Threat of election cools as Brexit talks heat up
Business Week: US tax reform, Ireland in the dock and the ever-present housing crisis
Economist Joseph Stiglitz said the State’s controversial tax deals with companies such as Apple are part of a corrupt global system that is fuelling inequality and political extremism.
The State this week stepped back from the brink.
No, it wasn’t exactly the Cuban missile crisis, but the resignation of the now former tánaiste Frances Fitzgerald did rescue the country from an election nobody wanted ahead of a critical juncture in the Brexit talks.
The Government’s mind is bent on representing the Republic’s interests in talks between the British government and the European Union in the coming weeks, and a lame-duck Taoiseach at the table would have compromised matters immeasurably.
Events have moved up a gear with agreement on the UK’s divorce bill, with many Brexit voters said to be seething after it emerged London will pay more than €50 billion, although the final sum will be confirmed only at the end of negotiations.
The UK had been digging its heels in on this, but Theresa May’s government finally caved and agreed to honour all Britain’s financial commitments, including its share of spending commitments in the EU’s budget up to 2020 and its share of the pensions for EU officials.
Now comes the Border, and it’s a bit like Groundhog Day as London insists it can keep the Border open but also exit the customs union. Even Westminster’s Brexit committee said it could not see how those policies could be reconciled.
It is a complicated business though, and many have been having their say on how it might be resolved. Former taoiseach Bertie Ahern suggested using technology to manage multinational trade, while employing a very Irish solution to lower-level movement: just turn a blind eye.
The British Irish Chamber of Commerce published a framework for a “customs arrangement”. It would involve an alignment of the UK’s tariffs with the EU’s established Common External Tariff as well as continued regulatory alignment.
Meanwhile, the trickle of UK businesses abandoning ship is continuing, and international executive search firm Odgers Berndtson said it would open an office in Dublin as companies set up businesses or add staff here after Brexit.
Another organisation positioning itself to reap the fruits of Brexit is the Irish Stock Exchange, which was sold this week to Euronext, operator of the Paris, Amsterdam, Lisbon and Brussels bourses, in a €158.8 million deal.
US tax reform and Ireland
US president Donald Trump said he would not “name names” as he spoke this week about how other countries had attracted US investment at the expense of America.
“They’re going to Ireland,” he said, moments later. “They’re going all over. They’re going all over Asia but they’re stopping because they now want to take advantage of what’s happening and what we’re about to pass hopefully.”
He was talking about US tax reform and his planned reduction in the corporation tax rate from 35 to 20 per cent, as well as new proposals on taxing the offshore income of multinationals.
The proposals, if passed into law, would reduce the incentive for companies to invest in other jurisdictions, such as the Republic. However, Trump’s plan suffered a blow in the Senate when a watchdog said it would raise less revenue than expected.
Of course, one of the companies Trump was talking about is Apple. The Department of Finance was still unable to provide a clear date this week for when the Government will start collecting the €13 billion in illegal State aid it extended to the tech giant.
A senior department official told the Public Accounts Committee that agreement had almost been reached with the company over the collection of the money, which is to be transferred to an escrow account pending a legal challenge.
Indeed, the State was once again rebuked for its corporate tax practices, with a new report from Oxfam blacklisting the Republic as a tax haven. We were one of just four EU states on the list, alongside the Netherlands, Luxembourg and Malta.
There was more to come too. Nobel Prize-winning economist Joseph Stiglitz said the State’s controversial tax deals with companies such as Apple are part of a corrupt global system that is fuelling inequality and political extremism such as that which swept Trump to power.
The Columbia University professor described Ireland – along with Singapore, Panama, the Cayman Islands and Luxembourg – as a “fiscal paradise” where individuals and corporations can “park money” and avoid paying taxes.
“It’s a very ugly picture of a set of rules designed to benefit corporations at the expense of ordinary citizens. Unambiguously, these rules feed into Trumpism,” he told The Irish Times.
Housing supply warning
At the other end of the spectrum is the housing crisis, which was once again brought into focus by the deaths of two homeless people.
There was however a warning from the Irish Fiscal Advisory Council, which suggested that rapidly boosting the construction of housing supply may cause the economy to overheat, thus requiring counter-cyclical measures such as higher income taxes.
An analysis by stockbroker Goodbody showed the number of new homes built in the Republic more than doubled in October compared with a year earlier, but the number of properties built is still far from levels needed to satisfy demand.
While overall house-building in the year so far is up 82 per cent, only 7,503 properties have been completed at a time when many economists and property experts believe at least 30,000 homes are required.
Meanwhile, a Central Bank survey suggested the growth of house prices will slow down next year. Its third-quarter residential property price survey, in conjunction with the Society of Chartered Surveyors Ireland, said price inflation would slow to 8 per cent next year compared with the current rate of 12.8 per cent.
While prices are expected to slow, all of the respondents to the Central Bank’s survey anticipated that prices would continue to increase over the next three years with the rate of increase being put at 15 per cent.
Separately, the Central Bank moved to tighten second-time home buyers’ access to large loans. It decided to retain most elements of existing mortgage-cap rules, but tweaked a measure to restrict the extent to which second-time and subsequent buyers can breach a key loan-to-income cap.
Then there’s the rental sector. Dublin City Council has begun cracking down on short-term Airbnb-style lettings in the city by stepping up its enforcement activity on landlords targeting the tourism market without appropriate planning permission.
Property owners need planning permission if they wish to change use of a property from residential to short-term let, and failure to do so leaves them open to enforcement action from the council.
About 100 apartment owners are under investigation, and the council has sent more than 50 warning letters alleging “unauthorised development” on the premises.