Maybe the newly refurbished Cashel Palace was right recently to charge €45 for three scones and coffees. After all, there appears to be a significant number of people for whom such an outlay would be small change. The number of wealthy people in Ireland has increased substantially in Ireland in recent years. And not only that, but as a new report shows, the rich are going to get even richer, as wealth creation in Ireland is set to outpace growth across the world.
It may not mean much to your daily life but Ireland has just been described as a “wealth hub” in a new global report. What does this mean, you ask?
According to Knight Frank, Ireland, along with other countries such as New Zealand, Singapore, Israel and China, is among 10 countries forecast to see the largest proportional increase in their extremely rich populations in the decade up to 2026. This means that when you take population size into account, wealth creation is growing at a faster rate in Ireland than elsewhere.
The number of ultra high net worth individuals – or those with a net worth of $30 million (€28.5 million) or more – is set to explode here though the figures do include the value of their family homes.
Ireland is set to be the fifth fastest country for creating these super-rich individuals, with the number of such wealthy individuals set to increase in Ireland by 209 per cent between 2021 and 2026. New Zealand leads the charge, with predicted growth of 270 per cent.
But what’s driving such a level of growth? And how might it impact on policy decisions?
The millionaire figures
According to this year’s Knight Frank Wealth report Ireland had 326,050 dollar millionaires (people with assets of €947,650) last year, up 15 per cent on the previous year. While this is a significant number, it should be noted that the report’s definition for a high net worth individual is one with assets of $1 million including the family home.
Given the sharp rise in property prices in recent years – now just 2.5 per cent off peak 2007 prices, according to the latest figures from the Central Statistics Office – some of this wealth creation can be accounted for by property price growth.
Latest figures from the Central Bank show that Irish household wealth reached a record high of €995 billion in the fourth quarter of 2021. Of this, housing assets accounted for 63 per cent, or some €630 billion, ahead of the previous peak of €604 billion in the fourth quarter of 2007.
What’s surprising, perhaps, is how fast wealth is being generated in Ireland.
Ireland's growth rate exceeds the global growth figure of 7.8 per cent, putting the rate of wealth creation in Ireland ahead of countries such as Australia (7 per cent); France (13 per cent); Germany (6 per cent); New Zealand (5 per cent); the UK (14 per cent) and US (6 per cent).
When it comes to the ultra high net worth, Ireland is also experiencing strong growth with 2,479 people in this category in the State last year, up by 11 per cent on 2020. This again beats global growth rates (9.3 per cent) and the rate of growth in countries such as Australia (10 per cent) and France (10 per cent), though it matches the figure for the UK (11 per cent) and is less than that reported in the US (13 per cent).
More significant, perhaps, is the report’s forecasts. It is predicting an explosion of millionaires in Ireland with the figure set to more than double by 2026, when it expects there to be more than half a million millionaires.
Between now and 2026 the number of millionaires will rocket by 67 per cent to 545,474.
Based on population projections from the Central Statistics Office (CSO), which forecasts a population of between 5.1 and 5.3 million by 2026, this would mean a staggering one in 10 Irish residents would be millionaires.
And the very rich are also set to get even richer, with the report forecasting another 1,070 ultra high net worth individuals will be created between now and 2026. This would make Ireland home to about 3,500 people with assets of $30 million or more, up by 44 per cent on 2021.
So what’s going on?
Wealth creation
According to Liam Bailey, global head of Knight Frank's research department, it's all down to economic growth.
“The primary driver behind the Irish forecast is down to GDP projections. The Irish economy is set to outpace most major developed economies over the next few years,” he says. “This is the critical driver of wealth performance.”
When looked at in terms of GDP per capita, he notes that in 2021-2026 projected growth in Ireland is at 36 per cent. This compares with the UK (28 per cent), Germany (27 per cent) and France (25 per cent).
Stronger economic growth feeds into strong asset prices, property prices and overall wealth in an economy.
Global trends
It’s not just in Ireland that the rich are getting richer. Overall, the report finds that the economic recovery experienced in the wake of Covid “supercharged” wealth creation.
Worldwide the number of ultra high net worth individuals jumped by 9.3 per cent, creating an additional 52,000 very wealthy people compared with just 12 months earlier. This growth was evenly spread, with North America (up 12.2 per cent) just ahead of Europe.
The US remains home to the largest number of millionaires, at some 24.3 million, followed by China with 9.3 million and France with four million.
And growth won’t stop there: a further 28.3 per cent rise in the number of ultra high net worth individuals globally is expected by 2026.
Ireland, and other countries like it, are also benefiting from an injection of capital as globalisation and cross-border property investment is on the rise. Around 15 per cent of ultra high net worth individuals plan to apply for a second passport or new citizenship, and 36 per cent of those are planning to do so for a better quality of life, according to the report.
While investment in crypto and non-fungible tokens is on the rise (18 per cent of ultra high net worth individuals now own some kind of crypto the report finds), property is still a big play. Almost a quarter of the global super-rich are planning to invest in property this year, with the the report tipping offices to be the “biggest target”, followed by logistics and residential.
The report also finds a strong trend towards younger, self-made ultra high net worth individuals, estimating that almost 130,000 of the global number are self-made and under the age of 40 – almost a fifth of the total.
More tax?
Given such sharp rises in wealth, a policy response is likely amid fears of growing inequality. Report author Bailey suggests “more wealth taxation, focused on assets rather than income, and a narrowing in the number of low-tax jurisdictions” as a likely outcome of this.
When wealth advisers were asked about their biggest concerns for clients 70 per cent cited tax and regulation, alongside inflation (70 per cent), new Covid-19 variants (66 per cent), and interest rates (60 per cent).
In Ireland there has been talk of a wealth tax for some time and this is expected to form part of the newly created Commission on Taxation and Welfare’s considerations.
Sinn Féin has proposed imposing a 3 per cent “solidarity tax” on people earning more than €140,000, which would focus on the income end of things. This would bring the top rate of tax – when USC and PRSI are included – up to 55 per cent and potentially 58 per cent for those who are self-employed.
On the asset side it wants to see the local property tax (LPT) – perhaps the nearest thing we have in Ireland to a wealth tax – abolished and replaced with a wealth tax. This tax would apply at a rate of 1 per cent on net wealth held above €1 million, to a host of assets, including the family home (with the first 20 per cent of the family home excluded), all income and savings and land.
Pension funds, as well as shares in private trading companies, would be excluded.
It would mean, for example, that someone with a family home worth about €1.3 million could be subject to the tax. It has been forecast that this would bring in revenue of €129 million a year. According to the annual report of the Revenue Commissioners for 2021, published last week, local property tax brought in €551 million.
