wealth tax

Young people always end up footing the bill in Ireland

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Who has the most economic influence? And who has the least? Look at the report from the Oireachtas Committee on Social Protection on pensions this week and you can find some clues.

At every turn the report protects the older section of society, many of whose members have done financially quite nicely during the pandemic, at the cost of younger people, the section of society most exposed economically to the impact of Covid-19.

The underlying theme is that working-age people need to keep paying the bills for pension provision and that older people should not be asked to contribute more in any way. More widely, the report says much about the difficulties of facing up to any trade-offs in an era of populist politics.

Retiring baby boomers are to be supported by the younger generations and people at work through higher taxes as they drift into retirement – but can be expected to give nothing back in return

Because the population is getting older and people are living longer, we need to either find new ways to pay for the State pension or accept that pensioners will get less. As cutting benefits is a non-runner, it is clear that someone is going to have to pay more. The question is who.

The Commission on Pensions, chaired by Josephine Feehily. discussed how the burden should be shared in its report last year and came up with a formula to spread the load between general taxpayers, people approaching retirement and those already retired. This already involves significant support from the general taxpayer for the State pension.

But some of the big lobbies and the Opposition parties continue to object. In today’s Ireland no influential group can, it seems, be upset, or be asked to pay a small bit more, or qualify for a State pension a few years later. And the consequences of not doing this can be fudged. State borrowing at zero interest rates has temporarily removed any sense of a budget constraint.

You are free to make up our own mind on how this should work. But if you argue, for example, that people should be allowed to qualify for the State pension at 66, or even 65, then you need to point out how this might be paid for as the population ages – with a big group of “baby boomers” now retiring – and as people live longer. Otherwise there will be a massive chasm slowly opening up in the national finances.

Let’s look at how the Oireachtas Committee, chaired by Independent TD Denis Naughten and including representatives of all the main parties, did it. First it ruled out any increase in the pension qualifying age from its current level of 66. The Pensions Commission had come up with a proposal for very gradual and slow increase from 2028 on, but this was rejected. Immediately this leaves a big hole to be filled. One of the ways in which the commission suggested the bills for future pensions be paid was imposing PRSI, at a reduced rate of 4 per cent, on the incomes of people over 66 years of age, currently exempt from the charge. No PRSI would apply to welfare payments, including the State pension. It seemed part of a decent solution. But no, the Oireachtas committee ruled this one out too.

Mandatory retirement age

The politicians went on to recommend the banning on any mandatory retirement age in work contracts. Retirement ages allow companies to plan their workforce and offer promotion routes for younger people. The Oireachtas Committee wants all the power left in the hands of the retirees.

So how does the committee believe the funding gap should be closed? Well it is in favour of higher PRSI on the self-employed – and there is a case for this. It also joins the chorus for higher PRSI on employers. This is likely to happen, but the resulting revenue has already been spent a few times over in various proposals for social improvements, including some kind of pay-related unemployment benefits now in planning by Government.

The committee throws in the idea of a wealth tax as a way to help pay the bills, an issue which the Commission on Tax and Welfare will probably examine, but potential revenue is unclear. With Sinn Féin opposed to the local property tax – and the Government jumping through hoops to avoid bills going up in the latest revaluation – increasing tax on the main source of household wealth is off the agenda. Again, the older property-owning class are protected.

Gratuitous swipe

As if all this was not enough, the committee had a final gratuitous swipe. The State is considering an auto-enrolment scheme to get people in employment to sign up for occupational pensions. This is likely to involve some State investment to incentivise people to participate – those benefiting will be mainly younger and less well-off people in jobs where people often don’t have private pensions. But the committee warns that it would not support any savings coming from increasing the retirement age to help pay for this. Game set and match to the older generation. The retiring baby boomers are to be supported by the younger generations and people at work through higher taxes as they drift into retirement – but can be expected to give nothing back in return.

As well as disregard for the interests of the young, the report demonstrates how politics is swayed by more vocal and organised groups, at the expense of wider more diffuse groups, like “ taxpayers, or “ young people”. Trying to avoid upsetting any of the noisier and more influential constituencies means the political system rarely faces the key policy trade-offs head on. Just look at the fudge on carbon emissions from farming, for example.

This month the tax and welfare commission – asked to review the homework of the pensions commission – will report to Government on the State pension issue. A Government decision is expected before the end of March. Young people are already being screwed in the housing market. Let’s not do them again on pensions.

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