Outline of reasoning behind an Irish version of the Canadian TFSA/UK ISA
The tax landscape in Ireland is intimidating to the average citizen which results in the vast majority of Irish Savers avoiding investments as part of their saving strategy. We are advocating for the creation of a tax free/efficient savings and investment scheme that will allow low-mid income earners in Ireland to have a more accessible method of gaining compound returns.
The interest rates offered by banks are minimal and are often subject to restrictive conditions. Irish Savers are at risk of losing the value of their money over time due to inflation. As reported by the Irish Times in 2019, 88% of Irish Savers fail to keep up with inflation when DIRT is applied.
The high rates of tax on any type of investments make it extremely difficult to take advantage of compounding interest/returns. Without this, there are few enticing options for those with less money to gradually build up wealth. The UK has a tax-free savings scheme called ISA, which allows for yearly contributions of any amount (up to £20k) into the investments of one’s choosing (obviously from suitable providers). Canada has a similar offering called the TFSA that has a limit of $6,000 per year. This enables individuals of low-to-mid income levels to access the powerful effects of compounding interest.
The investment landscape in Ireland is intimidating for regular savers. A vehicle like the TFSA/ISA would help to enable Irish citizens to make better use of their savings.
Just to outline the power of compound interest/returns, we will detail the following example:
A saver, at the age of 23, starts to contribute through an ISA to a diversified global fund. They get a return, post fees and inflation, of 5% per year. They contribute £1000 per year until the age of 50. Their end amount (from rough calculations) is £57,402. They have only contributed £27,000 and the rest was gained from compound interest. If they kept saving this amount until 60, they would have £106,709 (having only contributed £37,000). This is an accessible method of building up savings and wealth for those of any income in Ireland.
All the above means that property is the favoured option for those who want to build wealth. This contributes to several issues such as the overheated property market, with available housing stock being purchased by those looking to invest. It sets a high bar of entry for those wishing to build wealth in Ireland (deposit/owning their own home of occupancy before accessing buy-to-let mortgages). These act as barriers for low-to-mid level earners in Ireland.
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