Central Bank pushed for property tax, water charges in 2009

Pre-budget letters reveal Patrick Honohan’s plans to extend State revenue base

The Central Bank’s role in pushing for a property tax and water charges from as far back as 2009 was revealed for the first time on Thursday with the publication of pre-budget letters from the governor to the minister for finance.

Former governor Patrick Honohan suggested the introduction of a property tax, water charges and a carbon tax in a pre-budget submission to the government in late 2009 as ways of extending the State's revenue base without impacting on the labour market.

Mr Honohan had only taken up the role a month earlier and delivered his advice to the then minister for finance Brian Lenihan at a time when the Irish economy was in freefall following the global financial crash in late 2008.

Mr Honohan said there were “good conceptual and empirical grounds for placing more reliance on property-ownership taxes, carbon taxes and user charges” rather than on income taxes that can affect work incentives.

In relation to water charges, he said it was important to ingrain in Irish society the “user pays principle”.

Pension levy

A carbon tax was introduced in 2010 but the property tax was not levied until 2013. Water charges, which only came into play in 2015, have not been paid by a large number of households.

The former governor also said public servants continued to be paid a premium over their private sector counterparts, in spite of the introduction of a pension levy.

The Central Bank on Thursday published pre-budget letters from its governors to the minister for finance from 2008 to 2015.

In a letter sent on the day of the bank guarantee, former Central Bank governor John Hurley gave little indication of the calamitous state of the banks, which ended up requiring a €64 billion bailout.

“The formation of the upcoming budget will be more challenging than in previous years, given the changed economic climate,” Mr Hurley wrote on September 29th, 2008, to Mr Lenihan, the very day that the government was forced to introduce a guarantee to shore up the country’s banks.

In 2010, Mr Honohan called for a “significant degree of frontloading” of the fiscal adjustment required to restore the public finances to order and reassure lenders that the programme had a “high probability of being carried out”.

He told Mr Lenihan he was “not yet convinced” a total adjustment of €15 billion would be sufficient to give confidence to the markets and taxpayers and and suggested “adjustments of a couple of billion more” based on GDP calculations available to him at the time.

Ciarán Hancock

Ciarán Hancock

Ciarán Hancock is Business Editor of The Irish Times