Taxes postponed

I’m sure it doesn’t matter to the Brian’s when they can take it out on services and social welfare payments instead. The ‘whatever’ option.

@Richard Tol – you think that taxes are high in Ireland?

I think that the mail failing here is the latency of Govt tax policy, in that if it cant get this done, what else can it do or not do in seeking to serve the nations ends.

Backing of this solves a temporary short term political problem, but ignores or re-inforces a greater problem of a lack of dynamism in the Govt ability to get things done.

But that would be a problem for a leadership…

Is it at all possible that the current government is actually trying to avoid taking major headline grabbing tax raising decisions in advance of the next general election merely to ensure that it means the next government (FG and Labour in all probability) will have to do this hence denting their popularity very quickly and thus giving FF a route back to power within one election?

@Daniel
The tone of the article and comments from politicians quoted in it seems to suggest that this is exactly the intention. As Homer’s election slogan went, “Can’t Someone Else Do It?”

@ Daniel

Even so, that situation would be a better outcome than the current or proposed systems..

@ Dan,

There will be negative consequnces if the present govt does this. They have agreed a multi year fiscal consolidation plan with Brussels (our new masters). Moreover, they have also agreed a deal with the unions which prioritises established public servants over public services. So the inevitable outcomes will be more cuts in service provsion, more contract workers in the public service laid off and more charges for diminished public services. It als probably means an increase in the average and marginal payroll deduction (from 63%).

Richard, that approach makes sense but that is probably its key weakness in the eyes of the government.

If water charges are introduced, I’d like to see a large allowance at a flat rate and anything over the allowance charged by the unit. We are rainfall rich. If there isn’t a large allowance, the penny-pinchers will go smelly. Consumption will reduce, causing higher charges and even more smelly folk – and so on until it starts to hit tourism 🙂

@Richard,

I don’t see the need for major conservation. We spend a good deal of the time sheltering from rain in Ireland, so there should be a little upside. What I see happening is the DoF targetting a certain amount of revenue from water. Households will reduce consumption and revenue will come in below target. Water charges then get increased and consumption drops further.

@Ahura
People who are content with rainwater would not pay any water charges. Only piped water is paid for.

@Zhou
Or give a voucher to anyone with an installed meter to get the first M litres free.

Property tax should never have been abolished but reintroducing it now would be a disaster. property tax the highest taxes would be a disaster. It would seriously inhibit any recovery in house prices.
Daft idea and thank God FF are thinkung of the elections!

All very well saying no property taxes, no water taxes etc, but where else is the money going to come from? As mentioned above our masters in Brussels still have to be pleased.

Unfortunately Mr Brian Lenihan appears more unhealthy every week. Perhaps the proposers for higher income tax rates smell blood and will seek to push the marginal rate closer to 60%. Strike when your opponent is weakest.

The OECD said during the bubble that Ireland was the only country of the then 30 mainly developed ones, where mortgage interest relief was available while there was no ongoing property tax.

McCreevy halved the CGT to 20% and the tax cut paid for itself was the mantra.

The rich usually are the ones who do well from a system of artificial land scarcity and low or non-existent land taxes.

Former Taoiseach Albert Reynolds put his Ailesbury Rd. house on the market in 2007 before the bust in 2007; the asking price was €15m up from a purchase price in 1995 of less than €900,000.

The capital gain was tax free.

So no property tax and reform of the rent-seeking rezoning system which makes land scarce in a country that is 4% urbanised, is also not up for debate.

Even the Labour Party has nothing to say on the issue while the Green’s promise last year during the NAMA debate to have an 80% tax on windfall gains, has been quietly shelved.

Apart from the crash, a public tribunal on planning corruption has been sitting in a place called Limbo, since 1997.

For small farmers, like the biggest ones, also on public CAP welfare, any change would be like abolishing the Lotto. Who would want to disillusion the cargo cultists?

In 2001, the IFA won a sweetheart deal from the Government on land for roadbuilding. It was benchmarking for farmers and the IFA leader then joined a ‘free enterprise’ party called the PDs.

In 2006, the National Roads Authority said land costs accounted for 23% of the roadbuilding budget – – but just 12% in England, 10% in Denmark, 9.4% in Greece and 1% in Iceland.

One landowner along the route of the €810m Shannon tunnel received €10m from the state, according to figures recently released by Limerick County Council which show that €56.5m was spent on the Compulsory Purchase of land for the project. 

Martin Wolf wrote in the FT on Friday on the UK system which : “creates calamitous political incentives. In a world in which people have borrowed heavily to own a location, they are desperate to enjoy land price rises and, still more, to prevent price falls. Thus we see a bizarre spectacle: newspapers hail upward moves in the price of a place to live – the most basic of all amenities. The beneficiaries are more than land speculators. They are also enthusiastic supporters of efforts to rig the market. Particularly in the UK, they welcome the creation of artificial scarcity of land, via a ludicrously restrictive regime of planning controls. This is the most important way in which wealth is transferred from the unpropertied young to the propertied old. In his new book, David Willetts, the universities minister, emphasises the unfairness of the distribution of wealth across generations. The rigged land market is the biggest single cause of this calamity.”

I can understand the allure of stealth taxes for politicians.

Jean Baptiste Colbert (1619–83), Minister for Finance to French King Louis XIV reputedly said: “The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing.”

This is why Gormley and Andrews do not wish to have property tax encumbrances on our current lords of the manor.

Research in the UK showed that someone in the bottom 20% of the income spectrum pays about £250,000 in taxes in their lifetime. Someone in the top 20% pays £1.2m in taxes. But those at the top will own property and see their total tax liability wiped out in just a couple of years by rising property values. This does not happen to the bottom 20%, since they are renters.

Finally, Adam Smith said more than two centuries ago that a land tax was a “peculiarly suitable” way to raise revenue since it did not distort people’s incentives to work, save and invest.

Tax, no matter what form, means diverting money from personal to national expenditure. Normally not a big deal. In this country, at this time, it means diversion from personal expenditure into the bottomless pit of Anglo.
Any tax increase will lead to further deflation of the economy and bring us closer to default.
This economy is dying. We can take blood, put in drips, and faff around all we like this economy is terminally ill from an overload of debt.
We need to let it die. Another one will come in it’s wake.

There is no data on actual water use, but it is probably some 150 litre per person per day. Average water production is some 450 litre per person per day.

The two don’t have as simple a relationship as you suggest. Industry and farming are the elephants in the room.

@Eureka, coupled with a widespread push to encourage enterprise it definetely would. As things stand right now, it could go either way. If you have commercial owners dropping rents to the level of rates (an extreme and unlikely situation) in order to break even, you’ll see a lot more businesses opening up either way.

@richard tol

if you used a system such as you mention then a heavy user of water would be incentivised to never get a meter would they not? Essentially gaining a subsidy of the ‘average metered user’ who would likely have gotten a meter because they are confident that there is a saving in the belief they don’t use a lot of water? Just wondering what your thoughts are on that.

Regarding property tax, its a failure, a land value tax would be a huge advantage if paired with a cut in income tax, we need to set income free and stop seeing it absorbed in non productive capital expenditure which is what property tends to be in the long term. The end of levies and stamp would be a welcome change, and it would take all properties into the tax net for capital projects rather than relying on new-build only main thoughts here http://www.mortgagebrokers.ie/blog/index.php/2010/07/05/property-tax-is-a-good-thing-but-only-one-type-of-it/

Putting in water meters isn’t that expensive or big a deal in a time of low activity, when there is plenty of construction capacity available. It seems like a sensible fiscal stimulus and will have long term benefits. The sooner the job is started the sooner it will be finished.

@OAC its an interesting discussion, the secondary market does serve as a barometer, so there is a point, but perhaps allowing dividend to be tax free, and then have a sliding scale of CGT depending on the time you hold the share could achieve this? You can speculate, but you pay a premium to do so. Obviously, that allows you to lose and get out, but it might help to deter speculation as an industry of itself? Having said that, you might deter investment at the same time.

On the property side I think a Site Value Tax would be a great addition to the system, the near zero carry cost of property actually sets the stage for a boom-bust cycle, in particular when you can make a gain with little or no labour/input. We socialise our incomes via income tax but privatise the social income that public spending creates in site values. It’s a conundrum, and the thing that confuses me most is why such policy is not more actively pursued?

@ Ronan Burke

Local authorities are not to my knowledge charging rates for empty commercial properties at the moment.

Not so.

There will be no porperty tax, water tax or further cuts in oublic service pay this side of the election. I suspect there will be little in the way of taxation increases at the lower end of the income spectrum-which is where the major scope for increases lies. Public services will be cut to spare the public servants and the middle classes willbe soaked for a few bob.

The really hared decisions will be left to Taoiseach Gilmore after the next election. He will rapidly turn in to an Irish Papandreau within about 6 months when he has to break every promise he made and slash and burn.

Ronan,

there already is a 200 euro tax on 2nd (and presumably 3rd etc) residences.

@ Tull Mcadoo,

Just on a side point, Yes you are correct in your statement of the 200E, and it is for each property which you own, not just your second.

Hence if you own 6 properties, then its 200 x 6 = 1200 per annum.

What I find a tad unfair is that if your property is part of a private estate, then you are being hit with a double penalty, the NPPR tax of 200E and the management fee of servicing the estate, lighting, gardening etc.

Soon some landlords will be facing financial annihilation as the Govt seeks to reduce rental subsidies for social welfare tenants (due to the fact that the cost of living has come down and also because we are broke), and banks seeking to remove interest only tracker mortgages. A double edged sword so to speak. Of course if Labour obtain the reigns of power (which may be sooner than we think) then they will be free to remove the cost of mortgage repayments in calculating profit or loss.

Courtesy of the Labour party, 100% Taxation on a loss will occur for these investors, and other investors had better watch out, because they might be next.

@karl
What I read about in Germany was a much smaller percentage–perhaps 1-3%–but not in recent times. It got money circulating, which helped the overall economy.

It would be interesting to learn what happened in Sweden.

Rather than hurting average prudent savers, the target might be to disadvantage (slightly) those with massive piles of dosh where it is sitting there but doing nothing productive. Same philosophy as taxing people hoarding development land for speculative purposes.

@Sporthog
Nearly very home build since the start of the decade has management charges. The people who this will really affect are the first time buyers who are up to their necks in debt on property that is not worth what was paid for it. It will make it very hard for the people affected to sell these properties and thus trade up. Also who would buy a property that has three annual charges of several thousand euro and anyway this would also have to be taken into account by the banks when applying for a mortgage reducing the amount that could be borrowed.

@Drumroe – apart from “Can I please have a pint of whatever you are drinking?” my mind is turning to an economy that is full of not-for-profit companies. I might start one next year when I’m free and totally undercut the competition in one particular area – see how it works out and simply focus on providing a good product/service to the customer and create jobs. In theory it should work because I ought to be able to provide it cheaper than the rest. I’m sure the government won’t like it if there aren’t any profits to tax though. Revolution. I wonder what the chances are of there ever being a not-for-profit bank? Mind you, some would say we may have that already 🙂

@Alchemist: what would the farmers pay it out of? The “average” farmer in every branch bar dairy would be making a loss if it wasn’t for CAP.

@Richard, re. housing valuation: I always liked the Greek antiquities valuation law. You self-value the object, and pay whatever percentage of that as tax. If Revenue-equivalent think you’ve undervalued it, they can buy it off you at that price. Encourages a certain level of honesty, one would think. “,)

1. Is Martin Wolf’s point that there should be no planning controls because that would prevent some land increasing in value? That doesn’t make much sense.

2. On water tax, does this mean that users with their own private water supply don’t get taxed? (eh, me)

3. I don’t like the instinctive rush to beat up farmers? Have you seen their incomes? The price of agricultural land is a factor (like every other product) of its availability in the market. Farming land rarely comes on the market because through the single farm payment elderly landowners have no incentive to sell it. Perhaps this might be offset by a land tax, but then you have a tax and a subsidy cancelling each other out. It seems to me land reform is a bit more complex than taxing the land. Reversing the decoupling would be more practical, but then that has its problems too.

4. I think the biggest problem with a property tax is that so many people paid such high stamp duty they will react furiously to the notion that they have to pay more. They have paid a property tax (though this is a generational issue too, and these are the same people already coming off badly).

Makes sense. Complex though and I’d say the temptation is to find a simple tax.

@Unqualified to speak

If a farm doesn’t generate a rateable income, perhaps it should be sold so to those that can expand their own holdings and improve returns. Subsidizing a black hole or black bog makes as much sense to me as pouring money into a toilet. There was a time in living memory when a farm of 250 acres could support ten men. I am not advocating that type of life, those wages, the semi-mechanical technology of the day or the social fabric but just stating a fact. The Land Commission did a great deal of economic damage to achieve political ends.

While we are at it a self-propelled potato harvester (Danish model it will do more than spuds)) runs to about €450k at the moment. You need a lot of land to make that pay. A relation of mine bought one recently, so there is some money in farming if you approach it like a business as opposed to a hobby (spuds etc. are not CAP suckled enterprises).

@Eureka – where did you get the 8% figure from? Sounds more realistic than the 4 point something I’ve been seeing in press releases.