Addressing the annual national conference of the Institute of Certified Public Accountants in Ireland (CPA) held in Cork today, one of Ireland’s leading economists, Pat McArdle of Ulster Bank has warned that a slowing housing market could cost the Exchequer as much as €2 billion in lost revenue and is likely to impact on any decision to reduce stamp duty.
McArdle said that the impact of a slowing housing market on the public finances was extremely serious given that up to a quarter of total tax receipts were impacted by the property market.
“While it is clear that Stamp Duties, Capital Gains tax and VAT are heavily affected, Income Tax has also benefited from the strong property market. It is likely that up to €10 billion or one quarter of total tax receipts reflects property activity. Even with a soft landing, the number of housing completions is likely to fall back towards 60,000 per annum over the next few years. The eventual cost to the Exchequer in terms of revenue foregone may well exceed €2 billion”, he said.
“This will condition the advice from the Department of Finance on proposals to amend Stamp Duties. Whatever the shape of the new Government, the scale of any reduction in the stamp duties burden is likely to be modest by comparison with the expectations of the house-buying public and these expectations need to be tempered”, he warned.
McArdle added his voice to the many commentators who feel that speculation on Stamp Duty reform is having a disproportionately negative impact on the market at present. “The sooner it is cleared up the better”, he said, but added that he expected to see more prices softening in the Irish housing market “with declines in both the April and May figures when they appear”.
He also said that we need to distinguish between a hard and a soft landing. A soft landing such as he is forecasting does not rule out some fall in prices, such as happened in late 2001/early 2002 when prices fell in five successive months to give a total decline of 3%. The UK, by contrast, experienced a hard landing in the early nineties when prices fell by 16% and did not regain their 1989 level until 1996.
Addressing the conference, Brendan Allen, President of the Institute of Certified Public Accountants in Ireland commented, “recent changes in key indicators such as interest rates, property prices, the cost of living and job loss announcements at high profile multi-national companies, have all served to impact consumer confidence and spending.
“It is time now to review our approach to economic development. The SME sector in particular has always been the lifeblood of the economy; driving growth, job creation and opening up international markets for Irish goods and services. The recent acceleration in population and the resulting demand on infrastructures has outstripped growth and job creation. In order to redress this balance, the incoming Government needs to address, as a matter of urgency the support available to indigenous industry, putting measures in place to free business owners from cumbersome regulations and encourage entrepreneurship, innovation and growth”.