Thursday, 15 July 2010

Property Tax For €3.5bn Hole...

Property tax plan to help fill '€3.5bn hole'...

IMF urges help on mortgages and new tax on bank salaries:

THE Government is considering a flat-rate property tax as the International Monetary Fund (IMF) warns an extra €3.5bn may be needed to meet budget targets.

In a detailed analysis of the Irish economy, the IMF predicted the Government may not enjoy the hoped-for "bounce" from the recession.

The Department of Finance believes that forecast is too gloomy. The difference between the two views amounts to 2pc of the country's output (GDP) and that comes to almost €3.5bn over the next five years.

However, government officials agreed that a property tax would be a good way to make the public finances more stable.

That is revealed in a new report from the Washington-based fund.

Despite claims that a property tax is "off the agenda" in the next two Budgets, the Government told the IMF a flat-rate tax on property was under consideration "in the transition" to a tax based on value.

A spokesman for the Department of Finance last night said no tax measures had yet been ruled out.

"All proposals will be fully considered in the context of preparing December's Budget," he told the Irish Independent.

The report -- part of the regular analysis the IMF carries out on member countries -- also recommended:

* Help for home buyers who cannot meet their mortgage payments.
* A proposal for a special tax on bank profits and top salaries.
* Some extension of the bank guarantee after it expires in September.

It also criticised the policy of forcing banks to lend to small businesses because they represent a bigger risk.

The IMF's downbeat view is based on its forecast that growth will average not much more than 2pc a year over the next five years.

It says in the case of Ireland: "The normally sharp bounce back after a large output decline will be muted."

The report also warned: "The Irish economy may be in a regime with relatively modest potential growth and high unemployment reinforcing each other."

The Government is projecting almost twice as fast growth in its budget plans. It told IMF analysts who visited the country in May that the traditional flexibility and international openness of the Irish labour market would provide a self-correcting mechanism towards more robust growth.


The difference between the two views amounts to 2pc of the country's output (GDP) -- almost €3.5bn.

The IMF insists there should be no slippage in the budgetary targets, even if it means further corrections. If targets are met, the national debt should stay below the damaging level of 100pc of GDP.

The IMF says Ireland is among the most vulnerable nations to deflation, with prices again falling next year.

The IMF fears Irish banks simply do not have the finance to provide enough credit when recovery comes. It warns of the dangers of forcing banks to lend to the small business sector, which is seen as risky.

"Targets for SME lending, which have been imposed on two major banks in 2010-11, could have adverse effects on credit quality and hence require strong prudential safeguards," it says.

Despite the banks' problems, the IMF wants a levy on them to pay for any future rescues.

The fund also said additional support was needed for a number of homeowners struggling with mortgage arrears.

Fine Gael enterprise spokesman Richard Bruton described the IMF findings as "very downbeat" and raised the prospect of even greater spending cuts and tax hikes.

However, Finance Minister Brian Lenihan insisted the IMF report showed the Government was taking the right moves to support the banks and tackle the deficit.

Report by Brendan Keenan - Irish Independent.

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