IMF proposes a new property tax

FINANCE Minister Brian Cowen should ignore calls for a tax giveaway in the next Budget and instead bring in a new property tax, the International Monetary Fund (IMF) said yesterday.

The IMF said, in its annual health-check of the Irish economy, that current tax policy needed to be changed to reduce the risk of overheating the economy. It also said the use of artificial supports that currently prop up the housing market should be curtailed.

It called for limits on property-related tax incentives, the retention of a ceiling on mortgage interest relief and a new property tax to help cool down the market. IMF directors said the Government needed to be “prudent” in its handling of the public finances in this year’s Budget and should hold on to any revenue windfalls instead of handing them back to taxpayers.

Other measures recommended by the IMF included linking income tax credits and tax bands to inflation to make sure that taxpayers’ disposable income would not suffer in real terms. Social welfare payments and excise duties should also rise in line with increases in general price levels.

“The executive directors commended Ireland’s continued impressive economic performance, the result of sound economic policies including prudent fiscal policy, low taxes on labour and business income and wage moderation,” the IMF said in a statement. It predicted strong growth in the short term, with the economy expected to grow by around 4.5% in the current year.

“The main risks to the outlook are a further rise in oil prices, an abrupt slowdown in global growth and a sharp decline in the housing market,” it said. It also warned over high wages and prices, as well as recent sharp increases in household debt and the high level of bank lending that was now concentrated on the property sector. This made the economy vulnerable, it said.

Finance minister Brian Cowen welcomed the IMF’s assessment and said he had noted its concerns over high growth in wages and prices. “These are risks that I have frequently referred to myself. Regaining competitiveness is vital if Ireland is to maintain its economic growth going forward.”

In a separate development yesterday, employers group IBEC predicted the economy would grow by 4.8% this year and 5% in 2006. IBEC senior economist David Croughan warned, however, against low increases in productivity and an over-reliance on the property sector to deliver economic growth.

The group said low interest rates would underpin solid growth and that investment and consumer spending would increase. “Our strategy is to generate more growth from higher income activities and this requires a higher level of resources going into research and development and an increased emphasis on training and education,” IBEC said.