Don't bank on housing to fill tax hole, says watchdog
The Government should run budget surpluses rather than rely on a housing construction boom to cover any future shortfall in corporation tax, the chair of the State's budget watchdog has said.
Seamus Coffey, chair of the Irish Fiscal Advisory Council (IFAC), was responding to comments by Leo Varadkar.
The Taoiseach said this week that "as construction increases, as more houses are being built, the increased yield in stamp duty may help to compensate" for a fall in the corporation tax take.
Mr Coffey told the Irish Independent yesterday it would be "more appropriate" to run budget surpluses rather than rely on construction-related taxes such as stamp duty.
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Fianna Fáil finance spokesman Michael McGrath called Mr Varadkar's comments "extraordinary" - given that a construction boom and crash was one of the main causes of the country's financial meltdown a decade ago.
Mr Coffey said. "We don't see the same risks this time, the construction sector is recovering but is still around half the size it was. The level of transactions are lower, the risks aren't as big," he said.
IFAC warned this week that between €2bn and €6bn of more than €10bn in corporate tax collected by the State last year could be temporary, putting its finances at risk if there is a sudden reversal.
Mr Varadkar rejected the contention Ireland is too reliant on corporation tax, but said the Government needed to increase its budget surpluses years "so we have a cushion in place". "But obviously bear in mind as construction increases, as more houses are being built, the increased yield in stamp duty may help to compensate for some of that," he added.
Mr Coffey said relying on construction taxes would not be as appropriate a measure as running budget surpluses - where the amount the Government collects in tax exceeds the amount it spends.
He added: "We don't know whether a hole will appear, but the issue with corporation tax is that it is uncertain."