@gardenlady I wrote
a thing... I'm not sure you will all agree with every aspect, feel free to use it as a template though. I'll copy it here for convenience, and you can shred me in the comments.
A consistent, simplified, fair, and savings incentivising investment taxation regime
I believe that any tax system should be fair, simple, and consistent. I understand the the concept of fairness is somewhat political in nature, but that at the very least consistency and simplicity are desirable goals regardless of political persuasion, as both consistency and simplicity reduce administrative complexity and costs, reduce loopholes and potential abuse of the system, promote diversity of investments across the entire market reducing systemic risk. In my answers to the specific questions below, I provide what I think are proposals that make investment taxation in Ireland consistent and simple, while leaving metaphorical levers in place for the political inclinations of the day to pull to achieve ‘fairness’. Specifically, I would like to see an investment taxation regime that
- Incentivises investment in more liquid assets other than property and pensions savings, especially for lower income earners, providing savings mechanisms that more are flexible in response life events
- But also taxes investment earnings from higher income earners fairly, via marginal rate based on total earnings
- And reduces the administrative and cognitive burden on individuals
Currently, I would describe the investment taxation regime in Ireland as disincentivizing at the most generous, and punitive at the most honest. I believe this has many unfavourable consequences, such as: an over reliance on property as an investment vehicle (contributing to the housing crisis), establishing a general friction to short and medium term savings, and creating an over reliance pension schemes for long term savings that don’t address other savings requirements, e.g: saving for a child’s education, weddings, funerals. Also, pension savings in the state are widely regarded as insufficient for most people.
Q24: No. Given that taxation level has by far the biggest impact on potential returns, the wide array of tax classes inevitably incentives investment choice based on taxation class, as opposed to to more appropriate measures such as risk exposure or investment horizon. This reduces diversity of actual investment by type in the market, creating additional systemic risk.
Q25: No. A fair scheme of taxation would be that earnings (income, interest, profit from investments), regardless of taxation class, are all treated equally, regardless of whether you are an institutional investor or individual. Tax credits may differ based on the type of investor, e.g. individual PAYE investors might receive a tax credit specific to investment earnings (regardless of tax class), while registered day-traders making their living off trading would receive a higher tax credit. Similarly, institutional investors would have their investment earnings treated as profit, but might receive tax credits for targeted investments in R&D, local development, or other government chosen incentive targets.
Q26: Yes, there should be a non-standard taxation rate, of 0%, on retirement (and possibly also education) focused investments in a vein similar to the UK’s ISAs. To clarify, I think it is desirable that individuals are able to adopt savings and investment strategies in addition to traditional pension schemes as a means of diversifying risk while also hopefully increasing their returns. DIRT on non ISA investments should be removed in favour of treating interest earnings like any other earnings, and taxed at the marginal rate. This makes savings and investments generally more effective for lower income earners, while still generating significant revenue for the state from higher income earners.
Q27: Yes, the system as a whole needs simplification. The current taxation regime is arcane, and sets a high barrier to entry for young people and new investors, not to mention incentivizing only specific tax classes based on the differences. I would reiterate that a simplified taxation scheme where all earnings, regardless of source are treated as equivalent and taxed via the marginal tax rate.Q28: Yes. The administrative burden on taxpayers is unreasonably high. It’s 2023, taxpayers shouldn’t have to physically post returns and banker’s drafts for some tax classes, and be able to file online for others.
Q29: Yes, it’s desirable that losses, regardless of asset class, reduce tax burden. Ideally, deemed disposal would be applied at the end of each tax year, such that any deemed gain is considered the same as other earnings, and taxed at the marginal rate, and equally, any deemed loss reduces total earnings. Actually sale events should similarly be reported, self-assessed, and reconciled at the end of the tax year.
Q30: No opinion
Q31: I would reiterate that a simplified taxation scheme where all earnings, regardless of source are treated as equivalent and taxed via the marginal tax rate.
Q32: Probably. There are still going to be some inherent differences required between different types of investor. Differences inherently mean loopholes. Some form of registration or verification system needs to be in place to ensure differences between company, day-trader, PAYE + savings, and pension/life investors aren’t being abused.
