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Andrew Lynch: Property tax may be off the table, but we will all end up paying something

Gay Byrne wins again. Last year the veteran broadcaster warned that if the Government introduced a property tax, it would provoke the same furious backlash that he highlighted on his radio show back in the 1990s.

Now, after months of speculation, both Fianna Fail and the Greens have let it be known that a levy on people's houses is definitely off the table for next December's Budget.

The decision suggests that this Government is not ready to commit political suicide just yet. However, it also leaves Brian Lenihan in an even deeper hole than before.



Firing

The Finance Minister has made it clear that he needs to find €3bn in savings this year -- and with one of his big-ticket options ruled out, social welfare rates and lower income earners are now back in the firing line.

The property tax debate has shown up once again the unique relationship that Irish people have with their homes.

This is one of the only countries in Europe without some sort of housing charge and almost every economic expert in the land has recommended its introduction at some point.

To misquote Karl Marx, however, most of us seem to believe that all property tax is theft -- and there's a general consensus in Leinster House that any government that tried it out would lose a big chunk of votes at the next election.

During the Celtic Tiger, Brian Cowen and other finance ministers relied on stamp duty instead to bring in the revenue.

As we all know to our cost, the problem with that approach is that the yield is completely dependent on the amount of houses being sold.

The great advantage of a property charge is that it would establish a wider and more stable tax base that is not subject to high levels of fluctuation.

Unfortunately, politics is usually a lot more complicated than economics. A flat property tax on the country's 1.5 million households would be simple to introduce and could raise a lot of money, but it would be hard to explain to poorer people why they should pay exactly the same amount as the rich.

The obvious alternative would be to calculate the tax rate according to the price of the house -- but that would require a long and complicated valuation process that this Government has not even begun to put in place.

The problems don't end there. Because many older people live in relatively valuable homes but have only a small income, there would have to be some exemptions built into the system. And above all, a property charge would be widely condemned as a tax on people living in Dublin, due to the higher prices in the capital.

Given all these issues, it's hardly surprising that Brian Lenihan has decided to kick the idea into touch. Which leaves just one awkward question -- where is that famous €3bn going to come from?

The Croke Park deal means that the Government cannot cut public sector pay any more. Water charges are out for the time being, since installing meters in every house will take at least three years.

That leaves the Finance Minister with a choice between squeezing social welfare again, taking an axe to the health and education budgets and bringing low earners into the tax net.

In his budget speech last year, Lenihan indicated his plans for a new universal social contribution that will replace PRSI, the health levy and the income levy.



Mugged

This is probably his best option for quickly raising a serious amount of money, but it will still leave every taxpayer feeling mugged yet again -- and it won't win many votes either.

There are now two certainties in Irish political life, the death of this Government and new taxes by the end of the year.

We might as well enjoy the summer while it lasts -- because come December, the sequel to last year's Nightmare on Merrion Street is likely to be even more gory than the original.


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