Isme warns: No more State theft from private-sector pensions

Volunteers ready this time to legally challenge inequity of tax treatment between private and public sector pension savers

'The State larceny of private sector pension funds continued for five years and pilfered over €2.3bn.'

October is always a busy time for Isme, as the budget is due, and the expectations of the SME community are many.

Given the state of Ireland’s finances, our concerns are more acute this year.

The last time the public finances were this bad, the Department of Finance resorted to plain and simple theft to balance the books. 

Our hope is that this Northern Bank-esque ‘fund-raising’ will not recur

The so-called ‘Pension Levy’ was introduced in the 2011 budget, and was justified on the basis it allowed the introduction of the temporary 9% Vat rate.

Consider that for a moment. The then Finance Minister stated he was able to fund a stimulatory Vat rate by dipping into the coffers of private citizens and expropriating their money. 

This State larceny continued for five years and pilfered over €2.3bn in private sector savings.

The current Minister for Public Expenditure and Reform, Michael McGrath, voiced serious objection to the Pension Levy, so our hope is that this Northern Bank-esque ‘fund-raising’ will not recur.

However, the Revenue Ready Reckoner, a document produced every year ahead of the budget, continues the annual threat to attack private sector pension savers. 

It discusses the amount of money the Revenue expects to take by raising or lowering individual heads of tax or duty.

Crucially, it does not allow for the behavioural effects of tax changes.

Behaviour matters. Revenue says each 1% increment in Vat yields a €430m increase or decrease in Exchequer income. But no one seriously believes that increasing the (temporary) 21% Vat rate to 42% would yield an extra €9bn in tax. People would spend less with each 1% increase, to a point where total yield would fall.

This relationship between tax rate and yield is known as the ‘Laffer Curve.’ Capital Gains Tax is a good example of where the State is already suffering a lower yield because of too high a rate. We estimate a reduction to 25% would increase yield by about €100m per annum.

Neil McDonnell, chief executive, ISME: "The last time the public finances were this bad, the Department of Finance resorted to theft from private sector pension funds to balance the books. 

Back to pensions. If the State has no plans for another levy, it is toying with reducing tax relief and reducing the income threshold that currently applies. 

Since private-sector pensions already lag so far behind public sector pensions in their tax treatment, our members have had enough.

The status quo is already discriminatory. ISME has a number of volunteers who are willing to go forward and legally challenge the inequity of tax treatment between private and public sector pension savers. 

Stay tuned.

We took few crumbs of comfort from last week’s announcement by the Law Reform Commission (LRC) that a legislative cap on damages was constitutional. 

We knew that for years. 

The LRC made but one reference to extant legislation capping damages.

The fact that the Civil Liability Act 1961, the Unfair Dismissals Act 1977, and the Protected Disclosures Act 2014 (among others) all express legislative caps on damages fatally undermine the assertion that damages can only be set by judges.

The LRC has recommended that the problem of fixing sky-high damages should be left to the judiciary. The fact that the judiciary caused the problem in the first place is therefore problematic.

Do they reduce damages for minor injuries in line with the 80% reduction in Isme’s Fair Book of Quantum, thereby admitting historic error; or do they reduce them by 30%-50%, which will not resolve the problem at all? 

A real dilemma.

One thing is certain, though. The Personal Injuries Commission, the CSO, and the Central Bank have all established — beyond doubt — the relationship between general damages and the cost of insurance.

It is time for our colleagues in the legal lobby to stop denying it, thus our request to the Law Society to take down a press release last week which did so. 

It’s time for the lawyers to catch up with the real world.

— Neil McDonnell is chief executive of small and medium-sized business group Isme