Could it be that Michael McGrath, the Finance Minister, is overlooking the key issues surrounding the tax regulations of exchange-traded funds (ETFs)?
Last year, McGrath initiated an evaluation of the financial sector in Ireland. At present, a rule exists in Ireland that demands investors, encompassing those in lower tax brackets, to pay a 41% exit tax after eight years of holding a fund, irrespective of whether the fund was sold. This requirement, known as deemed disposal, was established to expedite the collection of taxes from investments. However, distributing ETFs—which, like accumulating ETFs that reinvest dividends, are also subject to deemed disposal—are already taxed for dividends by the Revenue.
In addition, any losses from ETFs cannot be counterbalanced by gains from ETFs.
McGrath signalled recently that advancements in tax policies designed to incentivise investment might be a part of the 2025 Budget. He pointed out the stored €150 billion in deposit accounts, which resulted in marginal returns. McGrath inferred a “considerable proportion of this money” could be “fruitfully utilised in the economy” by contributing to “structures that support budding and inventive enterprises”.
However, typical investors show little to no interest in such business financing. What these long-term investors really want is an uncomplicated tax system reform that eliminates illogical and overly complex elements. They seek easy entry to affordable, diverse funds, rather than being compelled to purchase individual shares.
While it’s likely that the Minister will implement these changes in due course, a shift in focus from injecting funds into businesses to concentrating on the everyday investor’s requirements would be beneficial.