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Finance Bill fiasco offers little hope to taxpayers

THE passing of the Finance Bill was another fiasco. The Bill does nothing to alleviate the financial burden placed on those with large home loans and business loans that were manageable before the economic crisis. It would be nice to think the next Government will not make the same mistakes.

Take home loans for example. The paltry 20 per cent tax relief at source was abolished in 2009 for most homeowners. The change was made without an economic impact assessment on how it might affect homeowners, or what alternative measures might protect their homes.

The controversial Finance Bill changes, for property based incentives, were put on the long finger in the first draft of the Bill. They have now been changed. It is an example of how there is no equity in the system. It is OK for a family to lose their home, but that can't be allowed happen with investments.

Surely it is better to share the burden, so that we can maintain the standard of living for as many people as possible. That security would increase public confidence and help regain prosperity.

The Universal Social Charge had to be changed to exclude medical cardholders. This was financed by increasing it to 10 per cent for the self-employed with incomes over €100,000.

The self-employed include a group that is still carrying the burden of debts that might have been bearable before the economic crisis, but are no longer sustainable. Those affected include small or micro-businesses that were too small to operate through limited companies.

Their impaired debts, which include bank loans and overdrafts need to be repaid from after-tax income. If tax is 55 per cent, it will take €222,000 of gross income to pay off a loan of €100,000.

The same business operated through a limited company would have paid tax at 12.5 per cent. It would only cost the company €114,000 to pay off the same loan. It's at times like this that the benefits of financial planning make sense. These anomalies in the tax system could be applied in a positive way to help those in trouble. Fianna Fail claimed they would get the banks lending again. I don't think that's the solution but they didn't do it anyway.

Things are so bad that the Finance Bill actually provides for the self-employed to pay their tax bills by credit card. Is this as good as it gets?

While Revenue may have eased up a little on hard-pressed taxpayers last year, this approach is being reversed. Tax revenues are down. It was nearly €50bn in 2007, but it is closer to €30bn for 2010. With no prospect of recovery, the Revenue's stranglehold on impaired taxpayers has started to tighten again. Everyone must pay what he or she owes, but at the same time you can't get blood out of a stone. If these small businesses are allowed to collapse it will be at a great cost to the Exchequer and it will prove to be a mistake. They need a valve to relieve the pressure and help them to recover.

Meanwhile, property developers have restructured their affairs and dumped their problems on the taxpayer. Small businesses are buckling under the strain of debt and they have no way out.

Limited companies have the option of liquidation and many are exercising it. Liquidations can be expensive and creditors usually carry the cost. Then the owners are free to move on. This is what the Government is counting on.

It's not so easy for sole traders who are personally liable for all their debts. Those with impaired loans as a result of the economic crisis have not been shown a way out. The banks are not lending. Government has provided tax incentives for new companies, but not for existing businesses. In a situation like this the weak go out of business and the strong survive and benefit from the misfortune of others.

Under direction from the European Commission the Government has started to move towards being a high-tax economy. While the VAT rate will not increase for two years many tax credits are being abolished. The personal credits were cut. Some such as rent credits will be phased out. Trade union subscriptions and fees for third-level education are gone.

There are rumours that tax credits are being claimed in the PAYE sector for bogus health expenses. Revenue are to get powers under the Finance Bill to impose penalties for false claims.

The problem is that the experts, whom the Government relies on, and its own officials can't see the wood for the trees. Their objective is sustainability of tax yield at all cost. It has no regard for tax equity, or the impact on society. At best it gives them lip service. It ignores basic economic principles and fundamental tax rules, or maybe it just doesn't understand them.

It is hoped that whoever forms the next government does a better job than the last one. We need fiscal and monetary policies that will help us recover quickly and not be burdened with unsustainable public or private debt.

When Gerry Adams gave up his seat in Westminster he was required to take up an 'office of profit' under the crown and he was given the title of baron. Perhaps our own Government should do something similar.

The retiring ministers would remain in the service of the State. An office of this type should be an alternative to paying the pensions that we cannot afford! It should be given serious consideration by the next government.

James Fitzsimons is an independent financial adviser specialising in tax and financial planning

Sunday Independent