IMF hints at concerns over Irish property market

Understanding the conclusions of reports from international bodies such as the International Monetary Fund and European Commission on the Irish economy always require a bit of reading between the lines. The latest report from the IMF is no different, appearing to hint, for example, that it might be wise to amend or end the Government help-to-buy scheme and tighten up the Central Bank mortgage-lending rules, but not actually saying so. No doubt such reports emerge after much negotiation with civil servants. It might be more useful if the IMF just came out and said what they thought.

The language is a bit clearer in other areas. The Government – at least in its current guise – remains committed to using what room for manoeuvre there is on taxes to cut the universal social charge (USC). The IMF warns in this context against reducing the tax base, saying that a “comprehensive and evenly distributed tax on individual earnings is important”.

The strength of the USC is that it applies to incomes that escape normal tax – when introduced it also ensured that lower earners contributed a small amount, though recent cuts have exempted many from the USC net.

Corporation tax

The IMF also points to the risks of swings in corporate tax – the reason why tax revenues overshot in recent years. The message is that spending programmes should not be entered into on the basis of an overly optimistic view.

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For good measure it calls for a review of tax allowances and reliefs – though does not say which ones – and says there should be a review of the goods exempted from VAT, such as food and children’s clothes. It also says property values for the residential property tax should be aligned to market values, which would mean a big rise in bills.

The IMF knows there is little chance of these tax rises happening, bar another fiscal crisis. But it highlights the kind of choices Irish governments are likely to face, particularly if growth slows due to Brexit. Tax buoyancy in recent years has allowed a bit of scope for spending rises and USC cuts. But we can’t rely on this continuing. As the IMF points out, the risk is that Brexit has a “negative and significant” impact in the years ahead.