The Irish Economy

According to this piece in the Irish Times, the Cabinet have copped on that there is little support for a poll tax. Maybe they have realized too that poll taxes are not terribly smart from an economic perspective either.

An expert group will now be established, to report in Spring. As this discussion is not exactly new, our submission is as good as ready. Ronan Lyons’ has made good progress with his, as has Karl Deeter (also on video). Let’s hope the expert group will take this advice to heart.

Last week, though, I got a number of phone calls from journalists about a plan by the chartered surveyors that everyone should get their house valued by them. That would be an unnecessary transfer of money from the general population to a small group of professionals. There are substantial databases on property values already (CSO, revenue, estate agents, etc).

CORRECTION: The chairman of Residential Agency Practice Group of the Society of Chartered Surveyors Ireland points out that they have never called for all properties to be valued. Apologies to all involved.

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)

The latest edition of the Economic and Social Review has been published. The edition contains two policy papers by staff from the ESRI, one by Tim Callan, Claire Keane and John Walsh on property taxes and the other by David Duffy on negative equity. The Irish Independent have “seen Duffy’s report” presumably because they have access to the Internet. Now you can read it too.