Irish Budget 2016: Bruton wants 30% flat tax rate for immigrants
Irish Budget 2016: Richard Bruton, jobs and enterprise minister, has called for a 30% flat tax for immigrants, a cut in the capital gains tax (CGT) rate to 10% and Zero for the majority of private sector workers with no occupational pension coverage.
It's not that Richard Bruton is likely intentionally callous but the multi-millionaire politician — according to the Dáil Éireann register of interests, he is part-owner of prime land in (1) Newtown, Dunboyne, Co. Meath (175 acres); (2) Setting, farmland: Woodtown, Drumree, Co. Meath (50 acres) — is far removed from the private sector workers who with counterparts in New Zealand, have the worst pension coverage among the mainly developed country members of the Organisation for Economic Cooperation and Development (OECD).
Irish social security contributions represent 15% of total taxation compared with the 26% of the OECD average — 19.1% in the UK; 22.3% in the US and 38.3% in Germany.
The standard Irish PRSI (pay-related social insurance i.e. social security) rate is 14.75% — 4% paid by the employee and 10.75% paid by the employer.
The lack of private sector occupational pension coverage explains Ireland's low rate and Bruton's Department's Budget 2016 submission says: "Any increase in Employer PRSI will make Ireland’s tax system more prone to reductions in exchequer revenue as the population ages. We recommend: If employer social contribution is being considered that the impact on the tax wedge and overall competitiveness needs to be taken into account."
There is a conflict of interest here as both the minister and civil servants who prepared the submission have entitlement to guaranteed pension payouts and there is no pension fund that incurs gains or losses.
As we know from the bubble period politicians giving in to the demands of vested interests for tax incentives is pain-free in the short term while there is little evidence of long-term thinking.
Every year business lobby groups demand more despite the lowest corporate tax and social security levels in Europe. The evidence in the real world is 1) long-term underperformance by the indigenous international trading sector 2) a high ratio of low-pay in the workforce 3) there is no evidence for example that a 30% R&D tax credit introduced a decade ago has worked even though that is the position of the Department of Finance.
Bruton's 30% flat tax rate, including both USC (Universal Social Charge) and PRSI, would be available to foreign workers and returning Irish emigrants who have not worked in Ireland for more than five years.
The rate would compare with the 51% marginal tax paid by Irish workers and would apply to earners on more than €60,000. It would last for a maximum of five years — this is typical and what is also typical that once a tax break is introduced, it becomes permanent. The break could also be available to "highly skilled" workers earning between €30,000 and €59,000. A single existing resident earning €60,000 would pay €1,685 more tax than an immigrant.
"The incentive should be aimed at addressing key skills deficits and tailored to meet the needs of SMEs in particular," the submission says. It would likely be mainly used by foreign-owned firms.
Last October in Budget 2015, Michael Noonan, finance minister, announced the removal of restrictions on the 30% income tax + benefits discount that is available to people who are hired from overseas.
The Special Assignee Relief Programme (SARP), an income tax relief for individuals assigned or contracted to work in Ireland was introduced in 2012 for overseas employees allowing them to disregard 30% of income between €75,000 (lower threshold) and €500,000 (upper threshold) for income tax purposes.
In Budget 2015 the upper threshold was abolished, regardless of the year of arrival, and some restrictions on tax residency were also removed.
Budget 2015 also reduced the requirement to have been employed abroad by the same employer for 12 months prior to being assigned to Ireland to 6 months in order to align with recent changes to employment permit legislation.
There cannot be discrimination between returning Irish and immigrants from the rest of the EU while creating a special status for all immigrants does not seem viable.
Equal pay for equal work has been the demand of women since the 1970s but Richard Bruton and his civil servants who have never worked in a commercial environment, want workers with the same status doing the same job having different net incomes.
The Irish capital gains tax rate was halved to 20% in 1998 and during the recession was raised to 33%.
Bruton wants the lowest capital gains tax rate cut to 10%.
Lobby groups claim that the current CGT rate is a disincentive to entrepreneurship but any aspiring entrepreneur who is worried about this rate should stay in the day job. Failure rates among tech companies for example are as high as 90% and worrying about paying too much tax if you hit the jackpot is a little premature.
The submission says: "we recommend that a 10% CGT rate be applied on business gains up to a lifetime limit of €15m. We also recommend that the relief by available on all gains; that the investment window be extended to up between three to five years; and that the working director hours be reduced...investors benefit from a 10% CGT rate on gains realised on Employment and Investment Incentive (EII) shares. We also recommend that the 40% income tax relief available on initial investment be reinstated to enable a wider cohort of SMEs to be attractive to investors."
The submission adds:
"Venture capital ‘carried-interest’ The Venture Capital industry norm is that VC companies receive 20% of the increase in the value of the shares in which the VC company has invested as an investment bonus, with the remaining 80% being returned to investors that contributed capital to the VC company. Specific provisions, in place since the 1st of January 2009, provide for a lower CGT rate on investment, specifically 12.5% on investments via a company and 15% through investment partnerships. In the absence of these specific provisions, standard rate CGT (currently 33%) would apply. The benefits of this relief include the following: Increasing investment by existing VC existing companies in Ireland; Ireland becoming a more attractive location for international VC companies; Providing additional capital required to grow high-risk enterprises that would generally not qualify for bank financing; Funding start-ups; Attracting high-value economic activity to Ireland. We recommend: Retention of the venture capital carried interest tax measures."
What Ireland needs is not a ministerial submission proposing more tax incentives for individuals and firms but a long term credible enterprise strategy that is not just dependent on a low corporate tax rate and other tax inducements.
Besides the apprenticeship system and the occupational training system have been a shambles for years but why worry about that when American companies can provide ready-made jobs and skilled workers can be brought in from overseas?
Source: International Labour Organisation (ILO)