Stamp Duty versus Mortgage Interest Relief

Here is a table of the amount of revenue raised from Stamp Duty on residential property and the amount of tax relief granted to residential mortgage holders for the past decade.

The figures for Stamp Duty are taken from here and relate only to Stamp Duty paid on residential property transactions, while the figures for mortgage interest relief are taken from here including the estimate for 2012, with a full-year 2011 figure here.  The amount of income tax relief granted to mortgage holders is equivalent to nearly 75% of the revenue received from Stamp Duty on residential property.

The two columns do not reflect the same groups of people but there is likely to be very significant overlap.  The Stamp Duty column will include duty paid by investment buyers who are not entitled to mortgage interest relief (but do get a separate relief).  If investors paid a quarter of the Stamp Duty and were omitted the sums of two columns would be almost identical.  The Mortgage Interest Relief column will include people who bought before 2002, though these will be smaller mortgages and many will have been repaid by the end of the period, and also first-time buyers who bought in the period in question but were exempt from Stamp Duty.

Although the Exchequer did collect significant revenue from the purchase of residential property by households in the last decade, the Exchequer has also lost significant revenue by awarding income tax relief for mortgage interest to households.

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Retail Sales rise again, but…

The release by the CSO of the October Retail Sales Index contained one predictable result: the sales of Electrical Goods rocketed (in advance of the shutdown of the analogue broadcast signal for television).

This increase will distort the changes in broader measures of retail sales.  A core measure of retails sales excluding the motor trades rose in October.  The motor trades category has a weight of 18.2% in the October index so this represents 81.2% of the index.

In October, the electrical goods category makes up 4.9% of this core measure of retail sales so comprise about one-twentieth of the total above.
One an annual basis core retail sales have been showing positive changes for three months but the jump in October to a 4% annual rise by value and 3.5% by volume was significantly boosted by electrical goods.

On a monthly basis core sales in October rose by around 1.3% in both value and volume terms. 

The 25% rise in electrical goods means that this category alone would have contributed almost all of the monthly rise in October. [On a very crude basis the rise in electrical goods multiplied by its weight in the core index gives 0.25 x 0.05 = 0. 0125, or 1.25%.  All the series in the dataset are individually seasonally adjusted so such a comparison is not sound].
But assuming that the jump in electrical sales hadn’t happened and further assuming that the index had remained at its September level, then both the volume and value indices would be showing an annual rise of around 2.3% in October.  This is only a modest rise in comparison to the drops that preceded it, and since the positive rise in July retail sales have been relatively static since (excluding the electrical goods bounce in October with a more minor impact on September).
The arithmetic average the value and volume indices for the first ten months of 2012 is almost identical to the same measure from 2011.  Stabilisation? Yes. Improvement? Not yet. Tweet

Collecting more Income Tax?

The pre-budget submission of the Irish Tax Institute contains the following:

The income tax yield in 2011 exceeded that for 2007, despite the dramatically reduced number of people in employment. The revenue from income tax (including USC) in 2012 is projected to be the highest ever (€15.3 billion) despite the ongoing high unemployment levels.

Here is a table of annual tax yields from the Databank of the Department of Finance.  Click to enlarge.

It can be seen that the Income Tax in 2011 of €13.8 billion is indeed more than the €13.6 billion collected in 2007.  However there is an element of comparing apples and oranges in the figures used the Irish Tax Institute, who you’d think would know their onions on this.

Here is a table that sets out the various deductions on income made since 2007.

In 2011, the Universal Social Charge (USC) replaced the Income and Health Levies and all income from the USC is counted as Income Tax.  The Health Levy, as an appropriation-in-aid, was paid directly to the Department of Health and is counted as a social contribution.

A like-for-like comparison between 2007 and 2011 would be to sum the following receipts, such that they are, in each year

Income Tax + DIRT + Income Levy + Health Levy + Universal Social Charge

For 2007 this would give a total of €14.9 billion and for 2011 a total of €14.1 billion.  Although there have been significant tax increases in recent years the €15.3 billion that is projected to be collected in 2012 is not significantly higher than the €14.9 billion collected in 2007 but there is a dramatically reduced number of people in employment.

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Taxing Wealth, er… Income

This week Sinn Fein released their budget proposals in a document called ‘Making the Right Choices’.  It contains a package similar in scale to the €3.5 billion of ‘adjustments’ proposed for Budget 2013. 

There are €2,758 million of proposed tax increases and €705 million of net expenditure ‘savings’ (though €433 million of those come from increased revenue measures in health (recouping the full cost of private beds from private patients)).

One of the tax initiatives is a new wealth tax.

A 1% TAX ON NET WEALTH OVER €1MILLION, EXCLUDING WORKING FARMLAND, BUSINESS ASSETS, 20% OF THE FAMILY HOME AND PENSION
POTS: RAISES €800million

Sinn Féin’s proposal is to introduce a 1% tax on all assets over €1million net of all liabilities, including mortgage and other debts. The tax would not be levied on 20% of the family home, the capital sum in pension funds, business assets or agricultural land.

It would apply to the global assets of those domiciled or ordinarily resident in the state and domestic assets only for those who are resident in the state for tax purposes.

Two examples are provided to illustrate how the proposal might work.  (Click to enlarge).

Here is a summary of Example B:

Of course, the first item on this list is not a typical component of wealth.  Wealth is usually defined as a stock measure of the difference between assets and liabilities at a particular point of time.  Income is a flow over a particular period of time.

We have taxes for income through Income Tax, USC and PRSI.  The above case would be subject to Sinn Fein’s proposed 48% rate of Income Tax on incomes above €100,000.  It also appears to be the case that those who are subject to the wealth tax will be subject to an additional 1% income tax on some measure of ‘net’ income.  Thus, the proposal is part wealth tax, part income tax.

If income was excluded from the base for the wealth tax (as would be expected) then the tax liability in Example B would be €5,150.  Raising €800 million from a wealth tax such as that would require the equivalent of 160,000 Ciarans.  A newspaper report of the proposal says:

Mr Doherty claimed that financial management company Merril Lynch had estimated there were 18,100 people living in the State with assets of more than $1m (€778,000).

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Taxing Income (again)

A couple of previous posts have looked at the implications of changes to income tax, here and here.  A recent parliamentary question provides some details of what would happen if:

1. the marginal rate of tax on Income Tax was increased to 71% for very high earners or
2. if the effective tax rate of Income Tax + USC + PRSI was increased by nearly a third for high earners. 

The answers to these questions were provided in a recent PQ set by Socialist Party TD Joe Higgins.  The emphasis was on tax cases with incomes over €100,000.   The marginal rate of tax for PAYE employees in this category is 52% (41% Income Tax + 7% USC + 4% PRSI).  For self-employed/non-PAYE earners the marginal rate is 55% as there is an additional 3% USC levy for non-PAYE earnings over €100,000.

The question set looked for the impact of marginal rates ranging from 48% up to 78% on different income ranges excluding PRSI.  With a 7% USC rate the proposed income tax rates start with the existing 41% rate up t0 71%.

Unsurprisingly the proposed 48% raise no additional revenue as that is identical to the existing rate.  There is a minor gain from the 50% rate and from 55% up the suggested impact of the new tax bands and rates can be seen.  The largest amount of additional tax revenue is in the widest band between €250,000 and €1 million with over €400 million raised from a new 75%. tax rate. 

The marginal tax rate of 78% on earnings over €1 million raises just €110 million.  This is because there are so few people earning this amount.  The 2011 tax distribution statistics from the Revenue Commissioners show that just 636 tax cases reported an income of greater than €1 million.  It is not clear how many individuals have incomes in excess in €1 million.

If there was 636 such people they would face an extra tax bill of around €175,000 from the 78% rate alone.  The increased rates on lower income bands would mean the overall tax increase for such earners from these measures would be larger.

In total nine proposed new tax bands with a top marginal rate of 78% would raise a little over €850 million.  This would help close a budget deficit of €13.5 billion but makes clear that increased taxes on high earners alone falls far short of the eliminating the deficit.

The second set of proposals had to do with increased effective or average tax rates for earners in similar income ranges used above.  For incomes over €90,000 the proposal would see the overall effective tax rate rise from 34.6% to 40.2%, with an effective tax rate of 50% or more for all incomes over €300,000.

In total these increases would raise €1,337 million which is equivalent to around 10% of this year’s deficit.  This is similar to an earlier proposal from NERI but gives specific effective rates for each income range.  It differs in that the proposed tax increase is about twice as large and focussed on a third as many people.  In both cases no specifics are given on how implementing these effective tax rates would actually be achieved.

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