeli government bonds which Paul Murphy was enraged about. Maybe it is similar to the arrangement with Ireland being the largest domicile for ETFS.
 
joe sod said:
Basically it is to remove the dead hand of the state a bit and let stuff happen in Ireland.
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Trying to influence peoples investment choices through tax-favoured mechanisms like an ISA is pretty much the opposite of removing the dead hand of the state and letting stuff happen; it's the state very much trying to intentionally steer what happens through its tax policy.
 

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Crossing two hurdles in one leap: how an EU savings product could boost returns and capital markets

The European Central Bank (ECB) is the central bank of the European Union countries which have adopted the euro. Our main task is to maintain price stability in the euro area and so preserve the purchasing power of the single currency.
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Dr Strangelove said:
The products are already there.

Tax is a national competence and this is 100% a tax issue.
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The products are definitely not there in the Irish situation, you might say that tax is a national competency , but you cannot pretend that Ireland doesn't have to pay attention to what is happening in Europe, we are already considered a tax haven, do you think that Ireland can continue to bury its head in the sand regarding this topic of heavy taxation on retail investors but light and flexible regarding multinationals .
 
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TomEdison said:
Tl;dr: I can see why I might like earnings in managed funds to be taxed lightly or not at all, but why should the government want that?
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This is the long and short of it.

Let's be realistic here, most people contributing to this forum are likely to be at the higher end of the income scale, or have an amount of wealth where taxation becomes a concern. Many of us will have worked in the UK and will be envious of the less onerous taxation regime that exists there and the various schemes that are available to the British. It's only natural to look at what's going on over the water and ask why we can't have that as well.

When you think about it from the current perspective of the government, the current taxation regime that exists here makes a lot of sense. They get to generate revenue from DIRT, the 8 year deemed disposal rule, CGT, investment dividends, stamp duty on investments. There's also a lot of indirect benefits that the government get. Having €160bn held on deposit let's them engage in what Russell Napier would call financial repression. We put our money into savings accounts, government bonds, prize bonds, etc. that yield returns below inflation whose income is then taxed on maturity. The government are stealing from us slowly. There's also the benefit of having more money funnelled towards Irish property, which in turn will yield taxation revenue in the form of rents, CGT, VAT, stamp duty, etc.

An ISA-like scheme would be a disaster for the government. All of a sudden there'd be a pool of capital that falls outside of the taxation net and will pre-dominantly go abroad.
 
joe sod said:
The products are definitely not there in the Irish situation, you might say that tax is a national competency , but you cannot pretend that Ireland doesn't have to pay attention to what is happening in Europe, we are already considered a tax haven, do you think that Ireland can continue to bury its head in the sand regarding this topic of heavy taxation on retail investors but light and flexible regarding multinationals .
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Yes. I do think that. The EU and its member states absolutely do not give a stuff about how any member state taxes the investment earnings of its own residents.

There may well be concern about our tax treatment in relation to the profits of multinationals, but they are not connected to concerns about the tax treatment of investment income and gains accruing to resident individuals, and and any change in the tax regime that looks like the introduction of ISAs will do absolutely sweet damn all to alleviate concerns about the taxation of multinationals.
 
Raskolnikov said:
There's also a lot of indirect benefits that the government get. Having €160bn held on deposit let's them engage in what Russell Napier would call financial repression. We put our money into savings accounts, government bonds, prize bonds, etc. that yield returns below inflation whose income is then taxed on maturity. The government are stealing from us slowly.
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I don't see why this would be a good thing from a revenue point of view. Better, surely, to have that money invested in high-yielding assets that generate returns above inflation, and then tax those on maturity? That way, you'd get more tax.
 
TomEdison said:
There may well be concern about our tax treatment in relation to the profits of multinationals, but they are not connected to concerns about the tax treatment of investment income and gains accruing to resident individuals, a
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I'm referring to the favourable tax treatment of the ETF funds that are domiciled here versus the onerous taxation on retail Irish investors that want to invest in them. So far they haven't made the link , however when they are trying to get European savings invested in European companies and Irish government has made it so favourable to attract mostly US ETFs to domicile here. Those ETFs by their nature channel investment funds to US companies much more than European . In that context the EU might take an interest in the stark contrast between how Ireland is so severe on small retail investors looking to invest and that 160 billion in Irish savings would be a good source for getting more funding into European stocks. It is up to more of us to draw attention to this anomaly which is so bad for Irish savings and investments
 
TomEdison said:
don't see why this would be a good thing from a revenue point of view. Better, surely, to have that money invested in high-yielding assets that generate returns above inflation, and then tax those on maturity? That way, you'd get more tax
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Yes totally agree, I even will put up with relatively high taxation on investments, however I won't put up with being forced to pay tax on investments when they haven't even matured or been liquidated especially as they have been collecting tax on the dividends through out the investment time frame. I know ISAs are not on the horizon but they need to increase the 1270 euro cgt allowance to 3 or 4000 euros at least to account for inflation since the last time in was changed around the end of the 90s and when euro came in 2001. Imagine if the state pension or social welfare payments hadn't been raised since 2001?
 
Raskolnikov said:
There's also a lot of indirect benefits that the government get. Having €160bn held on deposit let's them engage in what Russell Napier would call financial repression. We put our money into savings accounts, government bonds, prize bonds, etc. that yield returns below inflation whose income is then taxed on maturity. The government are stealing from us slowly. There's also the benefit of having more money funnelled towards Irish property, which in turn will yield taxation revenue in the form of rents, CGT, VAT, stamp duty, etc.
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Surely the main beneficiaries of the huge amounts on deposit at low ratees are the main commercial banks?

They have billions on deposit at 0% or very low demand deposit rates, which they can lend on at much higher rates, or place on deposit at the ECB.
 
Raskolnikov said:
When you think about it from the current perspective of the government, the current taxation regime that exists here makes a lot of sense. They get to generate revenue from DIRT, the 8 year deemed disposal rule, CGT, investment dividends, stamp duty on investments. There's also a lot of indirect benefits that the government get. Having €160bn held on deposit let's them engage in what Russell Napier would call financial repression. We put our money into savings accounts, government bonds, prize bonds, etc. that yield returns below inflation whose income is then taxed on maturity. The government are stealing from us slowly. There's also the benefit of having more money funnelled towards Irish property, which in turn will yield taxation revenue in the form of rents, CGT, VAT, stamp duty, etc.
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I agree that this is their view and they see any reduction in rate or deemed disposal as a "cost" but I'd argue that it's a blinkered view based purely on accounting and reluctance to change. In 2023 DIRT raised €45m and exit tax €200m. In 2024 DIRT was €200m and exit tax €200m again. These are minuscule amounts when compared to the total tax take of €107bn for 2024.

If even a small portion of the €160bn on deposit moved into higher yielding investments there could be a significant increase in the overall tax raised, even by reducing the rate and removing deemed disposal. The issue is there is no way to know how much and when people will sell investments and realise a gain, therefore Revenue can't measure it. I'd argue that it's worth the shot given our fiscal position. There are a lot more intangible benefits such as improvements in financial literacy, wealth effects, increased spending (VAT) as people spend their gains etc. I've lost count of the amount of people who've talked about investing but end up just doing nothing as they get confused as soon as they look at the tax side of things.
 
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