Stamp Duty

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We are hit for record ?3.2bn in stamp duty
From:The Irish Independent

Sunday, 8th January, 2006


THE Government has raked in almost ?3.2bn in residential stamp duty since it came to power nine years ago, new figures obtained by the Sunday Independent reveal.

Yet despite this massive bonanza, the Taoiseach and his Cabinet have failed to raise the stamp duty threshold in line with price inflation, or to cut the now penal rates which rise to 9 per cent.

In 1997, residential stamp duty receipts came to ?194m but by last year, that had risen to almost ?900m. A similar amount was raised in commercial property. That represents the lion's share of the ?1.7bn 'extra' which the Government revealed last week it had taken from taxpayers.

Taxpayers have not fully realised just how they have been duped. For seven out of the last eight years, they have had to endure a higher tax burden thanks to the Department's failure to accurately estimate tax yields. The upshot is that for almost a decade, taxpayers are paying far more than is necessary to run the public services that the State provides. The Finance Minister will try to pull the same conjuring trick next year, but on a far greater scale, and for electoral reasons.

Just why the department continually gets it so wrong is open to interpretation. Some economists, such as Jim

ANALYSIS

Power, chief economist of Friends First, say the reason is "politically motivated".

He said said: "Pleasant surprises are good for politicians. Exchequer finances doing better than expected is a good headline, and you are managing people's expectations."

However, others suggest it is down to control exercised by civil servants, the so-called "permanent government", which is historically reluctant to free up more money for cutting taxes and other packages.

Last year the department was ?2.5bn out in estimating the likely Exchequer deficit. Within 12 months, a projected ?3bn deficit had shrunk to a ?500m shortfall, as tax receipts soared.

In 2004, the department was out by even more, ?2.8bn, in its calculations, and in 2003 by ?889m. The cumulative forecasting error adds up to ?6.2bn in three years.

This huge margin of error has produced a massive revenue windfall for the Exchequer, which has come at taxpayers' expense.

Last week the Minister for Finance, Brian Cowen, said that four-fifths of the extra ?1.7bn in tax revenue came from Revenue special investigations, from higher stamp duty receipts and from bumper capital gains tax returns.

In fact, since 1995, the amount of stamp duty the Government has taken from people buying homes is up almost 800 per cent, rising from just ?119m to almost ?900m.

At the same time, the amount of stamp duty from other sources, such as the buying and selling of shares and company capital duty, has only doubled.

Apart from high levels of stamp duty, the Government has also backed away from its promise to cut the top rate of tax of 42 per cent, which is almost a third of workers' pay.

A cut of one per cent in standard tax rate, to 19 per cent, would cost ?450m; a one per cent cut in the higher rate to 41 per cent would cost ?220m.

Jim Power, argues that both personal tax and stamp duty are penal.

"The top rate of tax should be cut, as should the rates for stamp duty, while the thresholds should be extended. The Government is totally screwing people on stamp duty. The way it is structured is a major disincentive for people to put their home on the market, which keeps a lid on supply, and hence in the long run inflates prices," he told the Sunday Independent.

He added that it was a regressive tax, hitting younger people. "It is based on the need to move, not on wealth. The wealthiest are sitting in valuable homes and not moving," he said.

Mr Power added that if the rates were cut, there could be a six-month property priceincrease, but in the long run it would increase the supply of homes and, hence, would be neutral on house price inflation and on Government revenues.

"More people would buy and sell so the Government would take as much money but it would be less from each individual," he said.

Yesterday, Fine Gael's Finance spokesman, Richard Bruton said that first time buyers were being "crucified" by the Government's "love of stamp duty".

In June, 2004, he said, Fine Gael had called for a first time buyers' stamp duty exemption limit of ?400,000, which would save ?14,000 on a property worth ?325,000.

The current exemption limit, which was introduced more than a year ago, was not even increased in the recent budget.

Said Mr Bruton: "That means . . . that as property prices increased by 10 per cent or more in 2005, the existing exemption limit is irrelevant to more and more buyers as prices outstrip the exemption point. This results in increasing numbers of hard-pressed first-time buyers being caught in the Government's stamp duty trap. This needs to be changed."

Apart from penal rates, the thresholds for stamp duty have also remained static for years. There is no official breakdown of how much stamp duty is raised by the different levels of stamp duty.

However, according to figures from Paul Murgatroyd, of estate agents, DNG Research, no houses sold in the Dublin area last year were exempt, and none were at the lowest two per cent level.

About half of all homes were in the five to six per cent bracket, while about a third were in the 7.5 per cent bracket of homes costing over ?381,000. But around 15 per cent cost over ?635,000, which makes them liable for 9 per cent stamp duty.

However, according to Marion Finnegan, economist at Sherry Fitzgerald, almost all buyers trading up in Dublin would be paying 9 per cent stamp duty and almost all those trading up around the country would be paying 7.5 per cent.

At the same time, the Exchequer continues to reap the rewards of high personal taxation. Over a third (32 per cent) of the workforce pay the the higher rate of tax when they earn just ?32,000 or higher. But, in fact, they are paying almost 50 per cent when various other levies imposed by the Government are factored in.

This is despite a pledge in the Programme for Government that only 20 per cent would pay the top rate.

Yesterday, a spokesman for PD leader Mary Harney claimed the party was still committed to bringing the higher level of tax down to 40 per cent.

"The commitment is matched by Fianna Fail, when economic conditions so allow," he said.

He said that at the beginning of the year the Government had to consider if economic conditions allowed ?400m to be set aside for the purpose of lowering the higher rate of tax to 40per cent.

"Bearing in mind the budgetary conditions, preparing for the year 2005, and the forecast of estimates and expenditure, the Finance Bill for that year provided for taxation on the basis of 42 per cent, because the Government agreed it had other priorities and other targets to meet," he said.

Mr Bruton, however, said the Government had an "insatiable appetite for our taxes".

He said that last year, on average, each household in the country paid ?2,500 more in taxes than in the previous year.