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| Goodbody Stockbrokers - - Property-related taxes have been an especially important driver of tax revenues. While stamp duty is most visible in this regard, the biggest revenue gatherer is, in fact, VAT receipts from residential construction, which accounts for 0.8% of total revenue. Goodbody estimates that property-related taxes have accounted for up to a third of the increase in the total tax take over the past two years. Property-related taxes now account for at least 17% of total revenues, up from 4% ten years ago. As the property market slows, the scope for further upside revenue surprises is limited. |
The Irish second-hand property market is currently in the doldrums and may remain so for the remainder of 2007 while new housing starts fell 18% in January.
In the current realm of auction politics ahead of the Irish General Election, it is likely that the tax proposals of both groups vying for power will be similar by the expected start of the election campaign in April or May. Taxation policy issues are the easy targets for the parties as they avoid producing detailed policies on other issues. Once in power, the detail of other aspirations, is left to management consultants.
However with 17% of direct tax revenue coming from property and likely more than 30% when the activity in the economy dependent on the long property boom is considered, the continuing bonanza is required to fund the auction promises. Consumer demand in 2007 will be boosted by further SSIA maturities but as to the scenario from 2008, it's basically not an issue of interest.
Two-thirds of Irish construction activity is housing related.
Promises of stamp duty cuts last autumn combined with the impact of European Central Bank (ECB) interest rate hikes, stalled the market and indicators this month when there should generally be signals of increasing activity, are still on the pessimistic side.
At the weekend, the Property Supplements of the Sunday Independent and the Sunday Business Post were almost completely focused on overseas property and new schemes while the Irish Times Property Supplement, which is published every Thursday has not exceeded six full pages of multiple display advertisements for second-hand houses this year, compared with about forty-five pages per issue until October 2006.
Stamp duty changes would not be announced in a budget until December 2007 and by then the ECB's key interest rate may have increased to 4% - double the level from December 2005 when the current series of monetary tightening began.
The ECB has signalled that the interest rate will be hiked to 3.75% in March. Although, the Eurozone inflation rate in 2007 is forecast to be below the ECB target of 2%, robust economic growth as forecast by the European Commission last Friday, will underpin continued high growth in credit/money supply, and prompt the Governing Coucil to raise its key rate to 4%.
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