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News : Irish Last Updated: Dec 7, 2012 - 9:17 AM


Friday Newspaper Review - - Irish Business News - - December 07, 2012
By Finfacts Team
Dec 7, 2012 - 9:11 AM

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The Irish Independent reports that prioperty tax dodgers run the risk of having all their income audited by the Revenue Commissioners, the Irish Independent has learned.

A detailed list of average house prices in every area of the country will be given to homeowners to help them assess the value of their property.

But the new property-tax law will set out the interest and penalties for not paying up.

Similar to the Revenue's policy on income tax dodgers, failure to pay the property tax will result in people running the risk of an audit.

The highly unpopular tax has left Government TDs worried about the loss of support in the wake of this week's punishing Budget.

Tensions are now mounting between Fine Gael and the Labour Party as the coalition partners try to blame each other for one of the Budget's harshest measures – the cut to the respite care grant.

The Government is coming under increasing pressure to reverse that decision but Taoiseach Enda Kenny insisted that the Government would not row back on cuts in the Budget.

Mr Kenny said "none of the choices" had been easy but the Budget had now "gone through". He added: "It is the intention of the Government to carry through the Budget."

The property tax legislation will be published today.

Payment will begin from the first week of next May onwards, although it will only be for half of 2013.

Urban homeowners will cough up almost half of the property tax take in 2014, despite accounting for just over one third of the number of households in the country, an analysis by this newspaper reveals.

The tax authorities are currently drawing up the biggest database ever compiled on the ownership of houses in the country.

The Department of Finance says Revenue will be given the full range of powers in the new law, including the charging of interest and penalties and prosecution.

"Not paying the property tax will be the same in Revenue's mind as not paying a tax bill," a spokesman said.

Revenue often cites the threat of an audit for taxpayers who fail to file their tax returns on time.

The legislation will also allow for the compulsory deduction of the property tax at source in certain cases, including some social welfare payments – although it will not be taken from the primary benefits.

Revenue already has the data from the household charge, second-home tax, rented houses and stamp-duty payments and will soon have the details of electricity companies.

The property tax law will set out the interest and penalties for not paying up – including the risk of an audit by the taxman. Government sources say the reason behind handing the responsibility for collection over to Revenue is to ensure higher rates of payment.

Ministers also believe that homeowners will be less likely to defy the taxman – compared to the local council – and won't want to pop up on Revenue's radar.

Property tax dodgers will be "safe to assume" that Revenue will look at their income, said a source, adding: "Non-payment or late payment of income tax triggers a look at tax offences, which may result in an audit."

The Revenue Commissioners are expected to use their Risk Evaluation Analysis and Profiling (REAP) for non-compliant taxpayers.

The REAP system prioritises cases based on risk "enabling Revenue to target its attention on those who need it most and minimising contact with compliant customers".

The system focuses on a taxpayer's track record, rather than upon single returns.

Stamp duty

First-time buyers next year will not have to pay the new Local Property Tax until the end of 2016. This is among a series of exemptions announced by Finance Minister Michael Noonan in the Budget.

However, this concession has proved divisive as people who bought during the boom – and paid large amounts of stamp duty – will not get a break from the property tax.

The Government was advised by an expert group advising on the tax that these homeowners should not be exempt. It told the Coalition that housebuyers knew they were paying high stamp duty when they bought their homes.

A couple who bought a home during the property bubble would have typically paid out €15,000 in stamp duty for a €300,000 home. That home has now probably halved in value.

The expert group, headed by consultant Dr Don Thornhill, was asked by the Government to come up with options for the new tax. It admitted that many people ended up with even bigger debts than they should have because they were forced to add the cost of the stamp duty to their mortgages.

City-dwellers will end up paying almost half of the country's total property tax take, as house prices are generally much higher in urban areas.

An analysis by the Irish Independent reveals that Dublin city dwellers are likely to pay an average property tax rate of €405, compared with their rural counterparts who will pay an average of €249.

This means that the capital's 466,461 households will pay €188.9m – or 39pc of the entire projected property tax take.

Residents in cities Cork, Waterford and Galway will pay an average rate of €315.

The cheapest homes to pay tax on are in Longford. This is the only county where the average house price is below €100,000, resulting in a property tax of just €90.

The Irish Independent also reports that the Government says talks aimed at securing relief on the €30bn cost of bailing out Anglo Irish Bank are still ongoing, despite the ECB's president appearing to rule out hopes of a better deal.

Mario Draghi's European Central Bank and the Government have been locked in talks on the issue for months.

Finance Minister Michael Noonan is desperate to change the terms of the Anglo rescue, which is set to cost the State €3.1bn a year in capital and interest payments.

He has already said that he does not want to make the next payment when it falls due in March. But skipping the deal without agreement from EU partners, including the ECB, would trigger a wider financial and political crisis.

However, Mr Draghi now appears to have ruled out any prospect of help to ease the terms of the Anglo debt. That debt is owed to the Irish Central Bank, part of the ECB system, so ECB support would be required if the burden was to be eased.

"The ECB cannot enter into any agreement viewed as monetary financing," Mr Draghi said yesterday. "Other than that, there is plenty of goodwill towards Ireland."

His comments were in response to questions on whether a deal could be done before the next €3.1bn bill for Anglo falls due in March.

Last night, a spokesman for Mr Noonan said the Government did not believe that an Anglo deal would involve "monetary financing" – the term for printing new money. Talks remain ongoing, he insisted.

Interest

Mr Draghi made his comments after Mr Noonan had said earlier in the day he was "pretty confident" that agreement on the issue would be reached in time to allow the State avoid making the €3.1bn payment in March.

Seamus Coffey, an economist at University College Cork, said: "What Mario Draghi seems to be saying is that if there is going to be a change on this, he wants someone else to do it."

However, Mr Coffey cautioned against taking any pronouncement as definitive, given previous changes of tack from senior EU officials over the course of the ongoing financial crisis.

There was some hope for Ireland when Mr Draghi left open the prospect of using the new European bailout fund to help meet the cost of the banking crisis.

Germany and other wealthy countries have tried to block use of the fund to deal with so-called 'legacy' issues dating back to before the fund was established in October. Mr Draghi said no one had yet defined "legacy debt" and until they did nothing specific had been ruled out.

Away from the Irish question, the ECB president painted a grim picture of the economic situation across Europe.

The latest ECB forecast is for continued weakness in the eurozone over the next six months, with any recovery now not anticipated until the second half of 2013.

The Irish Times reports that Taoiseach Enda Kenny and Tánaiste Eamon Gilmore have ruled out any row-back on the budget in the light of growing unease among backbench TDs in both Government parties about some of its harsher measures, including cuts in the respite care grant.

The €325 cut in the €1,700 grant for respite care yesterday assumed greater importance as a possible stumbling block for some Labour and Fine Gael TDs.

The new property tax, the €5 a week increase in PRSI and particularly the cuts in child benefit were also being viewed as potentially difficult issues.

Mr Kenny, while accepting that many of the budget changes made to achieve a €3.5 billion adjustment were “unpalatable”, nevertheless insisted that all of measures would be implemented.

Unpalatable 

After meeting US secretary of state Hillary Clinton in Government Buildings, Mr Kenny said: “The budget yesterday was and will be the toughest of this administration’s lifetime. None of the choices were easy; all of them were unpalatable.”

Asked if he would reverse any of the harsher measures, including the cuts to respite care, he responded: “The budget’s gone through yesterday. It is the intention of the Government to carry through the budget as put through the Dáil yesterday.”

Mr Gilmore also set himself against any U-turn. Asked about criticisms that the cut in respite grants was unfair, he said: “I think all of the cuts are very difficult.”

He said that was particularly true for those who had endured most, but the country needed to find its way out of the financial crisis.

A package of tax measures directed at richer people had been the largest tax on wealth ever introduced in Ireland, Mr Kenny said.

A small number of Labour Party TDs, including party chairman Colm Keaveney, have indicated their support may be conditional on changes in the Social Welfare Bill, which will come before the Dáil next week, to give effect to welfare cuts.

Clare TD Michael McNamara has also expressed misgivings. Two Dublin Labour TDs, Michael Conaghan and Eamon Maloney, attended meetings with senior officials of the Department of Social Protection yesterday to outline their concerns about cuts in child benefit and they will hold further meetings today.

“Our concerns are very significant as they were about child benefit, which is especially important in working-class areas which we represent,” said Mr Conaghan, from Dublin South Central. They had started a process where they hoped they could pursue the issue vigorously.

Respite cuts 

Respite care was described by a number of TDs from both Government parties as having the potential to have the same impact as the cuts for disadvantaged schools and small schools in last year’s budget.

Minister of State at the Office of Public Works Brian Hayes described the cut of almost 19 per cent in the respite grant as “drastic”.

However he ruled out any review on the basis that the Government could not start unravelling the budget. “There is no room for that to be reversed at this stage.”

In the Dáil, Labour Minister for Communications Pat Rabbitte said the cut in respite grants was better than a cut in the carer’s allowance, which had been protected.

The Irish Times also reports that European Central Bank chief Mario Draghi has questioned whether the bank might recast the debts of Anglo Irish Bank, suggesting such a deal would break EU law.

Mr Draghi’s remarks, one day after Dublin introduced a €3.5 billion budget package of cutbacks and tax hikes, raise fresh doubt over the Government’s long campaign to restructure the Anglo Irish Bank promissory note scheme.

They came as European Council president Herman van Rompuy urged EU leaders to agree terms within four months for direct bank rescues by the European Stability Mechanism fund, another of the Government’s prime objectives.

Speaking to reporters in Frankfurt after the ECB kept its main interest rate at a record low of 0.75 per cent, Mr Draghi welcomed the budget measures. “It’s a reaffirmation of the successful – I would say – commitment of the Irish Government to restoring sound economic conditions, both fiscal, but also, more broadly, structural conditions,” Mr Draghi said.

Asked if it was reasonable in light of the budget to expect a deal on Anglo’s debt before the next €3.1 billion payment falls due in March, he said the ECB would not illegally print money.

“The ECB cannot undertake any agreement – cannot enter into any agreement – that is being viewed as monetary financing, that would be forbidden by article 123 of the treaty,” he said. “So, other than that, there is plenty of goodwill.”

Article 123 of the EU treaty, known as the “no-bailout clause”, forbids the ECB from providing overdraft facilities or other forms of credit to any central government or public body.

Minister for Finance Michael Noonan said in September that the ECB was now more willing to pursue talks with the Government but no agreement was reached before the budget.

On RTÉ radio yesterday, Mr Noonan said he was “pretty confident” of reaching an agreement to avoid the March payment. “It’s not done yet,” he said. “I don’t want to pre-announce or anything like that.”

Elusive solution 

Mr Draghi’s remarks suggest that a durable solution acceptable to all sides remains elusive so the Government will be under severe pressure in January.

Mr Draghi was one of three senior Europeans who helped Mr van Rompuy draft proposals for a summit next week at which EU leaders aim to agree another plan to fortify the single currency. While the question of direct bank rescues by the ESM has fallen off the immediate political agenda, Mr van Rompuy’s paper aims to bring it back to the fore. “The legal and operational framework for ESM direct bank recapitalisation should be finalised by end-March 2013,” it states.

The timetable is regarded as “very, very ambitious” in diplomatic circles. However, the move is positive from the Government’s perspective, as it wants the ESM to take direct equity stakes in AIB, Bank of Ireland and Permanent TSB.

The Irish Examiner reports that the Government’s decision to increase the Vat cash accounting threshold has been welcomed by business groups.

However, commentators say the threshold — which is to be upped from €1m to €1.25m — is not being widened enough.

The threshold is one of the few reliefs for cash-strapped small businesses in their battle against overdue payments.

The scheme allows companies pay Vat to Revenue only after they have received due payment from their own customers; as opposed to larger firms which are required to pay when invoiced by Revenue.

From next month, any SME with an annual turnover up to €1.25m will have until it gets paid by customers before it needs to pay its Vat bill.

Ibec chief economist Fergal O’Brien said: "Out of the 147,000 employers in the State, approximately 115,000 employ between one and nine people; and many of them would fall into that €1m-€2m turnover range."

He said the measure was a "significant step in the right direction" and would help cash flow, but that the threshold should have been wider.

Ibec and small firms lobby groups Isme, along with the Small Firms Association, had all been looking for the threshold to be widened from €1m to €2m; but each expressed satisfaction a degree of movement had been made on the matter.

Foreign news reviews and more comprehensive coverage of Irish news is available in our Daily News Digest in the Global category on Finfacts Premium.

Check out our subscription service, Finfacts Premium , at a low annual charge of €25 - - if you are a regular user of Finfacts, 50 euro cent a week is hardly a huge ask to support the service.


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