Vol. 470 No. 7
73 Mr. Hughes asked the Minister for Finance his views on whether the increase in DIRT tax in last year's budget is a disincentive to elderly people to use financial institutions; and whether he will introduce a reduction in this tax to encourage people over the age of 65 to lodge their savings without having quid pro quo reductions in their social welfare entitlements. [19813/96]
Deposit Interest Retention Tax, DIRT, is generally paid on deposits at the standard rate of income tax, currently 27 per cent. Since 1993, DIRT satisfies the depositor's full liability to income tax in respect of interest income, even if the depositor marginal rate of income tax is at the higher 48 per cent rate.
The DIRT rate on special savings accounts, SSAs, which was introduced in 1993 was increased last year from 10 per cent to 15 per cent. This measure was designed to strike a more appropriate balance in the tax treatment of deposit income and income from other sources — especially riskier equity investment in Irish businesses. The need for the maintenance of this balance remained an important consideration in the preparation of the 1996 budget and it was concluded that the 15 per cent rate should remain. However, I should emphasise that SSAs still provide attractive tax benefits for small and medium-sized depositors. A final-liability tax of 15 per cent on SSA interest income compares very favourably with the tax rate of 27 per cent and 48 per cent.
In terms of administration and collection, DIRT is an efficient and effective tax which currently yields about £120 million annually. From an equity viewpoint, it is appropriate that interest income is taxable just as other income is taxable.
Certain individuals who are not liable or fully liable to income tax, such as the elderly and the disabled can avail of a refund of DIRT up to a maximum of their tax allowance. In addition, there are savings media to which DIRT does not apply — such as credit unions, and the tax-free savings certificates, savings bonds and national instalment savings schemes run by An Post. Therefore, I do not believe that the present DIRT regime acts as a disincentive to the elderly to use financial institutions and consequently, I have no plans at present to amend this tax.
In relation to the issue of social welfare entitlements, this is a matter for the Minister for Social Welfare in the first instance.
