Cantillon: Budget paper on taxing housing charts the errors to avoid
Principal error is failure to treat property tax as tax on consumption
A paper from Tim Callan and other authors at the ESRI’s 16th Budget Perspectives conferenceargues that Ireland takes a smaller share of national income in tax than most EU-15 countries. Photograph: Aidan Crawley
Budget season begins in earnest today when the ESRI hosts its 16th Budget Perspectives conference. A paper from Tim Callan and other authors which argues that Ireland takes a smaller share of national income in tax than most EU-15 countries will surely grab the headlines. Not least because it finds that the reason for this state of affairs is because we don’t tax low and middle income earners as much.
One of the papers it will overshadow is a critique of the UK’s property tax regime by Stuart Adam of the Institute of Fiscal Studies. He sets out a number of flaws with the UK system that will no doubt be replicated faithfully on this side of the Irish Sea.
First and foremost is the failure to see a property tax for what it is – a tax on consumption – and treat it accordingly. The tax should be levied on the value of the service provided, which means it should relate closely to actual property values. This is manifestly not the case in England and Wales where the council tax is based on 1991 values – the reason presumably being that no councilor of sound mind would want to be associated with putting up this most hated of taxes.
It would be something of a miracle if the same pattern is not repeated here. The Government has already promised that the rate for the next three years will be based on current values. What happens after that is not all that clear, but Mr Adam would argue that properties should be revalued.
Irish politicians are no better known than their British counterparts for taking unpopular decisions – no matter how correct – and thus the probability has to be that the political will is simply not be there to make people revalue their houses, particularly if the property market has recovered.
What the other banks knew
Anglo Irish Bank may be dead but its ghost will haunt us for some time to come.
Yesterday ’s revelations may not have contained much in the way of new factual information but the insight into what was going through the minds of the bank’s senior executives in 2008 was sufficient to reopen a barely healed wound in the public psyche.
Looking past the bravado and gallows humour that characterised the exchanges between Peter Fitzpatrick and John Bowe, there is one salient point that can serve as a jumping-off point for any banking inquiry. The tapes obtained by the media indicate that it was obvious to Mr Bowe – and presumably to his peers – in 2008 that the bank was unlikely to survive regardless of whether or not it was able to get liquidity support from the Central Bank. The world had changed, its business model was no longer viable and the bank was heading for insolvency.
Mr Bowe accurately predicted the bank’s eventually fate, albeit in reverse: break-up and nationalisation.
His comments cast the bank’s subsequent interaction with the government and the regulator in a very cynical light. The best that can be said of them is that they did what bankers across the world did: kicked the can down the road and hoped for the best even though they knew the situation was hopeless.