Killer Arguments Against LVT, Not (233)

Spotted by Richard Henley Davis in the Irish Independent:

The last refuge of battered middle-class Ireland is under fire.

Calm down, then. What is all the fuss about? Your family home is being threatened. The Government has appointed the noble army of taxmen as the enforcers.

Like all Home-Owner-Ists, the writer mounts several arguments, none of which has much merit and which cancel each other out:

None of that softly softly local government enforcement stuff that floundered in the case of the household charges debacle. This time it is the jackboot method. The taxman can cut off the family home tax at source. You will never have to send it to them because it will be snatched from your pay packet. They will do it this way because they know you cannot afford to pay the tax.

Righty-ho, they hope that the tax will raise a paltry €500 million, i.e. €110 per resident, or the equivalent of about one or two per cent on income tax (i.e. like increasing the basic rate of income tax from 20% to 21% or 22%), the bulk of which is deducted directly from your wages. Would there have been the same hysteria if they'd done that? I guess not.

Welcome to back-to-front economics.

The case for a property tax back in 2007 was stronger. At the time the residential property market was in a frenzy. House prices were out of control. The Fianna Fail government refused to hose the flames. Instead, it fanned them.

Bertie Ahern's government and the FG/Labour opposition flirted with the mad idea of reducing stamp duty on houses, allowing property prices to go berserk. Instead of introducing a property tax to cool the market and to raise revenue, Taoiseach Ahern and finance minister Cowen let the market rip -- encouraging developers, bankers and buyers to push prices to lunatic levels. A property tax then could have helped to prevent a crash later.

Instead we had our crash.

FF were in charge in 2007, and the Irish were presumably whooping to the rafters about all the lovely 'capital gains' they'd made. If anybody had proposed such a tax at the time, there would have been howls of outrage about people being denied these lovely unearned windfall 'capital gains' in future. And now the government is FG/Labour and they are doing, belatedly, what should have been done years ago? So what. Better late than never.

Today, the bombed-out market needs nurturing. Last week the Central Statistics Office (CSO) released figures showing that property prices had fallen by 56 per cent in Dublin and by 50 per cent elsewhere in the country since the 2007 peak.

And what do the FG/ Labour boys propose to do to remedy the slump in the fortunes of family homeowners?

You guessed it. At a time when all barriers to house ownership should be removed, when the case for the abolition of stamp duty is strong, they have opted to suffocate the dying invalid. A moribund property market is being locked into the mortuary.

So in Ireland 2007 a Fianna Fail/Green government threw petrol on a blazing housing inferno. Then in Ireland 2012 a Fine Gael/Labour Government nukes the ashes -- just in case there is any sign of a few emerging embers. Back-to-front economics rule okay?

Why does it need nurturing? The FF government did a decade of 'nurturing' and see where it got them. It drove the house price lending bubble, they made a maniac decision to guarantee the Irish banks, the banks duly went pop and now taxes have to be increased to pay for it all. Faced with a choice of stifling the economy even further with higher income tax, or 'nuking the ashes' and taking a small step to try and dampen such bubbles in future, what makes more sense?

The Government is making a serious mistake.

No it's not.

The Irish property market is not a normal asset class. It is skewed badly. It is perverse, irrational, dysfunctional, inconsistent.

Correct, that's what happens when a boom turns to bust. These booms come along every 18 years and the earlier you start heading off the next one, the better.

It is impossible to value a house in present conditions when activity is at an abysmal level.

Bollocks. Rental values are fairly stable and relative values are easy to establish.

Some families own their houses outright, while their neighbours are in negative equity.

So? Relevance? That's like saying that an alcoholic shouldn't pay booze duty because he's deeply in debt. Or is he trying to say that the responsible middle class drinker who has one glass of wine after a meal shouldn't pay booze duty but the alcoholic should? What's his f-ing point?

And should the couple who have paid off their mortgage be liable for the tax while their neighbour is granted a waiver?

Nope. A proper LVT would be indifferent to such matters. Giving a waiver for the indebted would be to indirectly subsidise debt, which is what get them into this mess.

The family two doors down may have a lower income than either. Should they be granted a waiver? Should the elderly be given waivers?

The low income family, nope. If you want to give Poor Widows In Mansions an exemption, deferment option, discount or a higher state pension, feel free to do so.

Should those who have bought the same house paying 9 per cent stamp duty -- a property tax -- in the boom years be made to pay another property tax today?

WTF does that have to do with it? Stamp Duty is borne by the vendor, if you paid 9% Stamp Duty then the price was 9% lower than it otherwise would have been, not an issue.

Did they borrow money to pay the original stamp duty to the government?

Irrelevant. If people over-stretch themselves well, some of they might fall on their faces. That's what's called 'taking responsibility for your own actions'.

Many of the victims of the reckless bank lending in the property boom are likely to be hit on the double, now emerging as victims of the bust when their devalued asset suddenly becomes a taxable liability.

True, the bankers always win out; in the boom years they get the bonuses, in the bad years they get the bail outs, and it's always the hard working people (in the old-fashioned sense of going out to work or running a business for a living rather than the modern sense of 'is a home owner') who get shafted. But, given our (unfortunate) starting point, what's worse - making hard working people, who perhaps didn't over-stretch themselves pay more income tax, or making the over-stretched land speculators pay more property tax? It was ultimately the latter's fault, so they'll end up paying. Seems fair enough to me.

And so on, blah blah, hard working hard pressed middle class Poor Widows In Mansions whose main and hard earned asset bought out of taxed income is now under siege from an army of surveyors yada yaya etc etc.