Building for future too taxing for our leaders

 

The Government’s own commission urged a property tax but, sadly, it would have required too much work, writes FINTAN O'TOOLE

WE LIVE in a world in which the truth is likely to be the precise opposite of what is claimed to be. Thus, the Government gets across the idea that it is taking the economic crisis extremely seriously. All bets are off. Everything is being examined with forensic rigour.

The truth is that the Government – and the Department of Finance which is driving it – is not serious at all. They’ve arrived at a crude formula – cut public spending and feed the banks. Beyond that, there is an intellectual indolence that borders on fecklessness.

Last week, Brian Lenihan made an astonishing statement to the Fianna Fáil parliamentary party. He told it that “that a huge amount of preliminary work would need to be done in order to introduce a property tax on a principal home, and that that preliminary work had not even started.” By the end of the week, the Government was letting it be known that there would be no property tax in the lifetime of this Dáil because nothing has been done to prepare for it.

Let’s leave aside for the moment the arguments over whether and how to introduce a property tax. Getting to the point of making such a decision requires the Department of Finance and the Government to understand exactly what is at issue. It is the job of the civil servants to work out what such a tax would look like, how it could be levied and how it could be imposed fairly. It is the job of a half-competent government to ask for such information and to keep an open mind until it has considered it in detail.

Even if the decision were in the end to be negative, the need for a serious discussion on property tax is obvious. At the height of the boom, in 2006, the State took in €1.3 billion from stamp duty. That revenue – together with the income from VAT on building materials and from the wages of construction workers – is gone. And it would be insane to try to bring it back, even if we could. It was fool’s gold.

If we’re going to replace it, it makes sense to do so with a different, more sustainable form of property tax. Taxing the value of property, while abolishing stamp duty on the family home, is fairer. It is also – no insignificant consideration in Ireland – hard to avoid. And it doesn’t depend on the boom-and-bust cycles of the construction industry. It is also known – from practically every other developed country in which such taxes are taken for granted – that property taxes are not harmful to the economy. In the Irish case, they could actually help to cure one of our endemic diseases – the tendency to invest in bricks-and-mortar rather than in productive enterprise.

It is equally obvious that devising an acceptable property tax is very tough. We have had property taxes in the past – domestic rates (abolished in 1978), the residential property tax (abolished in 1997) and the farm tax (abolished in 1987). They failed because they were seen to be arbitrary or unfair. In a half-serious government, people would be asking and attempting to answer key questions. Do you exclude those in negative equity? How do you get fair valuations? How do you stop it becoming a tax on those who live in Dublin? Can you ring-fence the proceeds for local government?

These questions have to be answered before a rational decision can be made. The fact that none of this work is being done is staggering. The property tax was the key recommendation of the Government’s own Commission on Taxation. It identified the “provision of an up-to-date valuation base for all property and land in Ireland” as a “priority issue”. That the Minister for Finance can blithely reassure nervous backbenchers that they needn’t worry because this “priority” work hasn’t even started is a mark of the abysmal level of basic governance.

This is not an abstract issue. The €1.3 billion hole where stamp duty used to be can be filled in three ways.

We can borrow the money – not a great idea right now. We can raise it through other forms of taxation – not a great idea either, since taxes on labour or consumption would be much more damaging than a property tax. Or we can cut €1.3 billion worth of public services. Those cuts will, whatever the cynical claims to the contrary, hit the most vulnerable people hardest.

The Government’s chosen option is, of course, the last one. Except that calling it a “chosen option” makes it sound carefully weighed, the result of a serious and responsible process of deliberation. What we know from Brian Lenihan’s casual revelation is that it is nothing of the sort. “There is no alternative” means “there is no alternative that doesn’t involve some awfully hard work and tough thinking that, frankly, we can’t be bothered to do. Oh, hello Mr Dukes, do you need another billion?”

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