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Monday Newspaper Review - Irish Business News and International Stories - - April 08, 2013
By Finfacts Team
Apr 8, 2013 - 6:52 AM

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The Irish Independent reports that householders are set for a reprieve of at least a year on the payment of water charges.

Although the water tax is scheduled to come in next year, there are strong indications the introduction will be delayed until at least 2015.

Ministers are concerned about a possible backlash from the public about the new tax coming so soon after the introduction of the controversial property tax.

Two ministers yesterday indicated water charges would be postponed.

Junior Finance Minister Brian Hayes told the Irish Independent it was up to the Government -- and not the bailout team -- to decide when water charges would come into effect.

He said there was "quite an amount of work" to be done before the charges were applied, including:

* The level of free allowance.

* Exemptions from the charges.

* How the regulator consults with the public.

The primary concern is the rollout of water meters to every home to avoid having to bring in a flat-rate charge, which would be regarded as unfair.

Mr Hayes's comments were backed by Tanaiste Eamon Gilmore last night.

The Tanaiste is currently visiting Turkey on a four-day trade mission and it was reported last night that he said the meters will not be installed in time for charges to be introduced next year.

"There will not be sufficient metering done by January to allow a charging regime to come in."

Mr Hayes said he was not second-guessing what approach the Coalition would take.

"There is quite a lot of work that needs to happen between now and then. But ultimately it is a matter for Government and I think the Memorandum of Understanding makes it clear that we will have the introduction of water rates. As to when it is going to be is really a matter for the Government," he said.

Mr Hayes said he would also be concerned about water charges coming in before meters were installed.

"I think it's important that the system is clear, it's transparent for everyone, that the issue of the free allowances is resolved before that happens. So there might be quite some time between that actually happening and a decision being taken," he said.

Environment Minister Phil Hogan said last week the official date for the introduction of water charges still remained January 1 next.

But he also indicated there may be further discussions with the EU-IMF bailout team about deferring the introduction.

Mr Hogan said the exact date was an issue for Finance Minister Michael Noonan and Public Spending Minister Brendan Howlin to discuss with the bailout team.

In the intervening period, the minister said he was operating on the basis water charges would start on January 1, 2014.

But water charges are expected to be delayed until the end of 2015 as concerns mount that making people pay before meters are installed could lead to a repeat of the household charge fiasco.

Government sources admit there was a view substantially more than 50pc of water meters must be installed before people are billed.

Ministers want to avoid assessed charges -- based on estimated water usage -- which will be paid by houses without meters when the water tax is introduced. Assessed water charges are likely to be based on house size, and they would be hugely damaging politically.

These bills would be a precursor to full metering. The installation of meters begins this summer.

Meanwhile, the Government is cranking up the pressure on public-sector workers voting on the Croke Park II deal with a minister warning cuts to premium pay and overtime will be back on the table if the agreement is rejected.

Junior minister Brian Hayes says these "unsustainable elements" of premium pay and overtime rates will be looked at again if the Government has to unilaterally cut pay.

"I think union leaders should not pretend to their membership that in any unilateral decision that the Government may have to take, if this thing is not accepted, that there will be better terms and conditions," he added.

The Irish Independent also reports that the Revenue has issued over 2,000 more letters to pensioner demanding tax repayments in an operation that has already netted €6.4m.

However, the same operation also discovered that some pensioner were paying too much tax and €1.1m was refunded, reducing the amount clawed back to €5.3m.

There was controversy last year when more than 100,000 pensioner were issued with letters warning them that they might owe tax if they had not declared their state pension of up to €230 per week for tax purposes.

Even though they were all receiving another private pension, it turned out that many of them had no tax liability at all.

But the Revenue switched to a more targeted approach and went after 2,600 older people with personal pensions worth over €50,000 as well as the state pension.

It has now moved on to another group of 2,200 older people with personal pensions worth between €30,000 and €40,000 as well as the state pension.

The Revenue told the Irish Independent it had already recovered €6.4m in taxes and penalties from the first batch of 2,600 pensioner.

LIABLE

And it insisted that it could still reach its €45m tax target, as it continued to work its way through the list of liable pensioner.

Many concerned pensioner have been contacting their local TDs to ask them about the Revenue tax demands.

It is understood that in many cases the repayments are around €1,000 and that Revenue is allowing people to pay back the money over a number of years.

The campaign kicked off as a result of the first comprehensive exchange of pensions information between the Revenue and the Department of Social Protection.

The Revenue realised from looking at the information that many pensioners with a personal pension had not declared their state pension for tax purposes.

But of the 115,000 pensioner contacted by the Revenue last year, it emerged that around 20,000 had paid too much tax. The Revenue has confirmed that they were given refunds worth €1.1m -- an average repayment of around €55 each.

The Revenue has not yet revealed if its operation will soon move on to pensioner with personal pensions worth under €30,000 as well as social welfare pensions. It said the results of the latest trawl would "inform our approach thereafter".

However, the Revenue is expanding its operation to include not just retired PAYE workers but also retired self-employed business people who have not declared their state pensions.

The Irish Times reports that Ireland’s high income-tax rate is hindering inward investment and the development of new businesses, Minister for Jobs, Enterprise and Innovation Richard Bruton has said.

Commenting on the Forfás Costs of Doing Business in Ireland report, which found Ireland’s marginal rate of income tax, at 52 per cent for employees and 55 per cent for the self-employed, higher than most of the State’s competitor countries, Mr Bruton said the Government must begin reducing the income tax burden “as soon as possible”.

“Tax rates of over 50 per cent on average incomes damage inward investment and entrepreneurship, and make too many people question whether they would be better off not working at all,” he said.

Marginal tax rates (the tax paid on an individual’s last euro of income) are in excess of 50 per cent for single individuals earning €32,800 per annum, according to the report published today.

Mr Bruton said the Government must look carefully at the burden of labour taxation on competitiveness, if it wants to sustain and improve the levels of investment and jobs.

“If we are to sustain and accelerate the transition in our economy and the jobs recovery that has begun, then this Government must continue to keep its promise to avoid any further increases in the burden of taxes on work.”

The report found Ireland’s tax wedge on labour (the gap between what the employer pays and what the employee receives) has widened for all income categories as a result of changes to tax bands and credits and the universal social charge. The wedge is significantly higher for higher income earners – a financial disincentive for skilled internationally mobile workers.

Tax competitiveness

“The tax wedge is important from a competitiveness perspective for a number of reasons – it affects the cost of labour for the employer, it partly determines labour supply, and it can impact on Ireland’s ability to attract high-skilled labour,” the report said.

Forfás said a competitive tax regime was essential for attracting and retaining individuals in Ireland and for encouraging people to remain. It concluded the increases in personal taxation in 2010 and 2011 have eroded cost-competitiveness and the incentive to work.

The report also found the cost of legal services had increased since the boom, despite a significant reduction in other business costs. Solicitor fees are now 11 per cent higher than they were in 2006.

The report said the drop in business costs was driven by dramatic reductions in property-related costs and falling prices across a range services.

The cost of constructing a prime office unit fell by 32 per cent over 2007-2011, while the cost of renting an office unit has fallen by 45 per cent. The price of computer programming and consultancy services, and advertising and media services are almost 5 per cent lower than in 2006.

Notwithstanding the reductions, energy costs remain a cause for concern, according to Forfás, as Ireland is the fourth most-expensive location in the euro area for electricity and diesel.

The price of legal services has proven sticky and not adjusted downwards to the degree expected given economic circumstances, Forfás found. Legal service prices (excluding barrister fees) were 11 per cent higher in 2012 than 2006, despite the recession.

Legal excess

Forfás said there was potential for further legal reforms including the creation of a single-tier counsel system and the opening of conveyancing to suitably qualified professionals other than solicitors. In addition to enacting the Legal Services Bill, it said reform of court procedures would offer significant potential for costs.

While Ireland’s cost competitiveness has improved since 2008, over half of the improvement is accounted for by favourable exchange rate movements (ie a weak euro making Irish exports cheaper in non-euro markets).

Forfás chief executive Martin Shanahan said structural reform is required to ensure that the improvements seen to date in cost and competitiveness performance are embedded in the economy and enable Ireland return to strong economic and job growth.

The Irish Times also reports that the recent bad weather could be to blame for a 14 per cent drop in the number of new homes and extensions being built.

The national housing construction index also found a 3 per cent fall in planning applications made between January and February compared to last year.

Data showed commencement notices, which record when a building project starts, rose in five counties including Dublin, where there was a 17 per cent rise.

There were 624 new builds at the start of 2013 nationwide, compared to 726 a year earlier.

Danny O’Shea of Link2Plans, which issued the figures, said the largest growth was in Monaghan (20 per cent), Mayo (60 per cent) and Roscommon (78 per cent), while some counties plunged below the national average including Westmeath (-79 per cent), Waterford (-55 per cent) and Cavan (-52 per cent).

But he did not see the falls as cause for alarm.

“In the January/February analysis period, I believe that a key factor at play was the bad weather, explaining why many projects have yet to get off the ground,” he said.

Elsewhere he said the outlook is positive despite the decline in planning applications from 1707 in early 2012 to 1664.

“Offaly, Limerick and Wexford exhibit the largest percentage application drop, but with increases in eleven countries, the outlook for coming months is potentially positive,” he added.

The Irish Examiner reports that the Government could be looking at €16bn in fresh losses through its stakes in the banking system and Nama, according to the IMF.

The potential losses, which would be the equivalent to 10% of GDP, are based on the economy failing to grow over the next few years. The IMF report was carried in yesterday’s Sunday Business Post.

The IMF’s ninth quarterly review of the economy, released on Wednesday, raised a number of concerns about Ireland’s ability to make a sustained re-entry to the market when it exits the bailout programme later this year.

The banks face a mounting mortgage arrears crisis. It is not yet clear the scale of these losses as they work their way through their distressed loan portfolios.

As part of the troika review, the Central Bank is scheduled to conduct a series of stress tests of the banks to determine the losses likely to incur.

Finance Minister Michael Noonan wants the tests to coincide with EU-wide bank stress tests scheduled for next March. However, IMF mission head to Ireland Craig Beaumont wants the tests completed before Ireland exits the bailout in November. Central Bank chief economist Lars Frisell said on Friday the date of the stress tests still has to be finalised.

It is unclear who will supply the capital if the banks need to be recapitalised following the stress tests. The IMF wants funds from the European Stability Mechanism to be used. Germany, Finland, and Holland are opposed to this.

The biggest uncertainty is growth. If the growth rate averages 0.5% over the next few years, then debt will grow to unsustainable levels.

The unemployment rate would rise, worsening mortgage arrears, and Nama losses mount as the property market fails to recover.

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