Two of the recent alternative budgets, Sinn Fein’s and the United Left Alliance’s, have proposed wealth taxes which, it is claimed would generate €800m per annum (SF) and €2.4bn per annum (ULA). Opponents of a wealth tax have claimed such a tax would destroy jobs and investment. This blogpost examines the subject.
In researching this blogpost, I have spent some time recently with the two main Irish richlists, the Sunday Independent’s produced by its business editor, Nick Webb and the Sunday Times richlist for the UK and Ireland.
And to start off, consider Ireland’s richest person, with a fortune estimated by the Sunday Independent at €7.4bn in 2012, Pallonji Mistry (pictured below). Some of you might ask, “who he?” because he is not a household name and his name doesn’t sound very Irish. He’s Indian in fact, though he was granted Irish citizenship in 2003 and he is married to a Dubliner. His wealth mostly derives, it seems, from his 18% share of India’s Tata conglomerate – Tata is what the Quinn Group would have been in a decade if it hadn’t imploded amid gambles on shares and a poor insurance model. Tata is worth €75bn, but the Sindo sticks with a €7.4bn estimate for Pal’s fortune. Pal has houses in Mumbai, Surrey, Dubai, the South of France and London – there’s no mention of a residence in Dublin. Apart from his stake in Tata and houses, the only sign of wealth is a stud farm in India.
I don’t personally know this 82-year old man, but he looks gentlemanly and dignified in his photo. But if the Government were to slap a 1% wealth tax on Pal, that is, €74m per annum, then I would not be surprised if he extended his middle finger in a frozen stare, and remained in that pose as he was transported in his bathchair to Dublin airport for the first available flight out of this place. And could you blame him?
The Top 300 in Ireland all seem to have wealth estimated at over €20m apiece, and as you study the rich lists, you notice some patterns:
(1) Some people are only nominally resident here (the Westons, Denis O’Brien whose residency is shown as being in Malta, Robbie Keane who is resident in Los Angeles, Bob Geldof who spends most of his time in the UK)
(2) Some of Ireland’s richest aren’t very Irish at all, put to one side Pal Mistry, but the Sunday Independent lists many of Northern Ireland’s wealthy amongst its 300. And at the risk of insulting Mr Lucky Feet himself, Michael Flatley is about as Irish as Honda.
(3) Most wealth seems to be tied up in businesses. Ordinary people hold “stocks and shares” in companies. The rich hold “stakes” and so significant are the stakes, that they might properly be considered proprietors. Some of the stakes are in Irish companies, some are in “foreign” companies, for example, a lot of Bono’s wealth would appear to be tied up with Facebook and Yelp via investments through his Elevation Partners private equity fund.
(4) There is very little detail on the trappings of wealth that usually occupy the popular imagination. Very few have stud farms or racehorses, a couple have greyhound racing interests, a handful seemingly have yachts, few are shown owning jets or helicopters, there’s an odd art collection here or stamp collection there, but most of the wealth, I would estimate 95%-plus is tied up in business. Most of the rest that is detailed is in residential property. However we do know that according to the Central Bank of Ireland, there are €92bn of deposits by Irish households in Irish banks which equates to an average of €54,000 for each of the 1.7m households in the State.
Ignorance is Bliss (for some)
There is an incredible lack of information in this country on which to base any wealth tax. And I wonder how much of the information gap is deliberate. Is that paranoid? Well, ponder this. When ordinary people buy a house in this country, they pay stamp duty at 1% up to €1m and 2% beyond – all simple and straightforward. But what happens when a property is put in the name of a company or a trust? And instead of selling a home, there is simply a transfer of shares in a company or change of beneficiary of a trust. In these instances, stamp duty payments may fall considerably below what would apply to “ordinary people” buying a home. But if the companies or trusts are based outside Ireland, then the Revenue Commissioners have zero visibility of what is happening, and shares can be transferred or trusts altered with zero stamp duty being paid.
Now stamp duty is not a wealth tax, it’s a transaction tax, but this Government appears unconcerned *about the use of companies or trusts to reduce stamp duty payments. And there are no plans to examine or plug loopholes. Or at least, whilst the Minister for Finance is Michael Noonan.
So, although we can all have belly laughs at Sinn Fein justifying their wealth tax plans by reference to Goldman Sachs or Bank of Ireland reports, remember that household wealth estimates will not be produced by the Central Statistics Office until 2014 ** – that shows you where this Government’s priorities lie. The United Left Alliance produced their own pre budget submission last week which contained a proposal for a wealth tax, and it was based on Q2,2012 Quarterly Financial Accounts from the Central Bank of Ireland which estimates that net household wealth – by “net” they mean after deducting loans – now stands at €446bn, and the ULA estimates that €50bn of this is wealth held by households who are worth more than €1m in net terms, and the ULA proposes an annual 5% wealth tax on that €50bn, meaning annual tax of €2.5bn.
We need far more transparency in this country. We need an accurate Property Price Register – was it just coincidence that the most expensive property sold in 2012 according to The Phoenix magazine, “Woodside” at 18 Shrewsbury Road by Seamus Fitzpatrick for “somewhere north of €5.7m” was actually recorded by the Property Price Register as €1.7m “which is understood to be an error”. We should have the Register extended to take account of transactions before 2010, something ruled out by the Minister for Justice, Equality and Defence Alan Shatter. And what exactly is the barrier to putting everyone’s personal tax returns online, as they are in Sweden and Norway?
So, although we know there is a lot of wealth out there, we seem to have a giant information gap, which prevents us from examining further the potential to impose a wealth tax. And based on the positions of Ministers Noonan and Shatter, it seems this Government has no real interest in producing the information to facilitate a wealth tax. Indeed should the Government move to produce such information, I suppose it would be uncomfortable the next time Michael Noonan appeared as a special guest of billionaire JP McManus.
The existing wealth taxes
In May 2011, this Government did something unprecedented – it imposed a 0.6% annual levy on pension funds in a bid to raise €470m per annum for its Jobs Initiative. This unprecedented, but understandable step, didn’t impose an income or transaction tax, but it was a tax on existing wealth.
And the property tax, set to be unveiled on Wednesday next, is also a wealth tax. You will have bought your home with a deposit which was probably cash you had earned and paid tax on. You are repaying your mortgage from your income after tax. A wealth tax is in many cases, a double tax and is levied according to the value of your property.
What about the neighbours?
In the UK, despite there being a coalition between the generally right wing Conservative Party and the centrist Liberal Democrats, there is a trend towards reducing taxes on the wealthy, and this is justified by the claim that wealthy people will contribute in indirect ways to the health of the economy, through investment and consequent employment for example. And this thinking can’t be dismissed out of hand – it makes intuitive sense that where individuals are rich enough to decide where they live, and are not short of countries welcoming them and their wealth with open arms, then wealthy individuals are likely to spend their wealth in places where they live. Not only that, but if they live in your country, they are exposed to being tapped for investment.
On the other hand, some advanced economies like France do have wealth taxes, which in principle are similar to what is now being proposed in Ireland by Sinn Fein and the United Left Alliance.
Wealth tax
So is a wealth tax feasible and will it just be a tax on industry which will destroy existing jobs and investment and deter future investment?
The evidence from the richlists is that most wealth is tied up in business, and it may be the case that a tax on such businesses may lead to job losses and reduction in investment.
But other evidence such as deposits shown on Central Bank returns, which exclude deposits by Irish citizens overseas, come to €92bn. Last year, when the hullabaloo was breaking out over the pension levy, we learned that there was over €70bn of funds being managed on behalf of Irish pensioners and pension contributors. And we do know that some very expensive residential property in this country is owned by trusts and corporations.
So, the view on here is that there is merit in exploring further the possibility of a wealth tax. But smash-and-grabbers need tread carefully lest they destroy jobs or investment which overshadows the combined value tax that would be generated PLUS the value of the sense of solidarity and fairness.
* 23rd October 2012
Deputy Pearse Doherty: To ask the Minister for Justice and Equality further to Parliamentary Questions No.183 and 184 of 9 October 2012, if he will provide in tabular form the number of residential properties in the State that are owned by companies incorporated in the State; the number of residential properties in the State owned by companies incorporated outside the State; the number of residential properties in the State owned by trusts set up within the State and the number of residential properties in the State owned by trusts set up outside the State..
Minister for Justice and Equality, Alan Shatter: There are two systems for recording property transactions in Ireland, the system of registration of title operated by the Land Registry and the system of recording deeds operated by the Registry of Deeds. Both systems are under the control of the Property Registration Authority.
Where title or ownership is registered in the Land Registry, the legal ownership is entered on folios which form the registers maintained in the Land Registry. Where title is registered in the Land Registry it is referred to as “registered property” and is open to public inspection.
The Registry of Deeds provides a system of recording the existence of deeds and conveyances affecting unregistered property (i.e. property which has never been registered in the Land Registry). The effect of registration of a Deed in the Registry of Deeds is generally to govern priorities between documents dealing with the same piece of land.
I am advised by the Property Registration Authority that the information sought by the Deputy is not available. The Land Registry registers the ownership of legal estates and interests. The register of title maintained by the Authority does not distinguish between residential and commercial properties. Under Section 92(1) of the Registration of Title Act 1964, no notice of a trust may be entered on the Register. Therefore, property held under a trust is not readily identifiable as such from the folios of the Register.
The address of any company registered on the folios of the Land Register is the address of the company in the State for the purpose of the service of notices under the provisions of Section 106 of the Registration of Title Act 1964. Therefore, an inspection of the registers of ownership will not reveal whether a company was incorporated within or outside of the State.
10th October, 2012
Deputy Pearse Doherty: To ask the Minister for Finance the annual tax that would be generated from applying a 2% tax on the current market value of residential property whose registered owner is not a natural person but a corporation or trust or other non-natural person..
Minister for Finance, Michael Noonan : I am informed by the Revenue Commissioners that, as they do not have a statistical basis for compiling estimates of yield in relation to proposals for the taxation of residential property, it is not possible to provide the information requested by the deputy.
While there are data sources which provide information on property ownership – for example, the Property Registration Authority and the databases for the Non-principal Private Residence charge and the Household Charge – none of these sources has information on current valuations and therefore it is not possible to estimate the yield that would be generated from a 2% tax on residential property whose registered owner is not a natural person.
** Deputy Pearse Doherty: if he has examined the potential for a wealth tax; and the estimated return to the Exchequer from a 1% wealth tax on individual wealth in excess of €1 million. [38298/12]
Minister for Finance, Michael Noonan: The Government does not propose at this time to introduce a wealth tax, although all taxes and potential taxation options are constantly reviewed. To estimate the potential revenue from such a wealth tax, we would need to identify the wealth held by individuals. I am informed by the Central Statistics Office that the institutional sector accounts do not give an indication of the number of households or persons classified by the categories of wealth they hold. These statistics are based on aggregate information collected from financial institutions and do not contain the demographic details which would enable such a breakdown of the statistics. So while the CSO’s institutional sector accounts show that households held c. €126 billion on deposit in 2010, this is not broken down by income or wealth categories.
However, I understand that, following discussions between the Department of Public Enterprise and Reform, the CSO and the Central Bank, the CSO has commenced a “Household Finance and Consumption Survey”, which will include, inter alia , a survey of wealth. The first results of this survey will be available in 2014. The data to be collected by the CSO as part of this survey is primarily targeted as general information on the financial situation and behaviour of households. I am informed by the Revenue Commissioners that they have no statistical basis for compiling estimates in relation to a potential annually recurring tax on wealth. It is therefore not possible to provide the information requested by the Deputy on the potential return from a 1% wealth tax on individual wealth in excess of €1 million.
NAMA Wine Lake 
Very informative post.
Thank you.
The stamp duty thing with companies and trusts isn’t accurate. The Revenue have a lot of anti-avoidance measures in place including mandatory reporting of the setting up of trusts or offshore companies by any irish resident person. Besides, most people wouldn’t buy shares instead of a property, too much risk in latent tax issues with companies.
@ NWL May I refer you to the answers to a series of written questions in the name of Joanna Tuffy from last January. http://www.kildarestreet.com/wrans/?id=2012-01-12.663.0&s=Tuffy+section%3Awrans#g664.0.q
The answers provide a detailed analysis of transfers of wealth on death or as gifts. The effective rate of tax on the existing Capital Tax, CAT is very low and indeed despite serious adjustments in recent Finance Acts, is falling.
Capital Taxes are generally the most planned for tax and the degree of avoidance is massive. Tightening up the relief structure to CAT is easy, however Mr. Doherty and his Party have shied away from it as it would not be very popular, while calls for a wealth tax make good headlines.
Minor adjustments to the existing CAT structure could double the yield at little additional administrative cost as could the return of the Probate Tax http://www.revenue.ie/en/tax/cat/probate.html, removed from statute by B Ahern & C McCreevey
Indeed lets keep up the pogrom against wealth.
Lets keep taxing property, until eventually everybody is living in a mud hut.
And when mud huts are in greater numbers, a wattle and dub tax can be introduced.
In relation to the WEALTH tax on pensions.
I am one of those evil people who does have a private pension fund.
And yes it is only worth 53% of what I have put in. The fund has NEVER grown.
Not only do I have to pay the 0.6% annual tax on the entire fund, but I have to suffer the ignonomy of being told by the mob that I have done well due to lots of tax breaks given to pension contributions.
Ireland is no place for sane / resonable people, it’s going the way of MOB rule.
The OPTICS demands it, and that’s what is important, because that’s what gets the votes for the political class.
So why do you keep putting money in? Why do you put up such a stern defence of the people who have lost your money in gambled and charged you fees for the privilege? Why should they get to keep the wealth that they have earned principally, principally, by conning you and others out of it?
You say you don’t want a “pogrom” against the wealthy, but you’re perfectly happy with them keeping you in a ghetto, taking what you have penny by penny even as you shout in their defence. Do you think you are one of these people? 47% of your fund says otherwise. None of these boys have lost a red cent.
Personally, I don’t think wealth taxes are a realistic solution(not that I’m against a few charges). I’m simply in favour of withdrawing the explicit and implicit taxpayer support which keeps these people wealthy in the first place, at our expense. Let the actual job creators do what they like(if any remain), but the corporate welfare queens and semi-private cronies can go out to the gutter where they belong.
@ OMF,
Thanks for your post,
Firstly, a few things…
What makes you “assume” that I am still contributing to my pension?
Secondly, I don’t see it as some “wealthy person” decimated my pension? Look at various financial shares BOI, AIB etc, these were worth around 20 euro / share, now they are worth a few cents. Was it because of some wealthy person decimated these bank shares? Or was it because the banks over leveraged and the house of cards collapsed?
Unfortunately I am not the only one to have suffered decimation in my retirement savings. Look at what is going on to Aer lingus, DAA, in addition approximately 80% of ALL defined benefit schemes are insolvent.
Ireland is looking at a humanitarian crisis when it comes to retirement, in fact I reckon people will not be able to afford to retire, people will have to continue working until they drop dead.
Some workers are in very difficult positions, apart from not being able to retire, their body might not be in a good enough condition to continue working, i.e. a gardener who has developed problems with their knees etc.
In relation to your point about “Defending the Wealthy” let me offer this perspective…
1) There are approximately 433,000 homes in the country which have a total income of 100,000 euro or more / annum.
2) This group of households pay approximately 76% of ALL income tax paid.
3) There are approximately 388,000 homes in the country which have a total income of 30,000 euro or less / annum.
4) The remaining homes are somewhere in between.
If the group of 433K homes get smaller in numbers due to a) Retirement, b) emigration C) bad investment decisions, then who is going to pay the shortfall in income tax?
It may have escaped your attention, but several warnings have been posted in the media about the hostility to wealth. 800 doctors have sent in letters shaped as “Boarding cards” in that if the vilification of their salaries continues they will be forced to consider emigration as an increasingly likely option.
Recently a Mr Slattery, who works in the IFSC has mentioned that there is a process of vilification of wealth in the Irish media. He views this as a major concern in attracting and retaining wealth into Ireland.
Some months back during an interview on Today FM a medical consultant asked why should he not earn money over 100K considering the fact that he spent 18 years studying to reach the level of professionalism he currently has? His skill is in demand, the responsibility he carries is high, therefore the remuneration theses people receive should reflect this.
What bugs me, is that the definition of “Wealthy” in the current Irish discourse. A number of 100k euro is mentioned, but who mentioned it, was it put to a democratic vote? Lets discuss the number of 100K?
100K is about 78,756 Irish punts.
That was over 10 years ago.
That was when a barrel of oil was around $20 dollars
Move forward to today……………..
A barrel of oil is north of $100
And wealthy households are defined as a total income of 100K or more. That means if He earns 50K and SHE earns 50K then they are JUDGED to be a “Wealthy” household.
The next generation of Smart people will see the lie of the land for what it is, a country massively overburdened with debt, a hostile pogrom mob active in the media who are organizing a sustained campaign of vilification against wealth or anything which they perceive to be “wealthy”, and a political class who will bend any which way so that they look good for the “optics”.
My position.
I believe part of the solution to Ireland’s financial woes would be to INCREASE this number households who have a annual combined income of 100K or more. We require to attract them into Ireland, set up shop here, spend their money here, create jobs here, bring skills and expertise here.
But that is NO GOING TO HAPPEN when the Marxist Socialist Mob (MSM) keep foaming at the mouth and demanding punitive taxes.
The more talent / wealth creators who leave Ireland, then the Marxist Socialist Mob will have to redefine the definition of “Wealthy”, so in 10 years time a household with an annual income of 80K will fit the new definition and then 60K.
In other words, I know who pays the income taxes, and I realise if this group of tax payers DECREASE then the tax burden will fall on my social group. That is why I attempt to take a more balanced view of people who earn a lot more than me.
Wealth Taxes are just the upper class version of the nonsense taxes like the household charge and increases in car tax, TV licences, etc. That is, it is a waste of time.
There is only one tax that counts: Income Tax. There is only one form of wealth that counts: Income –in all its forms. Everything else is an excercise in loose bookkeeping.
Only transferred, fungible income is suitable for percentage based taxation, and only transferred, fungible income has a definite enough value to actually take a percentage of. Things don’t have quantifiable value until money changes hands, which happily coincides with one party earning income from the transaction.
The only “Wealth Tax” this country needs is an increase in the Income Tax rates at the upper rates. We need, at a minimium (All charges included)
A 40% rate for 1st band earners (Up to €40,000)
A 60% rate for 2nd band earners (Up to €80,000)
An 80% rate for 3rd band earners (Up to €100,000)
A +90% rate for 4th band earners (Over €100,000)
And a 17.5% rate of corporation tax.
We need to cut social welfare payments by at least 25%, and means test everything. We also need a maximium civil service pay of €70,000, maximium total pension payout of €40,000, and probably need to sack about 20% of civil servants (*cough* HSE *cough*).
The health budget needs an axe taken to it, and there will have to be a reintroduction of not only third level fees, but also an introduction of modest fees for Leaving Certificate students.
If anyone thinks I’m not being serious, or that these proposal are “ridiculous” or “impossible”, then you simply haven’t been paying attention for the last 4 years. Wealth Tax or not, this is what it is going to take to pay our debts.
They are not ‘our’ debts and until we solve that little conundrum we are going nowhere.
The ‘Wealth’ tax most people talk about is an income tax for earners above a certain arbitrary point (often c. €100,000).
When money is tied up in companies, it is at least (hopefully) somewhat productive. The pension levy is a wealth tax on unrealizeable assets that will face deferred taxation and it is on the gross sum so in effect it’s addition to regular income tax but it doesn’t begin at a certain fund size meaning a person could be unemployed and seeing the state utilize their assets which may not represent ‘wealth’ if you made up a full statement of financial position for the person.
Wealth is assets minus liabilities (I’ll leave out the ‘plus capital’, but the equation is 600 years old and still works).
Interestingly, France backed down from their wealth tax – and due to a ‘pigeon revolt’.
Feeding Deputy Doherty ideas (whoever it is that does it), is a good idea, but the foundation of ‘ownership’ of an asset doesn’t define it as wealth, in a company sense that is the accounting equation in its truest form.
Actual wealth is not easy to determine as mentioned, but there are ideas that might merit a logical test.
For instance, if you were to make a 90% tax on interest income of any sort on people below retirement age on any interest that represents more than three times your earned income.
I don’t necessarily agree with that, but it might catch rentier activity, a site value tax on all land would be a good idea (gov’s own manifesto says so too), but until we get to a point where everybody has to file detailed tax returns as individuals it will be hard to know exactly who the ‘wealthy’ are, and how to seek taxes from them while being fair to them.
@Karl
“Interestingly, France backed down from their wealth tax – and due to a ‘pigeon revolt’.”
Someone should tell the French who seem to think they still have a wealth tax
http://en.wikipedia.org/wiki/Solidarity_tax_on_wealth
There have been some recent changes
http://www.bbc.co.uk/news/business-19464110
Maybe it is some of the proposed changes that you are referring to?
I should correct myself, I was making the point about ‘income’ being incorrectly categorised as ‘wealth’, it can create wealth but of itself is not wealth, and that is part why the Hollande backed down, his plan was a for a super ‘income tax’ rate of 75% and to double capital gains to 60%.
as mentioned “The ‘Wealth’ tax most people talk about is an income tax for earners above a certain arbitrary point (often c. €100,000)”
What is mentioned in your link(s) (and which is an wealth tax of sorts) is a common enough phenomenon, in Spain (and much of South America) it’s called the ‘impuesta patrimonio’.
We are talking about different things, my point is about categorization of income as wealth and, and how the plan failed in France but was under the general heading of ‘taxing wealth’, yours is about estate tax which is also branded as ‘wealth tax’, two different types of taxation with the same reference.
Why? Because ‘taxing wealth’ is a political term, not a regular one with a set definition.
@Karl, you may be right in public perception, but there are pretty well established wealth taxes, for example in France, which contrast with income tax, even income tax on very high earners.
Am not an expert on wealth taxes globally but 10 minutes of research will establish there are taxes on wealth in some other countries, that is. tax on assets, and since last year, even in Ireland, we have a wealth tax of sorts in the pension levy, where we levied 0.6% charges on private pensions, though because that levy hits everyone, regardless of wealth, people might have difficulty identifying it as a wealth tax.
Can there be a revived “gabelle” here? No reason wny not…and it could be for health reasons.
SF and the ULA have no real notion about wealth and/or its deployment. Their view is 90% begrudgery leavened with statistics designed to explain something actually valid. And usually drawing from the scatter outside the standard deviation.
[…] A wealth tax for Ireland (namawinelake.wordpress.com) […]
Just dropping this link about the results of the Marxist Socialist Mob program which is currently active in France, remember some time ago there was a bunch of 16 wealthy “Wonkas” who wrote a public letter recommending higher taxes?
Well the results are coming through… just read the article below, dated 2nd December 2012.
http://www.bloomberg.com/news/2012-12-02/france-sexy-no-more-for-entrepreneurs-escaping-hollande-taxes.html
Source Bloomberg.com By Helene Fouquet – Dec 2, 2012 9:01 PM GMT-0200
This is an opportunity for Ireland to attract talent here and reduce unemployment. Frances loss, could be Ireland’s gain.
But instead we have the MOB coupled with a small but vocal bunch of ignorant loud mouth politicians trying to scare them away from Ireland.
You could not make it up, but then again in upside down Ireland, facts don’t count, OPTICS do.
Just to remind you, the Cold War is over. I don’t care how scared the Soviets made you feel, you still have to pay your taxes.
@ OMF,
And your opinion about the Bloomberg article?
ULA proposes a 5% tax on wealth – would that not amount to a de facto confiscation of the income stream from an asset – i mean the risk free rate of return at the moment is about 0%!
There are not many asset classes – let alone balanced portfolios! – that could give an expected 5% return at the moment
this is daft stuff – waste of time – moron stuff – and ought not to be reported as anything else – it amounts to a proposal to impose a 100% marginal tax rate on income earned form assets
what a truly awful idea – and I don’t mean that in a right wind vs left wing way – i mean this to my mind is equivalent to proposing that we get rid of traffic lights – it just doesn’t make any sense
http://smarttaxes.org/2012/10/15/site-value-tax-campaign-update/
Feasta is promoting a site value tax which would be more efficient than the flat tax currently coming out
Recommend a read of the mechanics
Actually – i didn’t go far enough above – you could actually EXPECT to lose money just by holding an asset.
I mean if the expected return on your portfolio was 2% but you had to pay 5% it would cost you money to hold the asset
maybe im not understanding their proposal…
[…] In terms of a wealth tax, Finance did not give specific figures. Namawinelake has details here. A wealth tax for Ireland | NAMA Wine Lake The problem for the likes of SF and ULA when proposing wealth taxes is they are basing it on […]