Thursday 21 February 2019

Cowen blamed as recession looms

Opposition points to stamp duty failure as reports shows housing market crash is spreading

Tanaiste Brian Cowan
Tanaiste Brian Cowan

DANIEL MCCONNELL

TAnaiste Brian Cowen's failure to reform stamp duty in time is set to lead Ireland into a recession during 2008.

Four separate indicators published last week indicate that the collapse in the housing market has had a deep impact on the economy. Mr Cowen's failure to move on stamp duty early last year is being blamed for that collapse.

Opposition parties were scathing yesterday in their criticism of the Tanaiste and his handling of the economy last year, and said that we would pay the price for it this year, adding that the economy had a very real chance of heading into a full blown recession if 2007 trends continue.

Yesterday, it was confirmed that there has been almost a total collapse in house building, with only 925 housing starts in December -- the lowest level since records began in the mid-nineties, according to HomeBond, which gives warranties to new homes. Overall, 2007 was substantially down on 2006 in terms of new home starts -- with 47 per cent less units built.

This was on top of last Thursday's final exchequer returns for 2007, which fell short of Mr Cowen's Budget predictions by over €1bn. Last year's €1.6bn deficit is in stark contrast to a €2.265bn surplus in 2006.

Fine Gael's Richard Bruton said: "He failed to deal with the recession in the housing sector by his stubborn refusal to reform housing taxes . . . Mr Cowen has repeatedly failed to intervene to ensure the economy is protected."

Bruton also attacked Mr Cowen's failure to contain the growth of public spending saying it was one of the factors hurting the economy the most.

Labour's Finance spokeswoman Joan Burton said that every forecast and report issued by Mr Cowen was "slightly worse than the one before". Speaking yesterday, she said: "The reality is that all the outcomes for 2008 will be on the lower end of his predictions. This year's revenue will be well below what he said even at Budget time, a month ago. He now needs a leap of imagination to help the economy."

Both also attacked Mr Cowen's choice to borrow over €16.5bn over the next 3 years, saying that despite his claims that it is for capital spending, it in truth will be used for current spending and "keeping the show on the road."

In the wake of the Exchequer Returns, even Mr Cowen had to admit that he was not expecting such a slowdown in the housing market, and that the slowdown has had a deep impact on the economy. He said: "The year on year increase in tax revenue was 3.8 per cent. This was below the original expectations for 2007, mainly due to developments in the property market."

The main reason for the deficit was the lower-than-expected tax takes, particularly those connected with the housing market. Stamp duty, VAT, corporation tax, capital gains tax and excise duty were all well behind target. The economy is now forecast to grow by just 2 per cent this year, despite Mr Cowen's earlier predictions of between 4 and 4.5 per cent.

A report by Davy Stockbrokers said the Irish economy would see the slowest level of growth for more than 15 years in 2008, leading to a massive rise in unemployment. The report said the collapsed property market was the core reason for the country's economic difficulties. Jobs growth has slowed, and as many as 50,000 are expected to join the live register as a result of the slowdown in the housing market, pushing unemployment up to 5.5 per cent.

Overall, new housing output fell 8.8 per cent in the first three quarters of last year. But that blow was softened by strong consumer spending, home improvements and exports.

Friends First Chief Economist Jim Power yesterday predicted a sharp decline in consumer spending this year as people tightened their belts. He said Cowen must ensure Ireland stays business friendly if it is to continue growing.

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