It is high time we stopped punishing prudent people

WE have reached the point where the tax on savings is so high that it has become useless even as a taxraising measure. Don’t take my word for it. Here is what the officials in the Department of Finance wrote recently on the deposit interest retention tax (Dirt) rate in what they call a Tax Strategy Group Paper — a document setting out the options for the Budget: “The standard Dirt rate has increased significantly since 2008 (up from 20pc to 41pc) and is now 1pc higher than the higher rate of tax. Despite this, yields are falling, which may indicate we have reached a point of diminishing returns.”

Diminishing returns refers to a point reached when the level of profits or benefits gained is less than the amount of money or energy invested.

We have reached that point with our stratospherically high Dirt rate — and remember that pay-related social insurance (PRSI) also applies on the returns on savings for many people.

The tax was hiked during the austerity years to boost the depleted Exchequer finances and to try to force people to spend their savings.

Some €2.3bn has been raised from Dirt since 2008, according to the Government.

Dirt is nothing short of a tax on thrift. It savagely penalises the prudent — people putting money aside for children’s education, for medical costs or for future nursing home care.

The Dirt tax rate takes no account of people’s income, with the same rate applying to those on low incomes as to millionaires.

Banks have disgracefully reacted to the sly and persistent raising of Dirt tax over the past few years by lobbying the Government to slash the interest rates paid on tax-free state savings bonds and certs.

Five times in four years the interest rates on state savings bonds and certs and the Prize Bond pay-out fund have been reduced.

The closing of this potential option for savers has left the prudent at the mercy of banks that have repeatedly cut what they pay to depositors.

Many demand deposit accounts are paying insultingly low rates of only 0.01pc.

The high Dirt rate discriminates against older people, who are usually anxious about having some money set aside to meet unforeseen events.

Our nearest neighbours in Britain recognise the importance of people being encouraged to save. Anyone earning under £17,000 (€19,562) is exempt from tax on interest. Basic rate taxpayers are exempt on the first €1,000 of interest.

In this country you get pummelled for being prudent.