by Stephen R Jones 25th November 2010The structural Deficit is totally of the Irish Governments making.
What will irk many in the UK, given that the Coalition Govt is helping with a loan of £7billion, is the fact that the Irish structural deficit was built up against a background of a large number of over generous tax-breaks. That is why the loan hurts, it is a bitter pill to swallow for many, even though it may be necessary to protect our closest trading neighbour.
These tax breaks include relief from Mortgage Interest payments, Rented accommodation and even membership of Trades Unions. I have given full details of these tax breaks in this blog.
Irish residents had the luxury of not paying any charges or rates for Water and Residential Property. Over the years these benefits, together with the tax break listed below would have been worth much more than the £7 billion loan that the UK is making to Ireland. Even during the golden decade of the Celtic Tiger years, welfare spending doubled.
Other benefits are much more generous than the UK. For example, the basic state pension in Ireland is the equivalent of £204 per week against a maximum of £97.66 in the UK.
In addition to the structural deficit, total Irish debt has mushroomed as the Irish Banks are virtually bust and guaranteed by the state. Many commentators have said that the 'bust' was partly due to the global banking crisis but more specifically it was due to reckless lending in a lax regulatory regime. The Irish Government will now have to deal with this financial calamity although their four year plan published yesterday only begins to tackle the available tax breaks.
In any case I believe this is all academic as without a devaluation Ireland has little chance of getting out of its financial mess. Default and exit from Eurozone seems the most realistic outcome.
Sample list of over generous tax-breaks
Rent-a-Room Relief
Where a room (or rooms) in a person’s sole or main residence is (are) let as residential accommodation, gross annual rental income, together with any sums received for the provision of meals or other services supplied in connection with the letting, may be exempt from income tax where the aggregate amount received in the year of assessment does not exceed the annual limit ( €10,000 for 2009 & 2010). Relief in respect of mortgage interest relief is not affected.
Childcare Services
Childcare Services relief is a scheme of tax relief for income arising from the provision of certain childcare services. When the gross annual income from the provision of childcare services does not exceed €15,000 in 2009 or 2010 the income is exempt from tax. The childcare service must be provided in the carer's home, not the children's home and no more than 3 children may be cared for at any time.
Rent Relief for Private Rented Accommodation
Relief is due at the standard rate of tax (20%) in the tax years 2009 and 2010 subject to the following upper limits: Personal Circumstances Tax Year 2009 Tax Year 2010
Single Under 55 max. €2,000 €2,000
Single Over 55 max. €4,000 €4,000
Widowed/ Married under 55 max. €4,000 €4,000
Widowed/ Married over 55 max. €8,000 €8,000
Tax Relief for Mortgage Loan Interest (Secured and Unsecured)
Tax relief for home mortgage interest (secured loans) is not given through the tax system but is instead granted at source (TRS). Mortgage repayments are reduced by the amount of the tax credit due. For example, if the interest element of your mortgage repayment per month is say €500, your mortgage lender will reduce your monthly mortgage payment by €100 per month. This reduction is the same as giving tax relief at the standard rate of tax (20%).
Trade Union Subscriptions
An annual flat rate allowance of €350 at the standard rate of tax 20% (tax credit €70) is available for Trade Union subscriptions paid in 2009 and 2010.
Tuition Fees
Tax relief at the standard rate of tax (20%) in the tax years 2009 and 2010 is available for certain tuition fees. The maximum limit on such qualifying fees for the academic years 2009/2010 and 2010/2011 is €5,000.
