Hands off the family home, remember the children’s shoes fiasco

Cantillon: Capital Gains Tax on the family home would be revenue earner but at what cost?

 Fine Gael leader Garret FitzGerald (right) and  John Bruton, FG spokesman on finance, 1982.  Photograph: Pat Langan

Fine Gael leader Garret FitzGerald (right) and John Bruton, FG spokesman on finance, 1982. Photograph: Pat Langan

 

The Tax Strategy Group is supposed to offer the Minister for Finance a range of options as he or she prepares for the budget. The brushstrokes on the canvas are necessarily wide in the early stages of budget preparation and there is no expectation that all the suggested measures will become Government policy.

However, except where the Department of Finance-led group specifically advises against particular measures on the basis that they are either inimical to public policy or unworkable, the assumption must be that the group’s suggestions are viable options for a Minister looking to either balance the books or secure some wriggle room for additional spending.

It is in this context that we must look at the suggestion from the group to Minister for Finance Paschal Donohoe that the capital gains tax (CGT) regime could change in the budget to end the relief granted to homeowners on the sale of their family home.

True, the measure could be a significant revenue source but one imagines that no political party is ready to face the fury of middle Ireland on this subject – not least a party already bruised by its ineptitude on the water charges issue.

However, that does not mean that CGT reform is off the cards. The group also examined the possibility of adopting a more progressive approach to the tax. This would see several bands of CGT rates – higher and/or lower than the current 33 per cent. These would be applied depending on the size of the gain, with bigger gains attracting a higher tax rate.

The group referenced variations on this approach that operate already in Finland and Denmark. They also cited the UK where different rates apply to basic- or higher-rate taxpayers and even on different types and size of asset being sold.

It is by no means certain there will be any change in the CGT regime but the attention it attracts in these reports mean it is a live issue for the Minister at a time when tax revenues suggest he will have minimal extra capacity for spending.

But it would be a very brave minister who would target the family home just as most people are beginning to get back on their feet financially after the crash. The fiasco over John Bruton’s attempt to introduce VAT on children’s shoes in 1982 remains in the collective memory of Fine Gael.

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