Beancounters are as high as kites with latest budget ideas

Kite-flying is in vogue — or at least the version that throws up various ways to extract more tax from all of us.

With Budget 2018 due to be outlined in a couple of months, a variety of supposedly clever ideas have been circulating. One was a suggestion to tax family homes, and another was to lift Vat on tourism up from 9% to 13.5%. Both are barmy.

For generations, government policy in Ireland has been to encourage and support house purchasing as a means of establishing a home and a way to create a financial nest egg for an individual family.

After a lifetime of work and disciplined mortgage repayments, an individual or couple would have the most important investment in their lives — the home — as a debt-free asset.

This could be used to live in inexpensively for the rest of their lives or it could be sold to deliver money that would fund retirement while living in smaller houses.

The Government allows the sale of the primary home to occur tax-free as part of this inter-generational contract that incentivises long-term financial planning.

Some genius with a spreadsheet recently suggested taxing these homes - which, when sold, would generate much-needed revenue for the Exchequer.

After already curbing the tax-free benefits for assets being willed to children this idea would further suffocate the value of an inheritance before it was passed on.

Moreover, such a move would discourage long-term savings and house ownership, an outcome that would generate more collateral damage across the economy.

Thankfully, common sense appears to be surfacing about this looney notion but I continue to see and hear noise about pushing up Vat on tourism. Again, this is someone with an out-of-control Abacus being let loose.

Tourism Vat was cut in 2011 to kick-start a deeply deflated tourism industry. It was accompanied by a cut in air travel tax. Both have played a major role in recovering both air travel and tourism across the economy.

This has led to a biased recovery with Dublin being the key beneficiary of the growth in tourist numbers.

Some observers think lifting the Vat rate will do limited damage to underlying demand. This ignores two important facts: Ireland’s economy has to be analysed through lenses that look at the Dublin and ex-Dublin market, and; Brexit is an immediate threat to tourism.

In the Dublin bubble, it is easy to think the good times are back. Economists quaffing cappuccinos in swish Dublin cafes will think the tax base can be easily flexed with modest adverse effects.

That prism ignores the realities of tourism outside Dublin. The latter remains highly seasonal and hugely price sensitive. Any attempt to raise the cost of tourism across the western seaboard, for example, by raising Vat would have a negative effect on demand within weeks.

That threat is compounded by Brexit which has already bought a material devaluation in sterling against the euro. This makes UK destinations, including Scotland, cheaper for tourists including those from Ireland.

Moreover, it is encouraging UK-originating tourists to stay at home instead of crossing the Irish Sea. In these circumstances, the flow of tourists to Ireland is weakening while US tourists, who are renowned for their price sensitivity, are up due mainly to more air services and — until recently — a strong dollar.

A rise in the tourism Vat rate from 9% to 13.5% is a 100% sure-fire way to blunt and reverse the progress made by Irish tourism since 2010. Low and lower taxes are the way to promote economic activity and anyone suggesting the opposite needs to be well armed with facts and analysis. The guys in favour of home tax and tourism Vat are equipped with pea shooters.

Joe Gill is a director of corporate broking with Goodbody Stockbrokers. His views are personal.