€1,000 home tax 'needed' along with PAYE hikes
Top bankers say levy would raise €1.7bn for Exchequer
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A €1,000 property tax on every home in the country is needed to turn the economy around, the country's top bankers said last night.
Senior Central Bank executives told the Irish Independent that the controversial property tax was badly needed to plug the Government's dwindling finances. It is understood the move would raise around €1.7bn for the Exchequer.
The Government is also being urged by its own highly influential economic advisers to bring in a property tax in order to close the yawning hole in the public finances.
Such a tax would heap further pressure on homeowners, who face a series of crippling tax hikes as the Government attempts to steer the country out of recession.
The return of domestic rates was signalled as government officials and union leaders continued their talks on taxation measures needed to salvage the economy last night.
Emerging from the talks, the head of the trade union movement, David Begg, said he was seeking a firm commitment that the higher band of tax would be raised to 48pc and for a tax on second homes. He also said unions wanted tax increases to be introduced before the Budget.
"It is significant that the brief of the Commission on Taxation to raise taxes has been changed in the framework document for talks, but we need some changes in tax this year," said Mr Begg.
"The tax base is far too narrow and, when property-related taxes are excluded, it is unsustainably narrowed."
Taoiseach Brian Cowen and Finance Minister Brian Lenihan gave their clearest signal yet of major tax hikes in the coming years, as they reiterated that spending cuts would not be enough to balance the books.
The Commission on Taxation is currently looking at all elements of the tax system, including property taxes, and will report back to Mr Lenihan later this year.
Gloomiest
As the Central Bank unveiled one of the gloomiest outlooks on the economy so far, it said a tax of €1,000 a year on homes could raise €1.7bn -- one third of the total seen as needed in permanent new taxes.
"The bank and the board of directors suggest such a tax is something that needs to be looked at," its senior economics executive, assistant director-general Tom O'Connell, said.
The head of the task force to oversee public spending cuts has also raised the issue.
Writing on a website, Colm McCarthy, the chief of the group dubbed "An Bord Snip Nua" said: "A further tax on second homes seems to be all the rage the last few days. I imagine the Commission on Taxation is thinking about the options for first homes."
A spokesman for Mr Lenihan last night said the commission "is considering all elements of the taxation system".
Mr Lenihan earlier said the Government would have to find another €4bn in cutbacks next year -- and some of this would come in the form of new or increased taxes.
"The first step towards that goal is the €2bn savings, the details of which will be announced next week. Next year, we need to make a further adjustment of €4bn and a proportion of that must come from tax," he said. "We must broaden our tax base."
Speaking in Switzerland, where he is meeting global leaders at the World Economic Forum, Mr Cowen agreed cuts alone would not go far enough. He pointed out that the work of the commission was looking at all forms of taxes.
In the ongoing talks with the social partners, the Government has agreed that whatever taxation measures are to be introduced will be informed by the "principles of fairness", with a higher proportion falling on higher incomes.
Mr Cowen was given a chilling warning yesterday of the grave consequences of failing to strike an economic rescue deal as it was revealed that 100,000 more people face the dole queues this year.
As Government talks with unions and employers continued, the pressure on Mr Cowen to secure a pact intensified as the Central Bank said that a successful outcome of negotiations was absolutely critical for the economy.
Alarming
The Central Bank also said the economy will shrink by an alarming 5pc this year.
The head of the bank said the country was experiencing "exceptionally difficult economic circumstances".
But governor John Hurley also warned it was "vital" that Ireland moved to correct the sizeable deficit in the public finances and added the public sector pay bill was "beyond the scope of current resources".
"It is necessary to consider how the tax base might be broadened. While this will require painful choices that will result in a short-term decline in living standards, it is also important that the measures taken are equitable," he said, in a statement accompanying the report.
In one of the most negative economic outlooks so far, the Central Bank predicted:
- unemployment will soar by at least 9.4pc this year.
- the state coffers will be €9.5bn in the red.
- just 22,000 new homes will be built this year.
Although out of the country, Mr Cowen is in "close contact" with his officials in Government Buildings who are assessing the progress in the talks.
He spoke regularly yesterday with department's secretary general, Dermot McCarthy, who is chairing the talks, which are expected to continue today and over the weekend.
- Brendan Keenan, Fionnan Sheahan and Anne-Marie Walsh
