The Hangover begins…

Irish people Southerners could be forgiven for waking up with a sore hangover this morning. With tax hikes across the board, child benefits cut, and departmental budgets slashed, the days of bumper budgets are well and truly over. The collective hangover after an 18 year binge has been a long time coming, but did they really have to hit fags and wine too?

Full text of Brian Lenihan’s speech to the Dáil here. Budget main points here.

The Examiner calls it the most savage budget in a quarter of a century. Richard Bruton of FG says the budget will turn recession into depression.

But has Brian Lenihan gone too far, or not far enough?


ADDS
This morning’s Indo attacks ‘vague’ Lenihan. The Irish Times says that by resorting to borrowing and postponing hard decisions, Mr Lenihan has increased the chances of an equally harsh budget next year. Kevin Myers implores us to spend our way out of the crisis.

View from abroad: the London Times covers Lenihan’s gloomy budget, the FT [subs req] mentions Ireland’s plans to dump EU fiscal rules on budget deficits, and Forbes reports that the 12.5% Corporation Tax will stay and “continue to be a central part of Ireland’s economic brand”.

  • But there are a million and a half Irish people this budget doesn’t affect 🙂

  • child benefits for college students – perhaps it’s true that university defers the need to accept the responsibility of adulthood. Maybe it’s best they’re cut.

  • Cahal

    Developers bailed out by their FF buddies, using tax payer’s money.

    http://www.ashillingshort.com/

    Absolute disgrace.

  • slug

    That is the most right wing thing ever – a flat 1% tax on everyone. US republicans would love the Irish tax system. Take from the poor and spare the rich.

  • This budget is nowhere near what would be needed to pay for the bank bailouts. It can’t be done under the old system and some new thinking is required. Any economists out there care to comment?

  • Why am I still a UUP voter?

    Yeah Gary, and they should even more effing grateful than normal!

  • slug

    The UK couldn’t afford Ireland’s low levels of corp tax. The tories have committed to reducing it 3p to 25% but even that seems ambitious. This isn’t rocket science. If you want good public services you have to tax to pay for them. Also, does Ireland have proper local authority tax?

  • George

    Totally lacking in imagination. The 1% levy and half a per cent on VAT shows how bereft of ideas Lenihan was.

    Sure it will bring in around 2 billion but a lot of that will come from the low earners.

    No mention of ending the defined contribution scheme for civil servants so that time bomb is still ticking.

    Jenny,
    the argument is that you can’t take too much money out of the economy or it could stall even more so 2 billion is a start with probably another mini-budget in the spring to see if more can be got from elsewhere.

    Next up is the means testing of child benefit.

    I also wouldn’t be surprised if the newly introduced 200 euro levy on second homes isn’t increased next year.

    Then we’ll have hair shirt budget number two next year, followed by another in 2010.

    Why am I still a UUP voter,
    easy there, you’ll be trying on your very own hair shirt soon enough and it could well be an even tighter fit than our rather prickly southern one.

  • George

    slug,
    we don’t have local rates down south or water charges, we do pay for our bins though.

  • slug,

    What is a “proper local authority tax“?

    In the south there are no domestic rates, but there are business rates. I think most local authority expenditure comes via the central budget, so is ultimately funded via income tax, corporation tax, VAT, and so on.

    Given that these are no higher, in aggregate, than in the north, the absence of rates would make most people in the south better off than their counterparts in the north.

    Local authorities in the south maybe don’t spend as much money as in the north (does anyone know any comparable figures?), but it seems that the services are as good. Of course there may be tasks that are done by different bodies north aand south. Overall, the picture is unclear aand could do with a bit of comparative research. Andy Pollak?

  • UUP voter,

    Indeed. 800 years of oppression and counting has to have some benefits I suppose. We get to elect our own bunch of incompetent gombeen men to screw up our affairs, safe in the knowledge that London has a big cheque book 🙂

  • Dec

    Eay on UUP voter

    Irish people running their own affairs is clearly a terrifying prospect for him/her. Far better that an introverted Scotsman or some oily Sloane make all the decisions for them.

  • Dan Sullivan

    The reaction so far is that (a) this isn’t going to fix the problem (b) the predicted parameters are (unemployment 7.3%, negative growth this year of 1.5% and next year 1%) on the optimistic side (c) and Lenihan has been far to technocrat in his choices – he started his answer to an elderly woman in tears with ‘Listen now!’ on the tradition post budget phone in with Pat Kenny this morning.

    The Lenihan Levy (alliteration is never the politician’s friend at times like this) combined with the over 70s medical card issue has the potential to be the government’s 10% tax rate or poll tax depending on your vintage.

    The other problem is that details are filtering out after the main event that just makes it look worse. Like the changes in unemployment benefit and increases in class sizes.

  • Mick Fealty

    George,

    No, but that charge is going to be ringfenced to local authorities. It’s been a long time coming. And whatever the nouveau riche of Dublin think of it, it will be popular out in the west. Particularly in parts of Donegal where the public infrastructure visibly creaks every summer.

  • Mick,

    … that charge is going to be ringfenced to local authorities …

    Curiously enough, the 200 euro charge on second homes is something that concerns me, so I have given it a little thought. While Donegal, Kerry or Cork may make a bit of money out of it, there are many counties where the cost of administering it will far exceed its actual take.

    Little Leitrim, for example, might have 500 ‘second homes’, each paying 200 euro. That makes 100,000 euro. And for that they will have to set up systems to register, charge, administer, follow-up, fine, summons, etc, probably needing at least half a dozen staff. It’s simply not worth it.

    Cavan, with maybe only 200 ‘second homes’, would be even worse. And so on.

    I expect this tax to either be unworkable, or unworked, or repealed fairly soon. Or, less optimistically, to be vastly increased once the rich have gotten accustomed to it.

  • Dan Sullivan

    Horseman, the property charge will apply to all non-principle residencies so all rental accommodation will be hit too.

  • slug

    200 euro – is that per month?

  • Dan Sullivan

    per year

  • slug

    200E a year is nothing, surely?

    Takes a flat tax from the poor and a tiny annual sum from rich two-house people.

    And the SDLP think that FF share their values?

  • barnshee

    George
    “we don’t have local rates down south or water charges, we do pay for our bins though. ”

    In the norh DO have rates and paying for our bins is about all we get for them —count you blessings

  • slug

    Does anyone know why petrol but not diesel tax was raised? Isn’t it bad economics not to tax close substitutes similar? (Ramsey tax principles).

  • Slug, I’m by no means an expert, but I wonder if this would answer your question.

  • Mick Fealty

    Dec,

    Are there not enough legitmate ‘balls’ in play to distract you from laying into the man!?!

  • smcgiff

    Diesel is more CO2 efficient – Note I didn’t mention more environmentally friendly. 🙂

  • George

    Mick,
    I don’t doubt that this 200 euro charge on second properties is being dressed up as being for the reasons you state but for me this is the first step down the road to a much more substantial property tax on second residences.

    Who knows it could also be a wedge for the reintroduction of rates too with the introduction of a levy on primary residences to follow in a couple of years once this is bedded down.

    The estimated 80 million from this (I reckon they will get much more) is being used to plug the gap caused by the reduction in exchequer funding to local authorities.

    Horseman,
    As for collecting it, I’m sure the Revenue Commissioners won’t have too much trouble finding out who owns what property in the State. They can look at the Registry or the Private Residential Tenancy Board list. I believe the payment will be made to central government and then allocated back to local authorities and there is 80 million out there to be collected straight away.

  • George,

    the Revenue Commissioners … can look at the Registry …

    Agreed, but how can they tell if a house is one’s second residence? If, for example, a northerner has only one property in Donegal, then he or she will only appear once in the register. Not paying income tax is insufficient proof that one doesn’t live in the jurisdiction.

  • @Horseman – smart local authorities could opt to co-operate set up a shared service agency in a border community, or outsource it to the relevant Regional Authority rather than have the private sector do it. This could process charges where there is not an economic number of transactions to set up an office in each county. The processing staff could be drawn from each county and the managerial staff shared.

  • Means testing of benefits are stupid – they require people to appear before a bureaucrat, are denied for tendentious reasons and chopped off for being 1 euro over a defined limit.

    Subjecting them – all of them – to tax is fairer – it requires only the existing systems and a computer to spit out a statement at the end of the year for the tax return. The marginal rate for extra income would simply be the tax band, not cutoff.

    The tax would not be collected at the time of payment but at the end of the year, and when allowances are factored in, which if you don’t have taxable income you don’t have benefit of anyway, the poorest should see no tax payable.

    DIRT should be abolished too – taxing bank interest that way stinks of the socialist hatred of “unearned income”. Instead, the basic rate of tax should be applied at source but by filing a tax return the poorest would be able to reclaim the tax paid – not just if you’re over 65 FFS. How can the poor sock away any money when the bank pays a pittance and the government takes 23% of the pittance!

  • BfB

    slug..assuming you can read

    The top-earning 25 percent of taxpayers (AGI over $62,068) earned 67.5 percent of nation’s income, but they paid more than four out of every five dollars collected by the federal income tax (86 percent). The top 1 percent of taxpayers (AGI over $364,657) earned approximately 21.2 percent of the nation’s income (as defined by AGI), yet paid 39.4 percent of all federal income taxes. That means the top 1 percent of tax returns paid about the same amount of federal individual income taxes as the bottom 95 percent of tax returns.

  • George

    Horseman,
    Agreed, but how can they tell if a house is one’s second residence? If, for example, a northerner has only one property in Donegal, then he or she will only appear once in the register. Not paying income tax is insufficient proof that one doesn’t live in the jurisdiction.

    Well I would assume that if Joe Northerner says it’s his primary residence then he will have to have a southern registered car.

    If he doesn’t then he’s liable to a hefty fine in the thousands for VRT evasion plus he’d have to pay VRT and re-register.

    Of course, then there’s always the option of getting the Criminal Assets Bureau on his ass because he can afford to buy a house but hasn’t actually earned a cent in Ireland.

    Throw in that he gave that argument that he would then be domiciled in Ireland for tax purposes so he would have to declare all income earned over over the border and anywhere else outside of this jurisdiction, which would be liable to tax here.

    This is a charge on all “non-principal private residences” so Joe Northerner would be entering a whole new world of tax pain if he tried to pull that one on the Revenue.

    Easier to pay the 200 euros.

  • George,

    Your explanation requires a lot of coordinated data-bases! I doubt if they are all able to come together to spew out the names of people who (a) own a house in the south, but (b) do not have a car registered in the south, and (c) do not pay income tax in the south. Oh, all the while taking account of the possibilities that some people (the old, the green, … ) do not always own cars, and others (the old, the returned-from-abroad) do not pay income tax at all, and maybe derive their income from out of the state.

    All in all, I see the possibility for massive errors and inefficiencies.

    Another interesting thing is that the Land RRegistry doesn’t provide a ‘principle residence’ entry – it simply says that for plot X, the owner is called Y. Where Y may live in fact is not shown! So the Land Registry can only be useful where Y has two properties in the state.

    To go right back to the start of Paddy McEvoy’s intro; it is not just southerners who are going to suffer from this measure, it’s all Irish people, north or south, who own property in the south. Many unionists even, such as those with nice cottages in Donegal!

  • George

    Horseman,
    the Revenue don’t have to prove anything initially, they only need to know a house exists.

    If it is your primary residence, then they can already cross-reference motor tax, Mortgage Interest Relief, welfare benefit, Pension payments, Child Benefit, self-employed register, employee register etc.

    If you don’t come up on any of these then they’ll take it as being a non-principal private residence.

    All they have to do is send out the 200 euro bill along with a declaration which you can sign saying you are not liable as this is your primary residence (Naturally at the bottom will be a warning that is is a criminal offence to make a false claim to Revenue punishable by ….).

    If they get back the signed declaration and you are nowhere to found in the State’s files but claim to live here primarily (without any obvious income), I bet my bottom dollar that a nice 19-page Form 12 tax return form will drop on your doormat by return of post.

    Then the ball is back firmly in your court to not only prove it’s a primary residence but also from what you are living. All bank account details, all non-proprietary directorships, all foreign earnings, including dividends, pensions, rents, rental etc.

    I assume that if you don’t pay then they can put it as a charge on your house if you ever want to sell it.

    Personally, I think this is the stalking horse for a full property tax/rates system so they will be working hand over fist to make this system work.

  • George,

    If it is your primary residence, then they can already cross-reference motor tax, Mortgage Interest Relief, welfare benefit, Pension payments, Child Benefit, self-employed register, employee register etc.

    If you don’t come up on any of these then they’ll take it as being a non-principal private residence.

    All that for 200 measly euros?

    I think this is the stalking horse for a full property tax/rates system …

    Unfortunately you are quite correct. All part of the tax-harmonisation push going on in the EU. Every other country has some sort of property tax, and it is likely that the south is under pressure to introduce one too.

  • George

    Horseman,
    it’s very easy these days for Revenue to run a name or address through a database using set parameters. It’s not a big job. Either is sending out a standard bill to the list that the computer churns out, followed by a standard tax return if they receive as signed declaration.

    Remember too there’s at least 80 million out there to be collected and 200 euros is only the start.

    They will also be able to flush out all those people with second properties who might have other tax liabilities or are not declaring income on rental properties.

    This is the Revenue pulling on a piece of string without knowing how big a kitty is on the end of it. I reckon they’ll uncover a lot of other stuff through this action.

    People from Northern Ireland with a holiday home in Donegal, if they have any sense, are not going to sign a declaration stating to the Revenue Commissioners that their primary residence is in the Republic. Not for sake of 200 euros at any rate. And once they are in the database, it will be too late when the bills start to grow.

    As for the EU, I don’t know if it’s because of pressure from there.

  • George,

    Apart from anything else, this should act as another kick in the ribs for the property market!

    Who is now going to buy up all the empty houses if they think that it’s going to land them with an increasing tax liability. Since the ‘built-but-unsold’ are exempt for the time being, I suspect that they will stay unsold, and increasingly unsaleable.

  • George

    Horseman,
    I see it slightly differently. One of the curses of the last few years has been people who bought property and left it lie idle because they reckoned they were making enough through the inexorable rise in the property prices.

    There are appartments all over Dublin lying empty because the buy to let investors weren’t even arsed letting.

    The houses in Leitrim and the like were built under section 23 tax relief so why not penalise these people for doing nothing with them. They were built with taxpayers’ money so I’ve no sympathy.

    I’m a big fan of taxing second properties. I would have made it 400 euros and not raised the price of smokes and given some kind of tax credit to the lower paid to offset the 1% levy.

    Irish people have a mental illness when it comes to property and if this helps to change attitudes even slightly I’m for it.

    Anything that makes people do something with an empty property they own is a good thing.

    And I simply don’t buy the argument that the landlords will just pass on the price to tenants. This will be offset by more property owners beginning to put up their properties for rent.

  • George,

    There is a conflation of two different types of houses – the ‘buy-to-let’ and the ‘holiday house’. I agree that there should be a disincentive to people simply buying houses to sit on them while they appreciate (though the market seems to be currently providing a good disincentive). But I disagree with tawing people on ‘own-use’ holiday homes. Why should one investment be taxed, when other comparable things are not? If I buy a yacht and you buy a cottage, we’ve both spent much the same – but now I get taxed and you don’t!

    For obvious reasons I disagree with you on the fags. I think they should have crucified smokers and left holiday homes untaxed … 🙂

  • Correction: If I buy a yacht and you buy a cottage, we’ve both spent much the same – but now you get taxed and I don’t!

  • George

    Horseman,
    as a sailing fan, I would consider this tax on holiday homes the equivalent of a mooring fee to the local authority.

  • George,

    Ultimately both taxes (homes or yachts) are taxes on the products of hard work. As such they are disincentives to work, and thus to prosperity.

    A far more intelligent idea (though sadly unpopular, and impossible to administer) would be a tax on not working. How about higher income taxes for single-earner families? Or variable income taxes that depend on the number of hours you work per week? Or lower taxes for the more highly qualified?

    Basically, I’d like the state to leave my property and my (future) yacht alone!

  • Rainbow

    When the Rainbow Government brought in the property tax there were two houses in Leitrim that it applied to. As it was Michael “No Arts money for Offaly, kildare, and Monaghan” Higgins who brought it in nobody ahd a problem with it.

  • Wilde Rover

    Horseman,

    “How about higher income taxes for single-earner families?”

    Yes, stay at home mothers/fathers are a blight on society.