Dirt tax shambles needs to be cleaned up once and for all

The tax on savings is now so high that it is failing to work as a revenue-generating measure. Photo: Brian Lawless/PA Wire

It may have seemed like a good idea, at a time of austerity, to keep hiking the tax on savings in a bid to force householders to withdraw their money and spend it.

That was the thinking when the deposit interest retention tax (Dirt) rate was doubled from 20pc in 2008 to 41pc at present.

But the high-tax plan has completely backfired.

Instead of being encouraged to pull their money out of banks and credit unions, consumers continue to squirrel away cash, fearful of shaky banks and a precarious economy.

The latest figures from the Central Bank show that householders had €95.72bn in savings in the banks in August. This is up almost 3pc for the same month last year.

The tax on savings is now so high that it is failing to work as a revenue-generating measure, government officials have admitted.

Officials in the Department of Finance stated in a recent paper outlining 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 when the level of profits or benefits gained is less than the amount of money or energy invested.

Many squeezed middle-income earners see Dirt as punishment for trying to be prudent by putting money aside for children's education, for medical costs, or for future nursing home care.

It is high time this unwise levy on those acting responsibly by providing for themselves was radically reduced.

Irish Independent