Sewing pockets into shrouds is one part of the campaign to cut inheritance tax. Another is to establish squatter’s rights over the promise of tax cuts, however, negligible in the context of the overall tax take. Talk about cuts is the best bluster to ward off the truth of spendthrift rises in public expenditure. It is a game of bluff, and a game for chancers.
Ghouling the better off is the game for budget day. Self-appointed tribunes of a patrician order that doesn’t exist bewail a 33 per cent tax on inheritances for children on amounts above €335,000 from deceased parents. It cleverly creates an imagined affliction that leaves the mark of the better off on those who bear it. You are oppressed but allowed into the dress circle with a problem that says you have socially arrived. Capital Acquisitions Tax, including inheritance tax, contributed less than 1 per cent of all taxes in 2023. It’s a cheap ticket for so much regard.
At best it is awful nonsense. At worst it attacks a tax base that is already too narrow. Just as our demography is changing, it doubles down on the burden that fewer workers must bear for ever increasing numbers of dependents. It is an injustice only if you forget that we have virtually no tax on either property or wealth in Ireland. Local property charges also contributed less than 1 per cent of all taxes raised last year. To be adequate to fund even basic local services it would need to be five or six times greater. Water charges were disastrously abandoned and what is left is at best a narrow tax base, if not one that is structurally unstable.
[ Cantillon: Inheritance tax campaign is a nod to the richOpens in new window ]
We exclude a lot from VAT, we increasingly depend on Corporation Tax, and the workhorse that is left is income tax. Income tax is what a declining proportion of people who are working, relative to the population, will pay to support those who are not. For every public service, there is a disproportionate dependence on the income tax of working people. It is not just demographics that are changing, it is how those people will live over the coming decades. Significantly fewer will be homeowners. Those that do will arrive over the threshold later, and with a 30-year mortgage, not the 20-year one that was previously the norm. Having probably frequently changed jobs, they must provide for a pension to support the last stage of an average lifespan of 82 years now and increasing. That is 12 years longer than when I was born and that changes a lot of things.
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They have been treated unfairly by a refusal to increase the age of eligibility for the old-age pension. Political avoidance of user-pay charges or taxes on wealth and property loads up on a generation that will live longer than any other, but much less securely than the last. Your 60s are the new teens, spent waiting impatiently for a free gaff when your parents are gone.
Cutting inheritance tax benefits the offspring of the generation now leaving property behind – and their parents already enjoyed mortgage interest relief in the past. Buyers now are acquiring a home with parental help or subsidised schemes that use general taxation paid by all to assist relatively few, while further inflating house prices across the board. House prices are rising at more than 8 per cent per annum. That is an incredible benefit for those who get it. It is based on massive investment in public infrastructure and delivers an almost completely untaxed asset for life. In the circumstances, inheritance tax seems a modest, and delayed payback.
[ The Debate: Should inheritance tax be cut in the budget?Opens in new window ]
If there was consideration of tax policy in the round, there might be something to talk about. But there is not. If there was any commitment to restraining public spending, rebalancing the tax burden might be possible. Instead, spending increases make any reduction of the tax burden impossible, except for cosmetic changes to personal tax rates and allowances on budget day. Talking up inheritance tax is to play at real politics.
From the same playbook that dismissed parts of the Report of the Commission on Taxation and Welfare in Leo Varadkar’s words as “straight out of the Sinn Féin manifesto”, comes the trumped up outrage about inheritance tax. It doesn’t matter that the surviving spouse, civil partner or anyone who has lived in a property for three years is not affected by inheritance tax at all.
What matters is a political view that piling more responsibility on taxes paid by labour is preferable to taxing property or wealth. In multi-seat constituencies where government formation is swayed by a handful of votes, exciting a simultaneous sense of grandeur and oppression may work in more affluent suburbs. It is a contortion that allows those who have paid virtually nothing by way of taxation on their property to say they are being asked to pay too much.
It masks the failure of its proponents to deliver on their own economic credentials. It is the bluff of politicians who failed to contain the growth of the State, or the expenditure needed to run it. They simultaneously depend on higher taxes, corporation tax for now, and the talk of cutting taxes to counter that fact. But they cannot ultimately cut what they will not control. Instead, they tinker at the edges, and take the chance that the meaning of their words is not exhausted by polling day.