Ireland: Paradigm of a Weak State

The absence of a property tax helped to create the illusion of a “tiger” in Europe. Ireland was on a roll…until property prices collapsed and took down the nation’s banks. Now, the Government claims Ireland is on the path to recovery – having driven 87,100 people out of the country last year, the young desperately searching for work.

Irish society is wrecked, and yet the politicians are re-creating the boom/bust economy – while publicly claiming that they are not doing so.

Ireland’s banks and businessmen got rich out of the land boom. Because permission was needed to convert greenfield sites into nuggets of gold that could be stashed away in banks, bribes were paid to politicians. Judicial enquiries have exposed the deal-making, but warnings are now emerging of the risk of post-crash corruption.

One of the conditions for the international bail-out was the introduction of a property tax. Home-owners emitted howls of anger. Dubliners led the charge against the property tax by invoking notions of fairness. Olivia Mitchell, a politician representing a Dublin constituency, branded the property tax a “grave injustice”. Many home owners broke the law by refusing to pay a modest interim flat charge on their properties. Now, it turns out that 160,000 people – or 10% of those who have paid the property tax – own four homes or more, reports Michael Brennan in the Irish Independent (November 18). The tax authorities have announced that they will use property tax data to track down tax “cheats”.

The collapse of the housing market wiped 50% off values. Now, policemen, soldiers and prison officers who arrive at deals with a state agency over their housing debts are at risk of being bribed, according to David Hall of the Irish Mortgage Holders’ Organisation. Meanwhile, the taxman continues to close down increasing numbers of firms:103 Revenue-led liquidations in 2012.

Taxation is at the heart of the State’s problems. Example: Ireland’s police force, the Gardai, has set up a nationwide operation to track down criminals who dodge taxes by dealing in cigarettes and diesel on the black market. According to customs officers, government loses revenue of anything between €250m to €569m a year.

Balancing the books?

Sublimely unaware that it is the architect of the nation’s ills, the political class (now operating through a Coalition government) claims its austerity measures will soon result in the elimination of its annual deficit, and even begin to generate a surplus to pay down government debt (which stands at 124% of economic output). The objective is to “reassure the markets the country will not return to a cycle of so-called ‘boom and bust economics’,” reports Fionnan Sheahan in the Irish Independent (November 18).

No chance. The government is still playing fast and loose with fiscal policy.

In the run-up to 2007, Ireland engaged in “tax competitiveness” to attract foreign investors. In 2010, corporation tax was 12.5% compared with the UK rate of 28% and a US rate of 39.1%. Property dealers translated the low corporation tax into higher land prices. Thus, government favoured foreign corporations against its own citizens, who were forced to pay extraordinary prices for homes. The Irish then (as now) were deluded into believing that rising house prices was an index of prosperity. In reality, those prices were an exercise in transferring income from people who worked (and added value to the nation’s wealth) to land owners who operated as rent-seekers.

The process has begun again. Dublin property prices are increasing at an annual rate of 12.2%.
If the wounded nation is to be healed, clarity – and courage – is needed on tax policy. Politicians are not up to the task: they are lining up the economy for the next property cycle, which will result in a catastrophic bust. That outcome is now as certain as night follows day, unless enough people in civil society take a grip of their destiny.

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