OECD Report: Call for higher tax rate on vacant city properties

The Government should consider introducing a higher property tax rate on properties left vacant in city areas and also ease off on self-certification of developments.

The OECD survey also recommends a land tax levied on site value.

The report outlined the fall in housing supply between 2006 and 2013 and referred to the recovery in supply in recent years as “tepid”. With underlying housing demand outpacing supply, it has resulted in rising rents and housing prices, particularly in Dublin.

“This has elevated housing affordability concerns and contributed to the number of homeless people in Ireland doubling between the start of 2015 and mid-2017,” it said.

“At the same time, rising housing costs for professionals may have dissuaded further foreign direct investment and return migration of Irish nationals living abroad.”

It said Ireland could need as many as 50,000 new dwellings or more per year by 2036, when last year only around 19,000 were added to existing stock.

File image of vacant housing.

The report refers to state efforts such as ‘Help to Buy’ and increased Housing Assistance Payment limits, as well as limits on rent reviews, but said: “While all of these measures may improve affordability in the short-term, they will do little for affordability over a longer horizon if they feed into rising dwelling prices or dissuade investment in rental housing.

"For a longer-term solution, policymakers must focus on measures that encourage greater housing supply.”

It said construction costs are “significantly higher” in Ireland than in other European countries, “with stringent regulations on home building likely to be one contributing factor”.

It referred to regulations required self-certification of dwellings by a registered architect, which it contrasted with the approach in other countries where local authorities are responsible for inspections and building certification.

It said self-certification requirements inflated the cost of housing developments and added: “The Government should also eliminate the self-certification process for multi-dwelling projects.” It said local authorities would need more money so they could undertake more inspections.

The survey also cited regulations “which may have stifled the scale of new home building”, such as the allowed minimum dwelling size in Dublin — one of the highest in Europe, at 45sq m for a one bedroom apartment — and a ban on north facing apartments, as well as a height limitation of seven floors in some areas.

“In Dublin, there are multi-acre sites in valuable locations that house army barracks, bus depots and industrial estates that are vacant or no longer used at full capacity,” it said.

“Some of these sites could be rezoned by local councils for mixed use, including residential. Coupled with this, there may be scope for a land tax to be introduced in order to promote more efficient land use.

"While Ireland currently has various taxes on property, such as commercial rates, a local property tax, a vacant site levy and stamp duty (all levied on the market property value), there is no pure land tax levied on site value.”

It said there were challenges over resolving the “stubbornly high stock of non-performing loans”, which also meant the banking sector was vulnerable to possible shocks in the future.

It said social housing provision was vital along with improving case management of repossession proceedings, which could mean a court-mandated solution at an early stage.

It said Ireland should consider standardising the “suspended” possession order, which would “grant lenders a collateral possession order at a future date with the suspension of possession only conditional on well-defined criteria”.

 

 

Survey paints bleak picture of a two-tier health service

Catherine Shanahan

The health system is failing in terms of cost, patient satisfaction, and waiting times and the likelihood of improvement is poor as an ageing and growing population puts further pressure on services.

The latest OECD economic survey of Ireland paints a bleak picture of our two-tier health service, particularly for those who can’t afford health insurance, yet remain ineligible for free services because their earnings, though low, push them outside qualification thresholds.

In addition to high costs, access to healthcare is “impeded by a congested hospital system that results in very high waiting times”, the report says.

It found the inequality in the level of care available to those who can pay, compared to those who cannot, is high, with hospital consultants giving priority to private patients.

“Those without insurance may find it particularly difficult to get adequate care, given that private health insurance patients get faster access to care within the public system in some cases,” the report says.

“Furthermore, medical consultants in public hospitals may focus disproportionately on those with insurance as they are paid on a fee per service basis for treating such patients”, rather than on a salaried basis for public patients.

The report says reform is needed to reduce the financial attractiveness of treating private patients with “a move away from fee-for-service payments to remuneration that is neutral to the volume of care or the mix of public and private patients”.

However, this needed to be done in a manner “that does not jeopardise the retention of medical consultants”.

The report also highlights the absence of universal coverage for primary healthcare (eg, free GP care for all) “contributing to poor access and high health costs for some households that cannot afford private insurance”.

To address inequities, the Government should “strongly” consider the recommendations of SláinteCare, the cross-party report on ‘The Future of Healthcare’, published last May, the report says.

“These included the provision of a new health card [Carta Sláinte] to all... that would give access to publicly funded health and social services”.

Paschal Donohoe.

In addition, there should be a rise in investment in health infrastructure and staffing in the order of at least 7% extra each year for the next five years, as well as an additional €3bn in transitional funding.

The report says citizen satisfaction with healthcare has been shown to be lower than in most OECD countries. The percentage satisfied with the availability of quality healthcare is down from 70% in 2007 to 60%.

Finance Minister Paschal Donohoe said Ireland’s spend on health is among the highest in the OECD. He said since 2015, the Government had significantly increased resources into health and was “committed” to increasing resources to take account of population change.

Study: Increase property tax, revalue homes

Elaine Loughlin

Property taxes should be increased and reassessed on a more regular basis to come into line with other countries, the Organisation for Economic Cooperation and Development (OECD) says.

In its latest report on Ireland, the OECD has also suggested that special tax rates for the hospitality sector as well as on diesel should be phased out, claiming these types of preferential tax have “little economic, social or environmental rationale”.

The Paris-based agency has found there is scope to increase revenues from property taxation, first introduced in 2013, by more regularly updating market values.

Ireland lags significantly behind other countries in the amount it takes in through this levy and the share of property tax in total taxation remains around half that of countries such as Britain and Canada.

Property Tax forms.

 

Arguing for increasing property taxes the OECD said: “Such taxes are one of the least distortive in terms of reducing long-run GDP per capita.”

However, the agency also warned that homeowners could face a “sharp cliff” when homes are revalued next year after a planned valuation update was proposed in 2016.

The authors of the report noted: “This has meant households in locations where house prices have grown particularly fast face a sharp cliff in their property tax bill in 2019.”

Fianna Fáil finance spokesman Michael McGrath

However, Fianna Fáil finance spokesman Michael McGrath said given that property prices have significantly increased since houses were last assessed for the tax, the Government will have to ensure that people do not see massive increases in their bills: “We think it is important to avoid spikes in the local property tax (LPT).

There could be a jump of a number of bands up the LPT for some homes if there isn’t any change in the way Government assess and people could be looking at increases of several hundred euro.”

He said these types of increases should be avoided to ensure the amount of revenue collected from the tax remains constant.

The OECD was critical of preferential tax rates, such as the 9% Vat rate for the hospitality sector, and says these exemptions should be gradually eliminated to move towards a more uniform Vat rate.

Property Tax protesters.

 

The report suggested that the five current Vat rates be cut to three, which could raise significantly more revenue for the Government: “While reduced Vat rates on some household products may be an attempt to make the tax more progressive, lower rates for items such as purchases at restaurants, hotels and cinemas likely work in the opposite direction.

Furthermore, preferential Vat rates are very ineffective at targeting support to poor households compared with means-tested benefits.”

The OECD has taken a similar view on the lower rate of excise paid on diesel compared to petrol: “This excise gap has broadened since the financial crisis, contributing to a notable increase in the number of kilometres driven in diesel cars.

Given air pollutant emissions are higher for diesel than petrol vehicles, this preferential treatment also has negative environmental and health consequences.”

Social welfare ‘disincentivises’ low-paid from getting jobs

Noel Baker

Aspects of the social welfare system are disincentivising some people from getting jobs, particularly low-paid workers, according to the OECD Economic Survey on Ireland.

It also said the definition of a “suitable job offer” regarding those on unemployment benefit “is too rigorous to be operational in practice” and should be defined “more clearly in terms of the boundary of occupational mobility and previous salaries of the jobseeker”.

The report said some aspects of the benefits system were functioning well and had helped to reduce high market income inequality (income before taxes and social transfers) and poverty.

However, the report said: “Some aspects of the social welfare system may disincentivise labour market participation for unemployed persons with a spouse and children.”

It also said that because unemployment benefits are paid at flat rates here, “the disincentive to take up a job may be particularly high for low-paid workers”.

The report holds a generally positive view of the housing assistance payment (HAP) and the family income supplement (FIS), although on the latter it said the Government should reduce FIS payments more gradually as income rises.

It also said “more active engagement with the labour market may also be promoted through well-enforced job search requirements attached to social benefits”.

That includes the criticism of the ‘suitable job offer’, given that “regulations stipulate that unemployment benefit recipients must accept all job offers that they are capable of performing regardless of previous salary or occupation”.

It says “direct job creation should be strictly targeted to those who are at high risk of social exclusion”.

It also gave credit to the Government for the single affordable childcare scheme, although it noted “the participation tax rate will remain relatively high for low-skilled women in a couple, partly reflecting weak wage-earning potential and the fact the family income supplement is withdrawn at steep rates when the second member of a couple moves into work”.

More funds urged for training and study

Niall Murray

Ireland’s poor record on lifelong learning needs to be rectified with more funding for training and study for workers, the OECD recommends.

It said that relatively poor managerial skills in Ireland are impeding local firms’ capacity to absorb and implement new technologies.

Those weak skills reflect low lifelong participation by employees, according to the OECD economic survey of Ireland.

The 6.5% of people aged 25 to 64 taking part in education and training in 2015 compares poorly to a 10% rate in Spain, and 16% and 29% in Britain and Sweden, respectively.

Irish-owned firms in most sectors have reduced the proportion of payroll spending on formal training since 2000, but the report said employers need to be encouraged to fund more training for employees.

“Training programmes that focus on enhancing managerial skills are likely to be particularly beneficial for promoting the effective adoption of new technologies and processes, and hence productivity spillovers,” it said.

“A first step should be to increase the prominence of evaluations, highlighting those programmes with the greatest benefits in terms of firm performance,” it said.

The OECD said it is encouraging that the Department of Education is investing resources in data collection and programme evaluation.

It also acknowledged the effectiveness of skill-development programmes like Springboard+ and Momentum.

The survey report said a greater share of funding under the National Training Fund, which should be boosted by increased employer contributions from this year, could be allocated to training for people in employment.

“This may go towards unwinding the past funding cuts to the Skillnets programmes, which were heavily work-based training courses designed in collaboration with firms,” it said.

“Broadening financial support to students undertaking part-time and postgraduate courses could also encourage lifelong learning,” the report said.

Warnings economy may shrink 4.5% after Brexit

Geoff Percival

The economy could shrink up to 4.5%, in the long-term, due to exports being severely dented as a direct consequence of the UK leaving the EU, the OECD has warned.

In its latest economic survey of Ireland, the Paris-based thinktank has warned that Brexit poses “a serious risk” to its overall positive outlook for the economy.

That outlook suggests ongoing economic growth here though at a more realistic pace than currently, of 2.9% and 2.4% this year and next. Brexit though, could lead to Irish GDP falling by 2.5% to 4.5%, it said.

An EU-UK trade arrangement, governed by World Trade Organisation (WTO) most favoured nation rules, could reduce exports 20% in sectors such as agriculture and food, the OECD warned.

“The negative economic impacts of Brexit may be much larger for Ireland than for the average of all other EU countries. The most severe contraction in exports is for the Irish agriculture and food industries, which experience a fall in gross exports of around 20%.

“This mostly reflects a reduction in trade with the UK, but there is also a decline in exports to the other remaining EU countries,” the OECD said.

A lowering of agriculture, food and manufacturing exports could also heavily hit rural employment levels, the OECD warned.

“The fact that the latter has experienced the slowest post-crisis labour market recovery of any region suggests that the realisation of the illustrative Brexit scenario could be accompanied by rising poverty in this region and expanding aggregate income inequality.

"In response, the Government should be prepared to deploy or reorient targeted social policies accordingly.”

It said while not as large in value terms, Brexit will also dent Irish exports in other key sectors such as pharmaceuticals, business services, insurance and machinery.

The OECD has forecast that the economic benefit from any additional inward-bound foreign direct investment — as a result of UK-based companies looking for new EU homes after Brexit — is likely to be “modest”, with the negative costs of Brexit “far outweighing any benefits for the Irish economy in net terms”.

However, not all exports will be negatively affected, the OECD said. It said Irish exports from the financial sector could increase as a result of Brexit.

“UK financial services exports to the EU-26 countries are simulated to decline notably, resulting in Irish financial services exports picking up to fill some of the void.

“The results suggest that financial services exports from Ireland to the EU-26 would rise by around 6% following the shock,” the OECD said.


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