Wednesday 21 February 2018

Bailout team warns on property market and tax cut plans

Concern: David Hall
Concern: David Hall

Gareth Morgan and Donal O'Donovan

Cutting income tax and VAT in the next Budget risks damaging the economic recovery, the Government has been starkly warned.

The huge amount of foreign money pouring into our property market, coupled with a serious under-supply for families seeking a home, have also been identified as key issues by a EU bailout review.

The report includes a warning that recent signals from the Government here about greater spending this year could lead to trouble, unless matched by tax hikes.

But planned cuts to income tax and VAT are noted as potential problems, and the report repeats concerns that the tax base here needs to be broadened.

This is likely to be seen as a call for increases in extra charges such as those on water and property.

The report notes that tax cuts "remain to be specified in detail".

Runaway health budgets, a perennial cause of concern to the Troika, remain a problem, according to the European Central Bank and European Commission.

And a major focus is on the housing system, which the Government this week acknowledged was "totally broken".

"The under-supply of housing remains a prominent issue and needs to be tackled using supply-side measures," the two institutions said after their fifth surveillance mission here. "Careful monitoring of the property market should continue, especially given the high foreign capital inflows into the commercial real estate market, coupled with strong demand."

To sustain growth, housing and infrastructure "bottlenecks" need to be tackled more ambitiously.

And the ECB and the Commission said efforts should continue to improve insolvency and bankruptcy procedures.

"The share of mortgages in long-term arrears has dropped, but is still high at about two thirds of total mortgage arrears," it says.

"Banks need to continue with loan restructurings and with improving the sustainability of restructuring solutions."

Ireland received financial assistance from the European Union and the International Monetary Fund from 2011 to late 2013.

The country is now subject to so-called "post-programme surveillance" until at least 75pc of the aid has been repaid.

The report notes that "Ireland's economic adjustment has been remarkable" since the recession - and it remains the fastest-growing EU economy.

It says: "The challenge for the new government is to maintain the momentum, while mitigating the risk of a return to boom-and-bust cycles."

It says that bank profitability has improved, "though in some cases it remains fragile".

"The current favourable economic and financial conditions provide an opportunity to accelerate the reduction of the still high public debt. Sales of government-owned shares in the domestic banks would further reduce debt."

The report came on the same day as Central Bank stats showed a third of residential mortgages sold to vulture funds were in arrears at the end of March.

Close to 14,500 household mortgage accounts are more than three months behind on repayments, out of a total of 47,400 mortgages that were sold to what the Central Bank calls non-bank entities.

David Hall of the Irish Mortgage Holders Organisation said the number of loans held by vulture funds that are in arrears is deeply concerning.

Irish Independent

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