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Category Archives: Counting Beans

If Tax Relief Is A Bad Subsidy, Would The Unions Abolish Gift Aid?

The PCS and their brethren in other unions really should consult someone else on tax issues, because clearly their current advisor isn’t up to it….

Taxpayers ‘subsidise’ private pensions
THE leader of one of the unions that went out on strike over planned changes to their pensions last week has challenged claims that public sector workers are being unfairly subsidised by those in private schemes.

Mary Bousted, the general secretary of the Association of Teachers and Lecturers, pointed out that taxpayers funded private sector pensions to the tune of £37.6 billion in 2007-8, the most recent year for which figures are available, through subsidies and tax reliefs.

“When you consider the amount paid out that year in private sector pensions was £35bn, the total paid in private sector pensions was actually subsidised by the state.”

RTWT, if you have a dark, ironic sense of humour and fancy a laugh.

All this follows what the PCS have said in their “Facts [sic] about civil and public services”:

Myth 2: civil service pensions are ‘gold plated’

Two and a half times as much public sector money is spent subsidising private sector pensions through tax relief than paying for public sector pensions – 60% of this goes to earners at the higher rate.

Now let’s get this straight: Tax relief is relief from a tax liability. By definition, you have to be paying tax in order to get it. A subsidy is where one is a net recipient of funds from the Treasury. Thus tax relief simply cannot be a subsidy, whether it’s relief on pension contributions, loss relief, gift aid or good old MIRAS (RIP). (In the few cases where there is a relief of more than 100% – such as on R&D – then it’s generally a tax credit.)

What that naturally means is that those who are liable for more tax – i.e. higher earners – will be the greater beneficiaries of this ‘bad subsidy’. The answer is simple: reduce taxes and you will reduce tax relief … as the charity sector found out to it’s cost when Gordon Brown (who, I seem to remember was a caring socialist) reduced the basic rate of tax to 20%.

There is also a reciprocal principle with pensions. You get relief on the contributions, but when the pension fund pays out the income is taxable. So the PCS whining about the amount “spent” on relief ignores the tax that is collected on post-retirement payouts. (My professional colleague Christie Malry did a good job of expanding on this point last year.) One could call it “public investment in the future” or something.

So, if the PCS and their piper Richard Murphy really want to avoid spitting feathers over companies that pay “no tax” because they are carrying forward tax losses, or fat cats getting 40% or more tax relief on pension contributions, then to be fair – which I’m sure they would say they are – they would have to (a) not tax profits, (b) not tax pension payments when one retires and (c) abolish gift aid … all for starters.

Yes, daft isn’t it? And to think the PCS represents the people who run the tax system.

Thought For The Day

If it’s going to be OK to stab thieves in your own home, shall I invite Dave Harnett round to my house for a cup of tea?