Tax deductable government bonds

LoLth

I know governement bonds were put on sale earlier this year but they werent that easy to get (iirc you had to buy them through a broker).

so, what about this idea to take the burden off the public coffers:

Government 5 , 10 or 15 year bonds available from the post office ie: directly available to the public with no middle man or fees etc.

for each €1 spent on the bond, you can deduct €1 off your gross pay. yes, this will be a euro the government cant take 42% of, but instead the govt gets the whole euro....for a while.

Bonds cannot be sold or traded and are viable only for the person purchasing. this will stop trading and speculation.

The bonds would be, for all intents and purposes a form of pension payment. Compeltely safe and growign at the rate of interset set by the ECB. No broker is usign your money to play the stock exchange in a hope of maximising profits, of which you may or may not get a cut.

In the meantime, those trying to reduce their tax bill or sink out of a tax bracket can invest in their future by giving the money to the government for a few eyars. the government can use the money to reduce repayments on loans or offset amounts needed.

of course, in 5 , 10 or 15 years, the govt will need to repay the bonds but at this time they could tax the interest earned @ 20% to soften the blow and the owner receives 100% money invested + 80% the cumulative interest with absolutely zero risk.

anyway, not thought through 100% and I'm sure there are huge economic holes I havent seen but I'd be itnerested in hearing thoughts, opinions or refinements.

Économiste Monétaire

Sounds a lot like munis. I think your point on non-tradable bonds is pretty silly, the yield would have to be substantial to account for a completely illiquid asset.

thebman

We have prize bonds don't we?

Isn't that easy access for the public to bonds?

dvpower

Didn't ICTU come up with a similar proposal

Congress has proposed the concept of a National Recovery

Bond to fund specific infrastructural projects with the objective
of meeting a national need and providing construction

employment.

Although I'm not sure that this is a better way to fund infrastructural projects than PPPs, although it might attract a patriotic discount with people willing to take a lower than market interest rate.

LoLth

Économiste Monétaire wrote: »

Sounds a lot like munis. I think your point on non-tradable bonds is pretty silly, the yield would have to be substantial to account for a completely illiquid asset.

Non-tradable would stop speculative buying and would in effect keep them in ireland (currently government bonds are traded on teh stock exchange and are mainly bough tby foreign investors which is a god thing but I'd like there to be an alternative for irish citizens).

I would think the main benefit would be a handy tax shelter. The interest rate would be a bonus after that. For the government to get maximum utility from the bonds they cant afford to put off current monetary shortfall in exchange for future ones (when the bonds mature). Also, you dont want the return to be too attractive or you risk removing too large a portion of expendable income form the economy and reducing retail and services expenditure.

@thebeman: as far as I know, the prize bonds arent tax deductable so they wouldnt serve as a form of pension alternative to the current private sector pension plans. granted, with a lower return but with a lot more stability - and stability + guaranteed pension do seem to be on the list of recurring issues private sector workers have with public sector workers. This would give the private sector the opportunity to have at least some of those benefits.

Do prize bonds pay a rate of return? or does a €1 prize bond get cashed in for €1 10 years down the line ?

LoLth

dvpower wrote: »

Didn't ICTU come up with a similar proposal



Although I'm not sure that this is a better way to fund infrastructural projects than PPPs, although it might attract a patriotic discount with people willing to take a lower than market interest rate.

didnt know they had suggested something similar. I'll go and give that a read so

Économiste Monétaire

LoLth wrote: »

Non-tradable would stop speculative buying and would in effect keep them in ireland (currently government bonds are traded on teh stock exchange and are mainly bough tby foreign investors which is a god thing but I'd like there to be an alternative for irish citizens).

I would think the main benefit would be a handy tax shelter. The interest rate would be a bonus after that. For the government to get maximum utility from the bonds they cant afford to put off current monetary shortfall in exchange for future ones (when the bonds mature). Also, you dont want the return to be too attractive or you risk removing too large a portion of expendable income form the economy and reducing retail and services expenditure.

What kind of speculation are you talking about? I fail to see how people trading these bonds is detrimental to the Irish Government; as an aside, why anyone outside Ireland would want to invest in a product that offsets their taxable income in a different country, I don't know. If anything, the government would get a higher price where there's a liquid market for the debt. I doubt you'd get very many people subscribing to long-term debt at face-value for a coupon at the stated ECB repo rate, which is a rate on short-term secured lending.

gnxx

I actually thought that a bond issue of some description would be a strong alternative to NAMA.

Nationalize the all the banks, rework their balance sheets ( IE create a bad bank from developers loans ) and then float the various new entities. The bad bank would be higher risk -- but potentially better long-term gains.

At least people would have the choice as to the risk and personal cost of bailing out the banks.

Long Onion

The main problem is that these bonds would be inevitably snapped up by wealthier individuals leading to the same criticisms that have been levied at pension tax breaks. On top of this, when one considers the coupon payable and the tax relief granted, it would amount to a very expensive way of raising revenue. The government are currently able to raise mone through bond issues with a 4% coupon over 5 years, why would they offer another 41% on top of this?

ardmacha

Tax free seems excessive. How about DIRT free? The government is paying 4%+ internationally, depositors can only get 3.5% with dirt deducted.

LoLth

ardmacha wrote: »

Tax free seems excessive. How about DIRT free? The government is paying 4%+ internationally, depositors can only get 3.5% with dirt deducted.

tax free was with regards to the buyers gross earnings for the calculation of their taxable pay (much the same as pension deductions are taken into account now)

As I said in the OP the bonds could be taxed at a rate of 20% on the interest earned, not the initial deposit, on maturity which would give the government a secondary source of income.

The basic idea would be that the bonds would be attractive to the wealthy to defer their tax bill in return for essentially loaning the government money at a standard rate of interest. (the govt would lose th 42% higher rate tax they would normall take but would have the full 100% to play with for the next 5 years , the buyer would, in return pay a lower level of tax on maturity while also earning less interest than the EC rate (or whatever long term rate is deemed acceptable. It doesnt *have* to be the ECB rate, I used that as this would be the "safe" rate. anythign below would be a conservative investment and not expected to yield returns and anyhtign above would be a risky investment which is not the idea behind the bond. the reward should be the tax break).

@Long Onion: yes they would but, tax the rich receives cries of "they'll all leave and go somewhere else!", blanket rate taxes bring cries of "how dare you pick on the vulnerable". at least this way, they can weight the tax to hit the wealthy more than those less well off but the wealthy (in this case anyone with disposable income) will have an option to avoid the tax net by instead voluntarily deferring their income for 5, 10 or 15 years.

@economaiste: fair enough. yes they would get more if the debt was transferrable but I was thinking of it in terms of the SSIA where only one scheme could be held per person. if the attraction of the bond is the tax reduction at the time of purchase then no-one else would want to buy it anyway unless the return was variable enough to allow for the chance of profit. So, if the rate of return is the market standard and the benefit of tax deduction is a once off at time of purchase then no-one's going to want to buy them second hand so what does transferrability matter? Additionally, if someone buys a load of bonds and pops their clogs then the govt could keep the money as it would nt be transferrable to the next of kin The aim wouldnt be to make a liquid market, it would be to create a predictable cost/rate of return/deferred income model useful to the investor as a tax break and useful to the government as a source of short term capital injection with predictable and coverable long term repayment.