Something’s rotten in State of Ireland: The Coalition and its regressive budget

WHEN Ministers Noonan and Howlin announce Budget 2013 later today, they will be going through the motions: most of the headline-grabbing measures have been leaked over the past week.

The intense rumour-mongering is the nadir for a jaded Government that swept to power on a platform of transparency, but now appears as rotten as many of the regressive fiscal measures that will be revealed in the Dáil this afternoon.

It was all so different in the heady post-election days of 2010, when the new Fine Gael and Labour coalition vowed it would usher in a new era of accountability.

Chief among the promises in the Programme for Government was a commitment to “open up the budget process to the full glare of public scrutiny, in a way that restores confidence and stability, by exposing and cutting failing programmes and pork barrel politics.”

Hilarious, in retrospect, isn’t it? Apparently, the “full glare of public scrutiny” envisioned by the Government doesn’t extend to publishing a report on property-tax measures, the Thornhill Report, that has been sitting on the environment minister’s desk since June.

The Government was so concerned with ensuring informed debate on this most controversial of budgetary measures that the report wasn’t even given to Cabinet members until late autumn.

This reluctance to facilitate the actual reading of the report must have come as a surprise to at least one junior minister, Brian Hayes.

Mr Hayes was waxing lyrical in April about the need to quickly publish the report, and use it as a catalyst for a “vigorous public debate” during the summer months.

Mr Hayes’ naive idealism, in believing the Government was interested in publicly discussing any fiscal measure before ramming it through our farce of a parliament, didn’t last very long and he was quickly back preaching the message of omerta.

So, while the recommendations of the Thornhill Report still remain shrouded in mystery, leaks sprung around the Cabinet table indicate that the Government has, with depressing predictability, opted for the worst possible option — a value-based tax with, in a crude effort to placate the rapidly eroding left-wing ideals of the Labour Party, a bonus mansion tax.

The rate, flagged as 0.18% for non-mansions and 0.25% for properties worth more than €1m, is expected to net €250m this year, and €500m thereafter, with an average cost, for a €250,000 home, of €450 per annum.

Despairing property expert, Ronan Lyons, reacting to the news, rattled off a number of statistics that underscored the idiocy of the Government’s plan.

Mr Lyons said the measure meant that the burden of this new tax would be shouldered by struggling homeowners, with approximately 250,000ha of empty, zoned land remaining free of any charge.

“That’s €5bn in residential land they’ll get no property-tax revenues from, and are actually going to incentivise to keep empty. A 2% site-value tax would bring in €100m from empty, zoned land (allowing for some rezoning), so your property tax will be 25% higher than necessary,” he tweeted.

Twisting the knife, Mr Lyons said that there are 2m acres of residential land in Ireland, so bringing in €500m with a site-value tax would equate to an average tax-per-acre of just €250 — a sum that would be significantly lower outside Dublin.

So, the property tax mooted by the Government, inflicted at a time when hundreds of thousands of homeowners are mired in negative equity, will be much more expensive than it needed to be.

Fantastic.

People hoping that millionaires in mansions will be picking up a disproportionate share of the burden will also likely be disappointed.

Economist Cormac Lucey has said that, given the nosebleed-inducing dive in property prices since 2007, qualifying properties will have been valued at €2.5m in 2007 and these massive piles are, post-boom, something of an endangered species.

Mr Lucey has estimated that there are between 2,000 and 10,000 such properties dotted around the State, and said that many of the Celtic Tiger cubs who bought such extravagant homes are now, like the rest of the country, bust — asset-rich but cash-poor and with no way to meet ESB bills, never mind a punitive property charge.

While the Government is trumpeting its property tax as the most innovative item in today’s budget, tentative plans to increase the universal social charge on incomes over €100,000, from 7% to 10%, were quickly abandoned.

The speed with which this idea was torpedoed shows the Government is completely out of touch with public opinion, after a whopping 88% of people, in a poll in the Sunday Business Post, said they favoured just such a measure.

In fact, of all the questions posed by Red C in the wide-ranging poll, this was the one that received the most support and one can see why.

Instead of the notional money that will supposedly be hauled in from a mansion tax, the USC increase would have netted €200m — a figure that could be relied upon when the Government is doing its maths and trying to balance the books.

Furthermore, as self-employed people are subject to a 10% USC on incomes over €100,000, it seems curious that the Cabinet was so averse to extending that rate to the PAYE sector.

EXCEPT, of course, when one considers the senior government members, public servants, advisors, bankers, and assorted fat cats who all rake in these sums — three times the average industrial wage — all of whom dodged a bullet when the Cabinet shot down the plans.

Instead, it seems, serious consideration is being given to abolishing the PRSI threshold, in contravention of the Programme for Government, an extremely regressive measure that would cost rich and poor alike an extra €258 a year, and decimate low-income earners.

In a further assault on the marginalised, a reduction of child benefit by €10 has been well-flagged, with Social Protection Minister, Joan Burton, bleating that the “systems” are not yet in place to tax the benefit and make it equitable — a claim that was immediately contradicted by Fergal O’Rourke, a member of 2009’s Commission on Taxation, which recommended doing just that.

Meanwhile, all of the cuts and tax increases that will be announced today come in the shadow of stalled negotiations to get a deal on our catastrophic €64bn bank debt — a deal that seems as far away now as when the Government took power in March, 2010.

The Fine Gael and Labour coalition has spent nearly two years blaming the previous administration for all of the relentless pain it has inflicted on the Irish people, but its excuses are fast wearing thin.

Having promised to renegotiate the banking debt, it has proven incapable of even reconstituting the budgetary process, and today’s collection of crippling cutbacks is likely to be yet another crushing blow to anyone who thought that this time, with this government, things would be any different.

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* RELATED ANALYSIS: Something’s rotten in State of Ireland: The Coalition and its regressive budget

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