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  • irishtimes.com - Posted: February 1, 2009 @ 12:59 pm

    When Kenny met Carey

    Deaglán de Bréadún

    Before it fades from memory, the interview Pat Kenny did with Government Chief Whip Pat Carey on RTE Radio last Tuesday is worth a listen. Eamon Gilmore is on for about 12 minutes at the start but when Carey comes on, things start to get hot. Click here.

    The issue in contention is media speculation about an increased tax or levy on the owners of second homes. The last Budget brought in a fee or tax of  €200 a year. Yours truly had a news report on the previous day’s Irish Times that this might be raised to €600. The issue surfaced the Fianna Fáil parliamentary party meeting that Monday, with some members raising objections to an increase.

    But the tone of the exchange between Kenny and Carey is quite something and was a talking-point around Leinster House last week.

    Kenny takes up the second-homes issue in an unusually sharp way and taunts Carey with the charge that Fianna Fáil, traditionally close to the builders, was now hitting its old friends. Carey hits back by charging that RTE was never terribly kind to Fianna Fáil.

    We are talking about a modest €200 at the moment and, even if it goes up to €600, that will still be only €50 a month. But given the incipient backlash, I wonder will the Government go ahead with the idea – suggested by the Irish Congress of Trade Unions?

    • Eoin says:

      Suggested by ICTU???
      It was proposed in Budget 09, long before ICTU mentioned it.

      My understanding is that it was first suggested at cabinet.

    • Deaglán says:

      The idea to take more tax from that sector came from ICTU. The original levy of €200 was imposed in last year’s Budget. Since that money is earmarked for the local authorities, any additional charge might be under a different heading so that it could be used for other purposes. The ICTU submission spoke of the introduction of a property tax on second homes (and “trophy” homes, meaning houses valued above a certain figure) ignoring the fact that such a tax already exists. The ICTU proposal would be income-related but the €200 levy is not, as far as I know. To read it, click: http://www.ictu.ie/download/pdf/building_irelands_smart_economy_congress_preliminary_observations_16_jan_08.pdf

      My colleague Stephen Collins had an interesting piece on the issue last week. I see there are 260,000 second homes in the State, including 60,000 holiday homes. Pat Kenny says owners of second homes are “terrified” at what the Government may do to them, which seems a bit OTT:-

      January 28, 2009 Wednesday

      Cabinet to receive bill on property tax shortly

      BYLINE: STEPHEN COLLINS, Political Editor

      SECTION: IRELAND; Other Stories; Pg. 9

      LENGTH: 1085 words

      LEGISLATION TO introduce a new property tax on at least 260,000 dwellings throughout the country is at an advanced stage and is expected to be brought to Cabinet in the next few weeks by Minister for the Environment John Gormley.

      Under the terms of the property tax bill, the levy will be paid to local authorities for their own use, on a system similar to the collection of motor tax.

      The tax of EUR 200 a year per home, which was originally announced in last year s budget, should bring in about EUR 52 million a year to the exchequer and possibly more.

      The tax will apply to all homes that do not qualify as a principal private residence. It will cover investment properties including each individual apartment in an apartment block, holiday homes and other homes not qualifying as a principal private residence.

      The department estimates that there are about 200,000 investment properties in the country to which the tax will apply. A list of these properties should be available from the Private Residential Tenancies Board with whom landlords are obliged to register.

      There are also about 60,000 holiday homes in the country, according to the most recent census records, to which the tax will also apply.

      On top of that there are another 200,000 or so vacant dwellings in the country, a significant proportion of which are also likely to qualify for the tax. It will not apply to building sites or incomplete dwellings.

      Property owners will be legally obliged to pay the tax this year, with financial penalties for those who do not pay.

      The payment system is currently being drawn up in the Department of the Environment, and it is expected to operate like motor taxation.

      Individuals who are liable for the tax will be able to pay their local authorities by phone, internet or through council offices, just like the annual car tax.

      While it may take some time for local authorities to impose the system in a comprehensive fashion, officials are confident that the tax will work.

      Given that investment properties are already registered and the owners of many holiday homes benefited from tax breaks, the State has a reasonable record of properties which will qualify.

      With a range of penalties for non-payment being envisaged in the legislation, the department is confident that full compliance can be achieved relatively quickly.

      While the legislation is almost complete, the final detail of the charge will be worked out between Minister for the Environment John Gormley, and Minister for Finance Brian Lenihan.

      While there has been some speculation that the property tax per home may be greater than the EUR 200 a year announced by Mr Lenihan in the budget, it is unlikely to be significantly more.

      Announcing the introduction of the charge in the budget last October, Mr Lenihan said the demand for local government services was increasing all the time, and it was important that local authorities could operate on a sustainable financial basis.

      He said the charge would be collected by local authorities and would be used to support the provision of local services.

    • Betterworld Now says:

      Capital taxes on property are long overdue in Ireland and the current crisis is a perfect opportunity to correct this fact. The capital tax should be set as a percentage of the income derived during the duration of the property investment.

      The Government could waive the tax entirely during the lifetime of the owner and levy the charge on his/her estate on death, capped at no more than the market value realisable by the executor in the disposal of the property.

      The owner would receive the full earnings value of their investment during their lifetime (and pay income tax on it) but its capital value would be reduced by the amount of capital tax outstanding on transfer to any inheritors of the property. Similarly, any capital tax accrued would become payable on the sale of the property during the lifetime of the owner.

      Investment properties have a useful function in providing a source of income in old age (especially with IBEC intent on ridding us of any remaining vestiges of occupational pensions), but their transfer to succeeding generations can have undesirable effects on social cohesion if they are transferred via inheritance and/or using tax loopholes (trust funds, etc).

    • Deaglán says:

      It will take a lot of political courage to bring in a real property tax. There is a visceral dislike for it among the populace. I am old enough to remember how Fine Gael won the 1973 election on a promise to get rid of domestic rates and how their leader, Liam Cosgrave, taunted Fianna Fail’s Jack Lynch over his “death-bed conversion” when he adopted the same policy just ahead of voting day.

    • Ray D says:

      What Fine Gael and Labour jointly promised was to take the health and housing charges from the rates over four years. These represented 60% of the rates take at the time … Fianna Fail have long been villified for removing the rates but it was Labour and Fine Gael that did so in effect. The 14-point 1973 coalition plan was virtually all give and led us into the excesses and collapse of the Eighties.

      This collapse is mirrored by the current collapse which is entirely of the Government’s own making. Our recession was engineered by Government policies and has nothing to do with the global financial collapse.

    • Deaglán says:

      You may be right about the 1973 Coalition plan but what about the 1977 Fianna Fáil manifesto and the widely-held belief that it was that particular document which really started the rot?
      As for the present Government, there is definitely a case to be made that they did not take appropriate steps in the good times so that we would have a better “cushion” when times got bad. But you can’t be serious when you say the current collapse has nothing to do with international factors. I would agree that the Government should have done something to arrest the crazy spiral of house prices before it helped to plunge us to near-destruction. But given FF’s links with the builders and developers, that was probably never going to happen.

    • Ray D says:

      I am serious that our problems are entirely home-generated and have nothing to do with the international collapse. The problem here is simply that we now have income of €37bn and expenditure of €63bn.

      Government policy this decade engineered the collapse of the tax base, and Government pumped-up public spending to no good purpose. The current collapse is entirely of the Government’s making. Had the Government saved, instead of squandering the massive surpluses in recent years (which reached a height of €6bn a year) and taken action to moderate spending and keep the tax base as broad as possible, as the ESRI and many commentators advised, public spending would have been curbed, the building industry would not have become the albatross it became, houses would have remained cheap and affordable, employment increases and growth would have been moderated to a sustainable level as would wage rates and immigration, and we would, like Finland, still have the national accounts in balance as well as having a huge nest-egg for any global recession. The Government must take the entire blame for what has happened. It has forfeited the right to govern.

    • Deaglán says:

      You make some persuasive points there. Certainly it is hard to argue that the Government did much in the good times to prepare for the bad, except maybe reducing the national debt. But was there ever a time Bertie broke bad news to the populace? Maybe there is something in this idea of a national government as the need and desire to maintain popularity prevents politicians taking the necessary decisions in the national interest. But there are obvious dangers as well.

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