Budget 2013 wish list

Here’s my budget wish list for 2013.  None of these suggestions have been costed out.  The tax changes are mainly driven by tax simplification and equitable objectives rather than pure income generating tools.

1. Abolish principal private residence relief

This one has been on my agenda for some time and admittedly is less of an issue now that stamp duty has been reduced on residential property, but I think it is still has merit.  The idea is to simultaneously scrap stamp duty on principal private residence (PPR) purchases and tax relief on PPR sales.

Currently, the purchaser is effectively taxed on the increase in value of the seller’s PPR through the imposition of stamp duty on the selling price.  It is the purchaser that must fund this tax.  This hardly seems fair and may have a negative impact on the housing market.

I think it is much more equitable for the seller to pay tax on the sale.  After all it is the seller that has gained financially throught the increase in value.  It is also easier to fund the tax as the seller will have the funds available from the sale.

2. Scrap DIRT and tax deposit interest at the marginal rate

DIRT is an unprogressive tax.  Everyone (with a few exceptions) is taxed on deposit income at the same rate regardless of their other income.  In the interests of simplification I believe it should be taxed at the individual’s marginal rate.  This means that if you pay tax at 20% you pay DIRT at 20% and if you are taxed at the higher rate of 41% you pay deposit interest at that rate.

Of course the mechanics of how the banks would operate the withholding tax would need to be worked through, but I don’t think this is an issue.  Revenue could instruct banks to withhold tax at the rate at which the individual paid tax in the previous year.  Provision could be made to have it adjusted if the individual’s circumstances have changed.

There is anecdotal evidence that people are saving (if they can) rather than spending.  It is likely that those that are able to save are in the higher tax bracket.  Increasing the tax rate on those deposits may encourage the release of some of those savings.

3. Tax child benefit

I don’t think that the arguments against this really stack up.  The main one being “How do you operate it?” .  I think it’s simple.  Self-assessed individuals aren’t a problem – they just return it in their tax returns.  PAYE workers could be taxed on a prior year basis by having their tax credits/cut-off point reduced in the year following payment.

4. Tax maternity benefit

Maternity benefit is not taxable.  What this means is women who continue to get paid while on maternity leave get an increase in take home pay as the maternity benefit element of their salary is not taxed.

5. Phase out the PAYE tax credit

The PAYE tax credit was supposed to compensate PAYE workers for the fact that they cannot deduct expenses from to arrive at taxable income the same way that self-employed people can.  This, of course, is a very simple view and makes no consideration for the increased risks self-employed people take.

The PAYE tax credit was increased significantly during the boom years.  It went from €375 in 2001 to €1,760 in 2007 in when it was brought into line with the personal tax credit.  It increased to €1,830 in 2008 before being reduced to €1,650 in 2011.  It went from being 37% of the personal tax credit to 100%.  What is the logic in that?

One way to relieve the effect its abolition would have on PAYE workers would be to reallocate the credit to the personal tax credit on a cost neutral basis (thus benefitting PAYE and non-PAYE tax payers).

6. Abolish sick-pay for the first 3 days of absence for public sector workers

Absenteeism is a big problem in various parts of the public sector.  I think it must be very easy to take a few days off, uncertified, in the knowledge that you won’t be at a financial loss.

My proposal is not to pay for the first 3 days of absence.  If the absence goes beyond the 3 days and a doctor certifies the illness then the 3 days’ pay could be reimbursed.

7. Reduce public servants’ pensions by the amount other earnings

This is particularly aimed at  TDs and ministers that can recieve a “pension” while still in receipt of significant earnings from other sources, but can also apply to other public and civil servants (such as those that retire and are re-engaged on a consultancy contract).

Those pensions should either be deferred actual retirement and reduced by all other earnings when they do come to be paid.

8. Incorporate the USC into the income tax rates

A few years ago there were murmurings of simplifying the tax regime by amalgamating income tax with PRSI and levies.  Some work was actually done in the UK to see how this could be achieved.

But when the economic crisis struck the Government pretended that it wasn’t increasing income tax and gave us the universal social charge instead.

We all know that the marginal rate of tax in Ireland is 52/55%.  So let’s have a bit of transparency and amalgamate the lot.

9. Amalgamate rural national schools within 10 kms of each other

This will never happen.

The idea of several small schools all within short driving distance of each other to me is ludicrous.  A more centralised system would have several benefits:

  • More efficient transport structure
  • Less pressure on small schools to maintain numbers in order to retain teachers
  • Synergies and savings from pooled resources
  • More efficent use of capital funds, in particular contruction of new schools
  • Better facilities for children
10. Tax relief for childcare expenses

I don’t like the using tax reliefs in this manner, and much prefer a simplified approach.  However, I think childcare costs are a significant burden on families and one that can’t be avoided if both parents choose to work outside the home.  If the costs can’t be avoided, and are a potential disentive to work then something like this should be examined.

Leave A Response

* Denotes Required Field