Capital Gains Tax
Sir, - Prof de Grauwe The Irish Times, January 31st) is worried about the impact of EMU on already runaway asset prices. Others are worried about asset prices because of their impact on the housing market. Yet hardly a single commentator has mentioned the most recent contribution to this problem, namely the halving of the tax rate on large capital gains.What was initally an insult to even the most rudimentary sense of equity has turned out to be an exercise in political irresponsibility. There is manifestly excess demand for property, shares and other capital assets. Even I know that to reduce taxation on those assets will of itself increase demand. To halve it is to open up the potential for economic catastrophe piled on to the social misery that is already in train . It has already increased the feeding frenzy in both the property and stock markets and was the wrong policy at the wrong time in the business cycle. Who ever before heard of reducing tax in order to reduce demand?No logic explains this change except one. That is that it represents a pay-back by the Government to its wealthy backers. This payback could well dam the country on a terrible scale. What we need is a capital gains tax regime which is fair to small gains (which the new regime will penalise!) and which directs investment in directions that are both socially valuable and economically sustainable. - Yours, etc., Brendan Ryan, Cork Institute of Technology,Bishopstown, Cork.