Minister for Finance Jack Chambers will not be in a position to deliver on his predecessor’s plan to introduce tax changes in the upcoming budget to encourage households to invest their savings, rather than have money lying idle in bank accounts offering little or no interest, according to sources.
The final report on a Department of Finance review of the Irish funds sector, which is expected to highlight issues with the current tax system that act as disincentive to small-time investors, will not be published until weeks after Budget 2025 is unveiled on October 1st.
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Former minister for finance Michael McGrath told The Irish Times weeks before stepping down in June, when he was nominated as the Government’s pick for its next EU commissioner, that he had asked his officials to “look particularly closely” during the review at ways to increase individual participation in investment.
He flagged the previous month that the Government was looking at tax changes to make it more attractive for households to invest, noting at the time that people had more than €150 billion on deposit with banks, most of which is in on-demand or current accounts, earning little or no interest.
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“I’d like to see a significant share of those funds being put to more productive use in the economy, investing in structures that help to fund and support early-stage and innovative businesses,” he said at the time.
The funds sector review, launched last year, has been largely concerned with boosting Ireland’s position as a global hub for investment funds. Irish-domiciled funds, including regulated funds and unregulated special purpose vehicles, have more than €5.5 trillion of assets under management.
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The Irish funds sector employs more than 17,000 people across some 180 companies. Indirect employment, particularly in legal and accounting services, is also significant.
However, a number of submissions to the department have focused on issues concerning retail investors.
The Central Bank said in its submission that the review “should consider potential barriers to investor participation and measures to support domestic investors’ access to a wider range of well-regulated and cost-effective investment products to meet their saving and investment needs”.
This, it said, would enable both Ireland and Europe “to realise the full potential of our capital markets and support future economic growth and job creation”.
The Irish Equity Market Forum, comprising officials from the Dublin stock exchange and corporate law, accountancy and stockbroking firms, has called on the Government to launch a tax-friendly retail investment plan along the lines of the popular schemes in some other European countries, including the individual savings accounts (ISAs) scheme introduced in the UK 25 years ago.
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It urged in a pre-budget submission that an Irish so-called growth and returns account be launched, which would allow individuals to invest as much as €40,000 for a period of five years directly or indirectly in companies listed in the European Economic Area (EEA).
The Government here would be prohibited by EU state-aid rules from launching a scheme aimed at incentivising investment in stocks on the Iseq. A wider scheme focused on stocks across EEA would be of limited benefit to the Irish market.
The Irish Funds Industry Association has proposed a simplification and modernisation of the State’s funds tax regime to make it easier for Irish residents to invest in funds.
Meanwhile, Mr Chambers said on Wednesday that he planned to lift the €2 million tax-friendly cap, or standard fund threshold, for pension pots gradually from 2026, to reach €2.8 million by 2029.
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