Irish Wealth and a Fairer Society
If we update the Bank of Ireland Asset Management Report on the ‘Wealth of the Nation’ (2006), we can get a pretty accurate picture of how much wealth there still is in the country. That report stated that there were 33,000 millionaires in Ireland in 2006.
Firstly, the report estimated that there were 330 individuals whose wealth well exceeded €30 million Euros. If we take a very conservative estimate of each holding 40 million, then the collective wealth of these 330 individuals was €13.2 billion.
The report also stated that there were 3,000 millionaires whose wealth ranged from 5 to 30 million. Taking the midpoint value of 18 million, this means that these 3,000 individuals held €54 billion in wealth.
The remaining 29,670 millionaires held between 1 and five million each. If we take the midpoint here of 3 million, then these 29,670 millionaires were worth €89 billion in total.
So, the total wealth of these 33,000 millionaires in 2006 was €156.21 billion. This wealth does not include the value of their principal residences. Also, these figures are based on ‘net worth’, which means that this wealth is what is left, having allowed for borrowings.
Now, people will say that the property market has hit this group badly and has wiped out much of their wealth. They might add that these wealthy people have also taken a hit in the stock market. Consequently, it might be thought that a large proportion of this wealth has been lost.
Fortunately, we can update the 2006 figures to check this out: the original report tells us that these millionaires held 71% of their wealth in property; 3% in bonds; 10% in cash and 16% in equities. The breakdown of the original €156 billion is thus: 112.4 billion in property; 15.5 billion in cash; 4.7 billion in bonds and 23.4 billion in equities.
O.K, but the property market and stock exchange have fallen. The ESRI and other expert commentaries estimate that the property market fell by 33% from its peak. So, the value of the property held by the 33,000 millionaires has now dropped to 77.4 billion.
Also, using FT100 indices, I have calculated the fall in the stock market to date as being 6%. Consequently, the millionaires now have lost nearly 1.5 billion on the stock market, bringing their current holding to €22 billion.
In regard to the cash, it would have been quite easy to secure a minimum of 1.5% AER on their cash deposits from 2006 to date. This is a very conservative estimate but shows that the millionaires have now increased their cash holdings by a billion to 16.5 billion.
Finally, given the indebtedness of European governments, the rate of return on bonds would easily have delivered 10% over the period. Now the 33,000 millionaires will have increased their bond wealth by a half a billion to €5.14 billion.
Adding the total, we find that the 33,000 Irish millionaires still hold €121 billion and this has fallen from a high of €156 billion in 2006. We also find that in terms of hard cash they have a whopping 16.5 billion in the bank.
These 33,000 millionaires have been the main beneficiaries of about €20 billion in tax expenditures by the state since 2005 through various means: tax relief on pensions, which at one point was over a million; a myriad of property tax reliefs; reliefs on private nursing homes and hospitals; capital allowances; the PRSI ceiling; and a whole raft of others.
In fact Dr Michael Collins, a Trinity based Economist and member of the Commission on Taxation, reiterated the view on October 17th this year that there are still 110 of these so called ‘loop holes’ in place, costing the exchequer €11 billion per annum.
Given that the Minister for Finance has asked Irish people to be ‘patriotic’ about accepting cutbacks, why not start with those at the top: the 33,000 multi millionaires who can most afford it and who also have taken 20 billion in tax breaks from the state since 2005?
On the basis of the above figures, even if this group paid just a 1% wealth tax, the Irish government could take in 1.2 billion in 2011 and every year thereafter. Taxes as high as these already exist in France, Norway and Switzerland and are set to be introduced in several other EU countries in the near future.
Ordinary working people in France at the moment are now rejecting the squeezing of ordinary people’s wages and pensions, where the drive for savings are hitting those who can least afford them. In this context, taxing wealth is but one illustration of what a fair budget proposal would look like.
Already, hundreds of voluntary and community groups are holding a massive conference in the RDS, Dublin on October 30th in order to ‘Claim our Future’ in the light of savage cutbacks to communities. They, like the French protestors will be campaigning for a fairer and better way and all are looking to unlock countries of the European Union from the stranglehold of brutally unfair and unjust economic solutions being imposed on Irish, French and other governments by the likes of the IMF.
It seems that the battle lines are only now starting to be drawn.
Discussion
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Comment by: Pope Epopt
Oct 22nd 2010 at 07:10
€11bn lost in tax loopholes - still!
Thanks for the figures and anyone opposing austerity who accepts the dubious logic of deficit reduction should trumpet this from the rooftops.
Comment by: ddonelly
Oct 22nd 2010 at 15:10
This is scarily bad analysis. First it was far from certain that the authors of this article had any reliable data or understanding thereof. Consider as evidence of this the appalling mess that BOI et al made of risk management and understanding their clients asset liability mix.
But even assuming this is the case lets go through the numbers, assuming or a moment that they might be right.
In 2006 we had
112bn property
15.65 bn cash
4.7 bn bonds
23 bn equities
What this doen’t show is the extent to which there was leverage against these assets. The real estate was massively leverage. Consider the Sean FitzPatrick bankruptcy filings for those who doubt this.
There is a considerable difference between assets and true wealth.
If one assumes a 70% LTV which may in fact be low as our richest were also our most reckless/stupid
This would imply a move from 112bn in value to 75 bn
The debt as we know stays the same (just goes to NAMA) and remains at perhaps 78 bn
So now our richest wunderkind have Negative 3 bn in real estate
If you doubt this number ask yourself why our banks are broke.
Irish equities are down 73%. There is a natural home bias in equity trading but even assuming a 50:50 mix this would imply equity losses of 6.4 bn. before any leverage
Bonds Irish bonds are down in value consider where Anglo sub debt is trading 20c on the $ Irish 10 yrs government bonds have lost roughly 17% since 2006
Again lets assume 50:50 Irish to say Germany
we end up with losses of 300mm
This would imply a wealth destruction of something of the order of 85 bn. If you think that’s wrong think how much the resident geniuses in the Irish banks have lost.
This would wealth of this class from a NAV of 121 bn to 36 bn
This remaining wealth would be wiped out if property (high to low) were to fall by a cumulative 30%
Now you might argue that down 60% cumulative seems unreasonable but lets not forget that the NAMA haircuts were guess what 65-70%. At these levels much as it may cheer a certain constituency up, I’m afraid our best and brightest are wiped out.
There really isn’t any pot of gold to mine in Ireland sadly.
Comment by: ddonelly
Oct 22nd 2010 at 15:10
sorry read a further 30%
Comment by: ddonelly
Oct 22nd 2010 at 16:10
Actually the numbers are (scarily) worse than my first glance. If the numbers sited are net of leverage than the losses are proportionately greater.
112 bn of net wealth with an LTV @ 70% would imply total assets of 373bn
Down 33% on that would have losses of 123bn
Down 60% would be losses of 223bn
As such this class of people are already probably wiped.
Comment by: Tom O\\\'Connor
Oct 22nd 2010 at 16:10
The basis for the property figures in the 2006 report is that these are unenecumbered by debt and they represent the net wealth of these millionaires. The property’s in NAMA origninally covered the loans advanced of 75 billion and were and are a separate issue. I’ve updated these property values as net wealth not as leveraged assets whereas you are applying leverage to them. I’m being consistent with the original figures just updating them and not assuming any leverage. This makes sense to me because if we apply a NAMA disount of 33% on the 75 billion assets the developers will lose 25 billion. It is quite likely that NAMA will only sell these assets for the going rate and will not be successful in going after the other 25 billion from the net wealth of the property holders. This is the case because the there is no hold on the net wealth. So, I can’t assume that the property developeers in NAMA will have to stump up. The figure for a 6% fall in the stock market from 2006 to 2010 is based on FT100 stock market indices change. Your suggestion that 75% of the stock market has been wiped out is not a figure that I would agree with. This type of analyis is obviously far from perfect but I do not believe it is ’scarily bad’ as you protest. I believe these figures are in the balpark area of what wealth can be taxed. Unfortunately, public policy always works on far less than perfect evidence. However, when decisions need to be made which affect the poorest and most vulnerable in Irish society at the budget, one must at least try and come up with data, even though there is imperpect information and we are talking figures which might be rough and ready. The wealthy in Ireland must pay back at least some of the 18 billion they have recieved since 1999. Social welfare recipients and low paid workers or disabled children cannot be expected to suffer. Under these circumstances, I would prefer to aid this effort with whatever ammunition there is rather than trying to shoot holes in figures, which have to be based on rough measurement due to data unkowns, rather than willfully attempting to discrdit the efforts. The latter only serves to prop out an outrageously just budgetary policy by the current government. Tom.
Comment by: ddonelly
Oct 25th 2010 at 12:10
@Tom ‘Connor
1. The BOI report does not mean the debt was leverage attached.
Consider an asset valued at 100 with debt of 70 that implies a wealth/NAV of 30
if the asset falls by 50% we now have negative wealth/NAV of -20
Thats what has happened. Blithely assuming no leverage is a disregard for the facts that are patently evident.Just the most cursory reading of our news papers supports my assertion.
2. FT100 is the UK stock market . Do you really think
that the Irish wealth owners held no holdings in the ISEQ ? which has fallen 70 odd % Think about Sean Fitz Patrick, Sean Quinn the gang of whatever that bought into Anglo et al and their experience with Anglo
You cant start to adress this problem until you apply the correct analysis.
Just by assuming these people managed to preserve their wealth doesnt make it so. Policy responses based on these (i’m afraid to say) really rather shoddy assumptions will only serve to worsen this country’s already appalling situation.