Business The Budget

Friday 22 August 2014

Deal over Mansion Tax ends 'bitter rift' in Coalition

Fionnan Sheahan, Fiach Kelly and Barry Duggan

Published 03/12/2012 | 05:00

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THE most bitter rift in the Government to date has led to a super property tax for homes worth over €1m.

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And the Government is now considering whether to use the extra cash from millionaires' mansions to reduce the property tax for owners of ordinary homes.



The change -- if decided on -- would cut the property tax bill for the average house by €30 from €300 to €270.



After a bitter row between Fine Gael and Labour Party ministers over how to hit the wealthy in the Budget -- described as their worst spat since entering Government -- the so-called mansion tax emerged as the compromise deal from the cliffhanger.



Relations in the Coalition are tense, with Labour ministers angry at Fine Gael's late demand to cut social welfare rates in return for hiking tax for those earning more than €100,000.



Following a stalemate, both sides backed down knowing the consequences of failing to reach agreement.



"It certainly is the closest it has come to a breaking point in the 20 months in Government. There was no certainty of a deal," a coalition source said.



The elderly will take a hit in the Budget.



Thousands of pensioners will have to pay for their prescription drugs due to a cutback on the over-70s' medical cards.



The income thresholds to qualify for an over-70s' medical card will be reduced from €36,000 for a single person and €72,000 for a couple to €30,000 and €60,000.



Those who lose medical cards will get 'GP only' cards.



The telephone allowance for pensioners is also being halved.



But the pension won't be cut and Transport Minister Leo Varakdar confirmed last night the free-travel scheme is not being touched in the Budget.



A range of measures to hit high earners will be brought in:



* A higher property tax rate on houses worth more than €1m.



* A cap on private pension tax relief at €60,000;.



* Higher Capital Gains Tax.



* Higher Capital Acquisitions Tax.



Following a cabinet stalemate, where the proposals to hike the USC and cut social welfare were dropped, the Coalition agreed to a higher rate of property tax for houses worth over €1m.



The details are still being worked out, but the extra revenue from the mansion tax may result in some relief at the lower end.



The number of houses worth over €1m has still to be worked out. However, the Property Price Register shows 20 houses in Dublin sold for more than €1m in the past two months alone.



Last night, the rates being speculated on in government circles were a base rate of 0.18pc – down from 0.2pc – with a new higher rate of 0.25pc on houses valued at more than a €1m.



The option to bring in a super property tax, where the rate of tax would rise with the value of the property, was first revealed by the Irish Independent in July.



Under the proposals, the normal rate of tax will apply on properties valued up to €1m and the higher rate will apply on those valued above €1m.



But the Budget negotiations left a "bitter taste in the mouth" for the Coalition. Ending the stalemate, Labour ministers backed down on their demand for a higher USC rate when they met just before the cabinet meeting on Saturday evening.



Fine Gael ministers then backed off on the social welfare cuts.



"There is a lot of anger on our side," a senior Labour source said. "We feel Fine Gael are out of touch and decided to throw welfare cuts into the pot in the last couple of days, knowing there was no way the Labour Party was going to support it.



"It revealed a priority of our coalition partners about who they want to protect and who they want to target," a senior Labour source said.



"There is a high level of frustration and anger at the tactics that were employed. The logic is hard to fathom and it was unnecessarily creating tensions at the head of Government."



The possible USC charge and social welfare cuts never reached the cabinet table.



Instead, the row was played out in a series of meetings involving Taoiseach Enda Kenny, Tanaiste Eamon Gilmore, Finance Minister Michael Noonan, Public Spending Minister Brendan Howlin and their advisers.



Fine Gael figures were unapologetic for their actions as they viewed a hike in the USC as a break in the promise not to raise income tax.



"The Programme for Government is being honoured by all sides, including the Fine Gael manifesto proposal to cap pensions relief at €60,000," a senior party source said.



But Labour Party TDs were furious about Fine Gael's approach.



"They don't care about the ordinary punter. This was our big thing, we wanted this last year, too. It wouldn't bring in much but it would be about solidarity. We're furious," a Dublin TD said.



"They wouldn't give it and wanted a baseline cut in all social welfare payments for the USC. They have enough people to pass a Budget without us."



Mr Gilmore said the closing stages of the Budget "discussions are always intense and run late into the night".



He added that what was saved in the Budget would not go to the IBRC.

Irish Independent

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