Month: November 2010

Property taxes

Last Thursday, Tim Callan and I presented our views on the property tax. This attracted some media attention in the Times, RTE, and Independent (2, 3). The papers are here and here.

Higher taxes are unavoidable. Property taxes are less bad for economic growth than are higher income taxes. It therefore makes sense to replace the stamp duty with a property tax. There are two snags to this.

First, a property tax is regressive. Poorer people would pay a greater share of their income in tax. This can be repaired, either in the design of the property tax itself (e.g., income-dependent exemptions or a non-linear tax) or through changes in income taxes and benefits.

Second, a property tax should be based on the value of a house. The Revenue does not know this value, and building up the required data will take a few years at least. The government may be tempted to introduce a flat tax instead, or use self-assessment. A flat tax is very regressive. Self-assessment without proper sanctions rewards dishonesty. It is feasible, however, to introduce a property tax based on assessed values, and assess the value using simple rules (e.g., county and size).

A property tax would hit people who are income-poor but property-rich. It would act as an incentive to mobilise their wealth.

(family matters delayed this post)

Launch of the Irish State Administration Database

The Irish State Administration Database was launched last week at an event which formed part of the Innovation Dublin festival. The Database was developed by an interdisciplinary team working in the UCD Geary Institute, led by Dr Niamh Hardiman of the UCD School of Politics and International Relations, with funding from the Irish Research Council for Humanities and Social Sciences. The searchable Database records details of births, marriages and deaths of all central stage agencies (including government departments) since the foundation of the State in 1922. Avid agency watchers can study the growth in agency numbers to their peak in 2008 and subsequent modest decline. The Database shows that there are currently 350 central state agencies. However, the rich data can be mined in other ways, enabling users to look at trends by reference to such characteristics as function (eg delivery, trading, regulation, adjudication), policy domain (eg health, education, transport), and legal form (eg statutory corporation, public company, company limited by guarantee). Some further information about the Database can be found here. Users need to register here to use this free resource. There will a be hands-on demonstration of the Database on 23 November, 3-5pm, in Room G-5, Daedalus Building, UCD Belfield Campus, with an emphasis on the range of potential applications. This event is open to all but requires advance booking with mary.shayne@ucd.ie.

A Bailout Worth Considering

Even though it’s hard to separate fact from fiction in the fast-moving bailout story, reports that the Commission and ECB are pushing for Ireland to avail of the EFSF for broader European stability reasons could change the calculation in an important way.   I still believe that Ireland’s best bet is to regain creditworthiness through a demonstration of political capacity with the budget and the four-year plan.   The alternative of being forced to seek a bailout would involve at least as much austerity as our own adjustment and would do long-term reputational damage.   

But acceding to a request to avail of the facility is potentially a different proposition.   I don’t think our European partners could simply expect us to pursue a less nationally advantageous path in the interest of broader euro zone stability.   The terms would have to be mutually advantageous relative to the next best options for both sides.   One reasonable agreement that could meet this requirement is for our European partners to support our four-year plan with a credit line from the EFSF at a reasonable rate of interest (say the 5 percent rate provided to Greece).  Access to the funds would be conditional on meeting the targets under the plan, which after all is being developed with input from the Commission and the ECB.   The intention would still be to return to markets for funding rather than the use the facility, but the backstop of a dependable credit line on reasonable terms would give us a substantially greater chance of actually being able to access market funding both for the state and the banks. 

Of course, it would be a mistake to exaggerate our bargaining power.   The increasing reliance of our banks on the ECB means we are heavily dependent on their willingness to provide extraordinary support.   But if the right deal is on offer, I worry that the government would be too inclined to resist for fear of a political backlash.  All bailouts are not created equal.   An invited bailout – on the right terms, and in line with our own chosen strategy – might well be worth accepting.

Blog Comments: Reminders

This blog has a good reputation for high-quality, relevant comments.   I remind commentators to refrain from ad hominen comments and request that the focus remains on the substance of the economic arguments. There is plenty of material to debate, without having to dwell on the integrity or intelligence of other contributors. The avoidance of crude language also appreciated  – remember, many tender-aged children and genteel folks read this blog!

Is Ireland’s Number Up?

Constantin Gurdgiev and I offer different views on Ireland’s capacity to avoid default in today’s Irish Examiner.  Articles here.    The articles follow an introductory piece by the paper’s political reporter, Mary Regan.