The Government’s special savings scheme will be a waste of time if it is not done right, An Oireachtas committee has heard. Changes to the taxation of savings and investments are required to make sure the average person will want to invest in capital markets through the vehicle.
Two economists, University College Dublin’s Enda Hargaden and Trinity College Dublin’s Barra Roantree, told the Oireachtas finance committee this afternoon that the Coalition should consider delaying the introduction of the personal investment account (PIA) scheme to properly calibrate other aspects of the tax system.
Precise details of the scheme, which Minister for Finance, Simon Harris has indicated will be unveiled in Budget 2027, are yet to be disclosed.
However, responding to a question from Fianna Fáil TD, Shay Brennan, Hargaden and Roantree said the basic idea of the saving scheme, which aims to tap some of the €170 billion currently on deposit in Ireland, conflicts with an existing tax rule known as deemed disposal.
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Under the deemed disposal regime, investors in exchange-traded funds (ETFs) and other funds pay 38 per cent exit tax (recently reduced from 41 per cent) on profits every eight years, even if they have not sold their investment.
ETFs are considered a particularly suitable product for the kinds of investors the Government hopes to entice through the personal investment account scheme because they allow inexperienced investors to spread risk through a basket of stocks rather than betting on individual shares.
If deemed disposal is applied to ETF investments through the Government’s new savings accounts, the PIA scheme will not work, Hargaden said.
“We would be wasting our time if we introduced this vehicle and people had to deemed dispose if they have an ETF,” he said. “It just won’t work. [The benefits] will only flow to those with accountants and that kind of thing.”
He said legislative changes would likely be required to make sure that ETFs are taxed differently within the new savings vehicle than if held otherwise.
Asked whether the Coalition should consider delaying the roll-out of the scheme, Hargaden said: “I would encourage perhaps delaying this maybe a year, to get deemed disposal closer to being simple for the retail investor. If this needs to be delayed for a while, I think that’s desirable.”
Roantree said: “History is ripe with examples of where rushed tax legislation leads to bad consequences, and I think this is one where you want to make sure you get it right.
“If that involves taking longer than this budget cycle to get what is really quite a big change in the taxation of savings and investments, then it should be delayed until it can be done properly.”
Roantree said that while there are arguments for creating the new savings scheme, the question is whether the State should be subsidising those benefits “through tax forgone”.
The Coalition has floated the idea of levying a low flat rate tax against investment gains made through the savings scheme.
Roantree said that if the scheme is “designed poorly”, there is potential for people who were already investing in stocks and funds to keep investing, “but now they do it through this account and don’t pay tax”.
