Calls for Government to cut 'crazy' tax on savings interest in Budget
Published 06/10/2015 | 02:30
Consumer groups and banks are calling on Finance Minister Michael Noonan to cut the tax on interest earned on savings in the Budget.
The tax on savings has doubled during the austerity years, with almost half of any return being earned from bank or credit union savings accounts going back to the Exchequer.
And savers have seen the returns they get on their money collapse during the austerity years.
Michael Kilcoyne, of the Consumers Association, said it was "crazy" that even those who pay income tax at a rate of 20pc were hit with double this amount on any interest they earn on savings.
And the Irish Banking and Payments Federation is understood to be pressing the minister to reduce the tax. It told the minister the high tax is acting as a disincentive to saving by bank customers.
It argues that the deposit base is critical to avoid banks having to raise money from wholesale money markets, something that was said to have contributed to the banking crash.
Interest earned on savings is taxed at 41pc. This DIRT (deposit interest retention tax) rate has shot up from 20pc back in 2008, just as the financial downturn hit.
And some PAYE (pay as you earn) workers now have to join the self-employed and pay 4pc PRSI (pay related social insurance) on the interest earned on deposit accounts, if they are under the age of 66 and have unearned income of more than €3,174.
This means that 45pc of any interest earned on savings is taken in tax.
The hefty tax on savings coincides with banks slashing the interest they pay on savings to mean savers are getting tiny returns, experts said.
The best interest rate on a one-year savings account has dropped from 3.5pc in 2010, to just 1.15pc at the moment, according to calculations by price comparison site Bonkers.ie.
DIRT tax shot up from 25pc to 41pc in the same five-year period.
In 2010, €10,000 on deposit returned €262.50 after DIRT tax. This year the €10,000 amount yields just €67.85, once DIRT tax is deducted.
This means Irish people are earning 74pc less on their savings than they were just five years ago, Bonkers.ie worked out.
Despite poor returns, savers have more than €93bn on deposit with banks, the highest deposit level since January 2011.