Wednesday 16 October 2019

Pension levy was always a wheeze too far

Forcing private sector pension paupers to continue subsidising public sector princelings is a step too far.

Victor Meldrew
Victor Meldrew

Marc Coleman

There are many words I could use to describe the pensions levy. Unfortunately they aren't ones that my editor will let me use in a family newspaper like this one. So about the politest description I can use on these hallowed pages is to describe it as a "tax wheeze".

A "tax wheeze" is a term used in Britain to describe a tax that is disingenuous, deceptive or underhand. On the face of it, the pensions levy is the saintliest of things, brought in to fund the 'Jobs Initiative' of 2011. Who could object to that?

But already the smack of wheeze about this tax is evident: Point out that it is levied on private sector workers funding their own and inferior (defined contribution) pensions to subsidise superior (defined benefit) pensions of their public sector peers, and the response you get has a whiff of: "You wouldn't hit a boy with glasses would you?" logic. Oppose this tax and you are opposing job creation, motherhood and Father Christmas.

But today's voters are smarter than this. The Government likes this levy and it isn't hard to see why. As Louis XIV's great finance minister, Jean Baptiste Colbert, advised, raising taxes is like plucking goosefeathers - you want lots of feathers and as little hissing as possible. Compared with last May's electoral bloodbath - not to mention Friday's by-elections - caused largely by property tax and water charges, the relative silence over the pension levy has tempted the Government into thinking that it has found an easy target.

The headline rate of the levy - just 0.75pc - also cleverly disguises how much money the Government is getting: The average pension fund will lose €36,400 over its lifetime, according to the Professional Insurance Brokers Association. That's more than most of us paid in stamp duty. Unless, of course, the Government cuts, or - as it promised to do two years ago - abolishes the levy. Given the €2bn taken so far in the levy, why the lack of public protest? Simply because this is one tax the effect of which you won't notice until you are retired. Even then, you would probably need to be an actuary to work it out.

Now consider two things. First, the pensions levy is due to yield some €675m next year - and this is comparable to a year's combined take in property taxes and water charges. Now compare the relatively little hissing over the pension levy with the squawking, caterwauling we've heard over the latter two taxes, and it's easy to see why the Government reneged on a pledge made two years ago to abolish it. From a Government point of view, this tax is too good to be true. But as the nervousness of Fine Gael backbenchers last week shows, the Government may be miscalculating. Equating silence with acquiescence can be mistaken.

As argued here some weeks ago, the quietest of dogs may be the most vicious. When the high number of undecided voters in recent polls is accounted for, Fine Gael's core vote nationally isn't much bigger than the 15pc it received in the Dublin Euro elections. They don't wave placards or stage sit-down protests. But the Government ignores those affected by this levy at its peril.

In fact, large swathes of Middle Ireland already cannot understand why they should have to pay an additional tax on defined contribution pensions in order to fund public-sector pensions that are defined benefit, and invariably more generous. And while it's a more slowly boiling source of resentment than utility taxes, the levy - if continued - could bring political divisions to a head in 2016 in a way the Government has not yet foreseen.

Reducing rather than scrapping the levy is probably the favoured option of the Government. But therein lie two problems.

First, it promised to scrap it and the perception of broken promises have been the bane of this Government. Second, even if it is reduced, the levy will be a reminder of an issue that is poisoning Irish politics - the feeling that those who inflict the levy and other taxes derive a benefit from those taxes that we do not: pensions the likes of which we can't afford.

The levy is not just a tax. It is a constant reminder of the second-class citizenship to which many in the private sector now feel relegated.

Marc Coleman presents 'The Marc Coleman Show' each Sunday from 9pm on Newstalk 106-108fm.

Sunday Independent

Today's news headlines, directly to your inbox every morning.

Don't Miss