Tax revenues collected on savings accounts slumped to a 15-year low in 2017, as savers continued to earn negligible returns on their deposits.
According to new figures from the Revenue Commissioners, some €118 million in deposit interest retention tax (Dirt) was collected in 2017, down 31 per cent on 2016.
The amount the exchequer has managed to collect by imposing tax of as much as 41 per cent on interest earned on deposits has been in decline since 2012, as banks started to slash interest rates.
In 2008, for example, the State collected taxes of €654 million on deposit accounts, but with interest rates of less than 0.5 per cent now the norm on deposits, both savers and the exchequer have struggled to make a decent return.
While the rate of Dirt fell in 2017 – down to 39 per cent from 41 per cent – this decline is unlikely to account for the substantial 31 per cent drop in tax revenues.
Prior to 2013, for example, Dirt was levied at a rate of 33 per cent. The tax is currently levied at a rate of 37 per cent, and the Government has indicated that it will cut it by 2 per cent in 2019 to 35 per cent, and by a further 2 per cent in 2020 to 33 per cent.
Nonetheless, despite the low rates of return on offer, Irish savers continue to hold firm with deposits. Latest figures from the Central Bank show that household deposits grew by €2.9 billion in 2017.
Exit tax
The figures also show a decline – albeit less significant – in revenues earned from life assurance exit tax, which is levied at a rate of 41 per cent on the proceeds of life wrapped investment products.
In 2017 Revenue collected €184 million in exit tax, down 20 per cent on 2016, and down 26 per cent on 2015. However, the figure was still higher than the €130 million collected in 2014.
Up until 2017 Dirt and exit tax were levied at the same rate. However, the Government opted to break the link in budget 2017 by cutting the rate of Dirt, and the life sector has since lobbied strongly that exit tax should be cut to the same level as Dirt.
Michael McKenna, managing director of Standard Life Ireland, said that returning parity would be a "three-way win" for Government.
“It’s cost-effective good policy-making by government, it makes long-term sense for savers and will be particularly popular with the squeezed middle income households. Over time we believe it will also prove valuable to Revenue as Dirt returns continue to be impacted by low interest rates.”
He noted that it would cost the exchequer about €15 million a year, or €60 million in total, to cut exit tax by 3 per cent a year, until it reached parity with Dirt at 33 per cent.
