By Eamon Quinn
The IMF has urged the Government to redouble its efforts to build new homes and reduce the hoarding of land.
Gradual increases in the local property tax, as well as the introduction of new income-tax brackets, should also be considered.
In an upbeat report, the Washington-based fund predicts the Irish economy will continue to grow strongly over the next few years.
But in the so-called Article IV assessment on Ireland, the IMF also underlines key challenges, from housing to potential economic shocks from abroad, which could harm Irish prosperity, including the US corporate tax cuts and the EU’s proposed tax-harmonisation scheme.
“While the outlook remains positive, lingering crisis legacies, rising housing prices, and external downside risks — mainly from resurgent global protectionism, adverse effects from Brexit, and ongoing changes in the international tax landscape — pose challenges,” according to the IMF board of directors.
On housing, the IMF executive board urged the Government to renew its efforts to expand house-building. Its directors “considered that taxation could be used more actively to reduce land- and property-hoarding, and that measures to improve housing affordability should be well-targeted”.
More money can be raised from the Local Property Tax and it said the Government, after freezing the tax for a number of years, now “might consider a gradual” increase to match higher property prices.
It wants to reduce the number of low Vat rates and again called for the Government to look at ending the preferential tax on diesel.
The report’s recommendations on reforming the income tax regime are particularly detailed. It suggests an earlier entry point for workers to start paying income tax, by “further streamlining tax credits and allowances” and introducing more income-tax brackets, citing Austria, where the number of income-tax brackets was increased to seven, from four, in recent years.
In its overall assessment of the risks facing the economy, it rates as high a tightening in global interest rates, as well as any potential weakening of growth in the major economies.
External economic shocks could be particularly severe, because government revenues are unusually skewed to the corporation tax paid by a handful of multinationals.
And it estimates that half of all corporation receipts came from US multinationals.
However, it rates as low the potential risk of a re-emergence of a credit bubble fuelling house prices and a return of a property bust.