There will be shortfall of at least a quarter on the Labour Party’s promise of a €500 million “wealth tax” package announced last December in the budget for 2013.
New figures released by Minister for Finance Michael Noonan this week showed cuts in tax relief for private pension funds that would provide pensions of over €60,000 per annum will yield far less revenue for the State than anticipated.
In the budget last December it was estimated the annual saving to the State would be €250 million. But in a reply to parliamentary questions put by Fianna Fáil finance spokesman Michael McGrath and former Labour minister Roisin Shortall this week, Mr Noonan disclosed that the yield would be less that - only €120 million.
Mr McGrath said the disclosure had “blown a massive hole” in Labour’s “wealth tax”, reducing its overall value from €500 million to €370 million, a fall of 26 per cent.
“It was never the case that it could yield that much and the claim has been dismantled by the release of this information that the State will get less than half the proceeds it claimed,” he said.
The measure was announced in the budget of last December but because of the complexities in setting up the scheme, its introduction was delayed until 2014.
The Labour Party made it the central party of a “wealth tax” package which it said would yield half a billion euro to the State.
This single measure would yield €250 million, the party claimed. Other measures included in last year’s package were the increase in Dirt tax to 33 per cent; increases in Capital Gains Tax and Capital Acquisitions Tax; extending PRSI to all non-direct income including rents and share dividend income; and what it described as a “mansion tax” of 0.25 per cent on homes worth over €1 million.
The package was announced after Labour Ministers were unsuccessful in their efforts to get Fine Gael to agree to those earning over €100,000 paying an additional 3 per cent in the Universal Social Charge. It was received, politically, as a consolation to the junior Coalition partner to show measures directed at the wealthiest in society.
Government and Department of Finance sources said yesterday that other measures announced in this year’s budget compensated for the shortfall. Measures that were cited from this month’s budget were the bank levy of €150; the further increase in Dirt from 33 per cent to 41 per cent, and the continuation of the pension levy beyond its expiry date.
It was also pointed out that there was an inevitable element of estimation when trying to predict the figures for measures like this, with one source suggesting the savings to the State could be higher.
“The Department of Finance adopt a conservative approach. We would hope that the take-up will be higher than that,” said the source.
Last week, Mr Noonan disclosed disagreements between his department and the pension industry.
At an economic forum last Friday, he said he had fulfilled his side of the bargain, but the pension industry had not.
This was taken as a reference to the agreement that the Government would not reduce tax relief on pension levies from the marginal rate of 41 per cent to the standard rate of 20 per cent, or an intermediate rate in the low 30s.
The Government position is that the pension industry provided figures for the alternative solution that have not been borne out upon scrutiny. The department said last night that the issue of reducing tax relief from the marginal rate will not be revisited.
