Tax tracker mortgages, says leading economist
Former advisor to Brian Lenihan says people on low-interest loans are being subsidised by those who aren’t
Economist John FitzGerald and Dr Alan Ahearne of National University of Ireland Galway. Photo: Frank Miller/The Irish Times
A leading economist and one-time advisor to the former minister of finance Brian Lenihan has proposed imposing a tax on tracker mortgages.
Dr Alan Ahearne of the National University of Galway also proposed the removal of mortgage interest relief on tracker mortgages, advocating the measures because most of the banking system is now nationalised. As such, the section of society not on tracker mortgages was effectively subsidising those who are, he said.
It was noted that the banks continued to lose €500 million a month last year.
He was speaking at the annual Budget Perspectives conference organised by the Economic and Social Research Institute which is designed to inform debate on the next budget.
Dr Ahearne also warned against using cash from the now wound down National Pension Reserve Fund for “shovel ready” infrastructure projects. He cited the example of wasted public investment in Japan in the 1990s after its bubble had burst. He suggested the money may be better used by the State taking equity stakes in small and medium sized enterprises (SMEs) with legacy property debts.
Professor John Fitzgerald of the ESRI disagreed with Dr Ahearne on imposing a tax on tracker mortgages and criticised the late finance minister, saying he had made the mistake of calling the recession over two or three years too soon.
He did, however, support a shift in taxation from labour to property, saying that this would boost job creation and lower unemployment. Prof Fitzgerald claimed that the negative impact of taxes on work is higher in Ireland than elsewhere and that a well designed tax on property would help prevent another bubble in the future.
He also advocated the adoption of the Financial Transaction Tax most euro area countries are imposing on a range of financial securities. Despite describing it as “daft” he said that its adoption would help protect the 12.5 rate of corporation tax which some EU partner countries have repeatedly urged Ireland to raise.
Peter Breuer, the IMF’s resident representative, set out a range of “clear and present dangers” for the Irish economy in his presentation. These include: low growth in trading partners; rising international interest rates; a slower than anticipated recovery in bank lending; and the effects of tax increases and spending cuts.
He warned that if economic growth remains at 1 per cent over the next five years, Ireland’s public debt levels would keep rising, hitting 130 per cent of GDP by 2018. He described a low growth outcome over the next half decade as a “not unreasonable assumption”.
Mr Breuer urged a continued focus in address the banks’ non-performing loans (NPLs) and advocated the setting of targets for the banks to resolve SME NPLs, as has recently been done for non-performing mortgage loans.
There was unanimity amount the economists presenting papers at the event that the Government should stick to existing budgetary targets in the coming years rather than easing up on the pace of fiscal consolidation.