Why the abolition of windfall tax on rezoned land profits is a big mistake
Opinion: Michael Noonan spoke of ‘the road less travelled’ in Budget speech. Sadly we are travelling down the same old beaten path
‘Minister for Finance Michael Noonan is well aware that a tax on rezoned land profits, introduced after one of the biggest property crashes in global history, was not going to generate revenue in the short term’. Photograph: Getty Images
One of the most despicable aspects of the Celtic Tiger era was the enormous amount of money made from bad planning decisions, driven by the highly politicised rezoning process. The profit margins generated by county councillor-led rezoning were both grotesque and indefensible.
In 2009, long after the proverbial horse had bolted, the government introduced a windfall tax of 80 per cent on profits generated by such rezoning which was intended to ensure such abuse of the planning system would never be repeated. After just four years, the Government announced in Budget 2015 that the tax be abolished in its entirety. This announcement came on foot of intensive lobbying by Tom Parlon of the Construction Industry Federation. This is the same Parlon who said in 2008: “A lot of buyers have been sitting on the fence for nine to 12 months, our message is now is the time to buy, there is real value out there.”
There are two entirely disingenuous reasons cited by the Government as justification for the abolition of this tax. First, it is contended that because the levy raised no revenue since 2010, it is a futile tax and therefore its abolition is legitimate. This is patent nonsense.
Glut of available landMichael Noonan
The purpose of the levy was to end the speculative purchasing of agricultural land by developers who then applied massive pressure on local authorities to zone it for commercial or residential land, often increasing its value by as much as one thousand per cent. In essence, councillors’ votes could make millionaires of landowners overnight. It seems the Government is happy to ramp up this sort of behaviour once again.
In this paper in 2008, Stephen Collins wrote: “The commitment to introduce a windfall tax of 80 per cent on profits over and above agricultural value is a very important long-term measure designed to prevent another property bubble.”
Now this important measure is being dismantled. It may be argued 80 per cent was excessive and reducing it to 50 per cent or 60 per cent might be fairer and more balanced, but complete abolition is a reminder of a bad dream.
The second contention is that the country urgently needs more housing, and land must instantly be rezoned to accommodate the building of homes. This argument plays on the fears of potential first-time buyers. Again this is an entirely dishonest argument. Vast tracts of zoned, serviced land are available for development right now.
In 2012, An Taisce’s review of planning found that in 2008, as Ireland faced economic collapse, 42,000 hectares were zoned for residential purposes. This would be enough for four million extra people. The Society of Chartered Surveyors of Ireland also recently identified 2,233 hectares of land in Dublin already zoned for housing.
Sadly it seems the current Government is happy to follow the exact same economic model as Fianna Fáil, influenced by the exact same vested interests – the Construction Industry Federation, big developers, the banks and so on.
We need development of houses – but not in a haphazard frenzy where once again developers and bankers are circling the wagons. This Government is laying the foundations for another boom-bust cycle. It is the same formula prescribed by Fianna Fáil governments of 1997– 2008. Michael Noonan spoke of “the road less travelled” in his budget speech. Sadly we are travelling down the same old beaten path as before, and the consequences are entirely predictable.