News Shane Ross

Tuesday 23 September 2014

Shane Ross: Choke property tax at birth

Shane Ross

Published 02/09/2012 | 17:00

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'ALL that has been decided," protested the Minister for Finance Michael Noonan dismissively last week, "is that there will be a property tax on family homes and that property tax will be collected by the Revenue Commissioners."

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That's all. Nothing really.

The last refuge of battered middle-class Ireland is under fire.

Calm down, then. What is all the fuss about? Your family home is being threatened. The Government has appointed the noble army of taxmen as the enforcers.

None of that softly softly local government enforcement stuff that floundered in the case of the household charges debacle. This time it is the jackboot method. The taxman can cut off the family home tax at source. You will never have to send it to them because it will be snatched from your pay packet. They will do it this way because they know you cannot afford to pay the tax.

Your final fortress is under siege. But the soothing message from the coalition spinners is going out: do not fret yet; the rate of family home tax is not set; the method of assessment is undecided; the timetable is not chosen. You could be one of the lucky ones. You could be given a waiver or a discount.

So calm down, say the soothsayers. The softening-up process is in full swing. Just a few hundred euro a year's extra tax for the coping classes, the unsung heroes and heroines of the tottering economy, just another small levy for the bullied pensioners and a knockout blow for the family struggling to rear a few children.

Wait for the autumn rhubarb. These posers in the Government will be waffling about "widening the tax base"; about how the family home punishment measure will be imposed on an "ability to pay" formula; we will be blue in the face listening to the cop-out that "the troika has insisted", or to the worn out canard that the "regrettable" measure "is the product of the Fianna Fail government's recklessness". And, of course, like all taxes this one will be "fair and equitable".

Half-truths by the bucketful are in the can.

This tax is not of Fianna Fail's making, for once. This Government has grown up. It is now making its own decisions. In December it will be producing a Fine Gael/ Labour budget. It is beginning to make political choices. Its most fundamental choice is that the middle class is easy meat -- a decision completely in keeping with its raid on pensioners' savings last year.

Welcome to back-to-front economics.

The case for a property tax back in 2007 was stronger. At the time the residential property market was in a frenzy. House prices were out of control. The Fianna Fail government refused to hose the flames. Instead, it fanned them.

Bertie Ahern's government and the FG/Labour opposition flirted with the mad idea of reducing stamp duty on houses, allowing property prices to go berserk. Instead of introducing a property tax to cool the market and to raise revenue, Taoiseach Ahern and finance minister Cowen let the market rip -- encouraging developers, bankers and buyers to push prices to lunatic levels. A property tax then could have helped to prevent a crash later.

Instead we had our crash.

Today, the bombed-out market needs nurturing. Last week the Central Statistics Office (CSO) released figures showing that property prices had fallen by 56 per cent in Dublin and by 50 per cent elsewhere in the country since the 2007 peak.

And what do the FG/ Labour boys propose to do to remedy the slump in the fortunes of family homeowners?

You guessed it. At a time when all barriers to house ownership should be removed, when the case for the abolition of stamp duty is strong, they have opted to suffocate the dying invalid. A moribund property market is being locked into the mortuary.

So in Ireland 2007 a Fianna Fail/Green government threw petrol on a blazing housing inferno. Then in Ireland 2012 a Fine Gael/Labour Government nukes the ashes -- just in case there is any sign of a few emerging embers. Back-to-front economics rule okay?

Do not be fooled by whispers of waivers. Do not be deceived by the looming public relations charade: a big spin is on the way. Watch out for the monstrous red herring that trophy houses will be hit hardest. And indeed they will. But the Taoiseach has determined that the nation needs €500m from this tax in the Budget. You do not raise €500m from trophy houses. Certainly not from waivers. You raise it from semi-detached houses in middle-class Dublin housing estates.

Dubliners will be worst hit.

If the authorities really are determined to launch this attack with a "value-based" tax weapon, residents of Dublin and other urban areas will be paying the State far more for the privilege of living in houses identical to their rural equivalents.

Dubliners -- families or pensioners -- with similar incomes to their country counterparts, will pay more in family home tax because house prices in Dublin are higher.

Residents of the capital will have paid more for their homes initially, will have lost more on the property slide and will have been levied higher stamp duty on the purchases. Now they are about to be clobbered again.

The Government is making a serious mistake. The Irish property market is not a normal asset class. It is skewed badly. It is perverse, irrational, dysfunctional, inconsistent.

It is impossible to value a house in present conditions when activity is at an abysmal level. Some families own their houses outright, while their neighbours are in negative equity. And should the couple who have paid off their mortgage be liable for the tax while their neighbour is granted a waiver?

The family two doors down may have a lower income than either. Should they be granted a waiver? Should the elderly be given waivers?

Should those who have bought the same house paying 9 per cent stamp duty -- a property tax -- in the boom years be made to pay another property tax today?

Did they borrow money to pay the original stamp duty to the government? Many of the victims of the reckless bank lending in the property boom are likely to be hit on the double, now emerging as victims of the bust when their devalued asset suddenly becomes a taxable liability.

This is not a normal market. It would be brutally unfair on middle-class Ireland to squeeze money from those who have little or nothing left to give. It will push some over the edge.

Go on, they will say. Where else will we raise the money?

Have they completely forgotten about the quango cull?

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