Housing crisis could hold back economic growth, warns Deloitte

Left unchecked, the housing crisis has the potential to become the biggest constraint on growth in the Irish economy, Deloitte has warned.

In a pre-budget submission, the consultancy said chronic undersupply in the housing market would eventually erode the productive capacity of the economy and limit Ireland’s ability to attract inward investment.

Unless “radical” measures are taken, it said the crisis could result in the loss of business coming from the UK in the wake of Brexit.

As well as the provision of more social and affordable housing, the firm said the Government could take action to address the issue through the tax system.

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Specifically, it called for targeted Section 23 property tax relief in cities to boost the supply of rental property, and a capital gains tax (CGT) rollover relief to allow deferral of CGTonce the proceeds of a sale are reinvested in property.

It also wants the reinstatement of full interest relief on borrowed money used to buy rental property.

However, it stopped short of calling for a reduction in the VAT rate for builders, similar to what has been done in the hospitality sector, noting the Government was not in favour of such a measure.

“Tackling the infrastructure and housing supply should be part of the larger goal to enhance Ireland’s competitiveness and build capacity for the future – supporting inward investment, Irish business and entrepreneurship,” Deloitte’s head of tax Lorraine Griffin said.

Multinational tax avoidance

On global tax reform and specifically the OECD’s base erosion and profit shifting (Beps) initiative to clampdown on multinational tax avoidance, the firm sounded a note of warning, suggesting the proposal pertaining to public country-by-country reporting was problematic as it would involve making potentially confidential information public.

It repeated former minister for finance Michael Noonan’s quip that “Ireland could not serve two masters” in the EU or Beps.

The firm’s submission noted that the international tax landscape was evolving at pace and that an upcoming consultation on corporate tax reform would be key to shaping Ireland’s regime in the future.

“The Government must ensure the corporate tax strategy remains focused on rate (12.5 per cent), reputation (playing fair but playing to win), and regime (competitive tax regime),” Ms Griffin said.

On personal taxation, Deloitte said Ireland’s relatively high marginal tax rate of 52 per cent was out of kilter with competitor countries and undermined the State’s competitive offering for investors.

Relocate staff

Tax partner Daryl Hanberry said the issue was frequently raised by clients looking to relocate staff here, and needed to be tackled by the Government, albeit he acknowledged this may take a series of budgets.

He said the Government also needed to present a roadmap on how it planned to simplify the personal tax code so as to provide prospective investors with certainty.

In its submission, the firm also repeated calls for a new share scheme for SMEs and more tax-friendly treatment for employees getting shares, in order to drive share ownership within private companies.

“Budget 2018 brings opportunity for Ireland and for the Government to show confidence at a time of increased international and geo-political uncertainty,” Ms Griffin said.

“However, the opportunities are set against a backdrop for investment and solutions needed in housing, infrastructure and education,” she said.