The great and the good in Fine Gael gathered in Clonmel, Co Tipperary, this week for the party's annual think-in, where Taoiseach Leo Varadkar and Minister for Finance Paschal Donohoe outlined the rules of engagement ahead of Budget 2018.
The budget will be the first since Varadkar got his feet under the Taoiseach's desk, and the first since Donohoe took the reins from Michael Noonan at the Department of Finance.
Varadkar opened the conference with a commitment to reduce taxes for middle-income earners. He vowed to create a new social contract with the principle that “everyone who can, should make a contribution, and everyone should benefit in return”.
“High taxes on the middle classes are a barrier to opportunity and to work,” he continued. “They are a cap on aspiration, and there should be no cap on aspiration in the Republic we wish to build.”
Donohoe said something along the same lines, and committed to widening the tax bands and assisting the self-employed. There was also more talk about amalgamating the universal social charge and PRSI over time.
The party ended the day with a discussion on how Varadkar’s “Republic of opportunity” theme could be explained to the public. He insisted the phrase was not a PR slogan but a commitment to equality.
Corporation tax
One thing that won't be touched next month is the Republic's corporate tax rate. The Irish Fiscal Advisory Council was before the Oireachtas Committee on Budgetary Oversight this week, and it issued the State with a stark warning.
Corporation tax harmonisation plans across the euro zone pose a bigger threat to Ireland than the departure of the UK from the European Union, its chairman Seamus Coffey said, putting a figure of €4 billion on the potential loss to the exchequer.
Separately, Coffey’s Government-commissioned review of our corporate tax system was published. Some may struggle to keep a straight face after his finding that Ireland’s corporate tax code meets the highest international standards of transparency.
Coffey was asked specifically to look at issues relating to tax transparency, tax certainty and the avoidance of preferential treatment, an allegation that has been made repeatedly against the Government in relation to Apple.
His report also found the recent surge in tax receipts from multinationals based here should continue until at least 2020. It also made 18 recommendations aimed at bringing the code more in line with current OECD norms.
Meanwhile, Dublin inched up three places to 30 in the Global Financial Centres Index. The index also placed the city alongside Shanghai, Singapore and Frankfurt as one of the 15 centres “likely to become more significant”.
Retooling Nama
As well as preparations for the budget, the Government continued to grapple with the housing crisis. Varadkar signalled the Government is looking at turning the National Asset Management Agency (Nama) into a State-owned developer.
The agency became one of the biggest property banks in the world overnight when it was established in 2009, acquiring distressed developers’ loans worth more than €70 billion.
Its remit was to clear that mountain of debt, but what was floated this week would involve transforming the agency to focus solely on developing land and delivering affordable housing.
Government sources said the aim would be to allow it to raise finance, become involved in the planning process and work with developers. It would bring “Nama’s experience and expertise to bear in the public good,” senior figures said.
Left unchecked, the housing crisis has the potential to become the biggest constraint on growth in the Irish economy, Deloitte warned. The chronic undersupply in the market could eventually erode productivity in the economy and limit our ability to attract foreign direct investment.
The rate of growth in construction activity in the Republic slowed in August to its slowest rate in almost 2½ years, according to the latest purchasing managers’ index from Ulster Bank.
Sherry FitzGerald, the State's biggest estate agent, said the number of homes for sale in the State fell 9 per cent to 25,100 in the 12 months to July – just 1.3 per cent of the State's total private housing stock.
What’s more, property prices accelerated again with a jump of more than 12 per cent nationally for the 12 months to the end of July.
Vacant homes numbers ‘overstated’
Then there was the investigation carried out by Fingal County Council this week, which found that the number of vacant homes may be grossly overstated.
Its study involved sending council officials to houses listed as vacant. They found that only 50 or 60 were genuinely unoccupied, compared with the 3,000 figure stated for Fingal in the official census returns.
The Society of Chartered Surveyors Ireland warned that the crisis is likely to continue for almost a decade unless the Government implements “a range of radical and potentially unpalatable policies”.
Only by 2026 will Ireland meet the demand of 35,000 homes required to satisfy the housing market, the professional construction body said.
One of the policy measures mentioned was a reduction in the VAT rate. Fianna Fáil TD Barry Cowen was singing from the same hymn sheet as he suggested cutting the rate from 13.5 to 9 per cent for three years. Developer Michael O’Flynn said it was a good idea but that it had come “a few years too late”.
Separately, a report carried out by officials in the Department of Housing found it is not financially viable for builders to construct “affordable apartments” with sales prices of between €240,000 and €320,000. The report, which assessed the cost of building, found that while it is easier for builders to construct affordable suburban housing estates, it is still only “marginally viable” for them to do so.
For its part, real estate group Kennedy Wilson Europe wants to more than double the number of residential units it has available for let in Ireland to about 5,000 in the next three to four years, its chief operating officer said.
Meanwhile, housebuilder Cairn Homes was in the news as three founders of the firm took €26.6 million off the table by selling a combined 2.1 per cent stake on the market.
Brexit readiness scheme launched
Fáilte Ireland launched a "Get Brexit-Ready" programme for businesses as the tourism sector – much like Irish exporters – braces itself for Brexit. The programme comprises a website (getbrexitready.com) which contains a self-assessment tool and a survey for businesses to help them ascertain how prepared they are.
Visitor numbers from the UK account for more than 40 per cent of inbound tourists, but they’re down 6 per cent this year. Fáilte Ireland estimated this would cost the industry at least €88 million by the end of the year.
None of that will be helped by a European Court of Justice ruling against Ryanair this week, which is likely to drive up costs for the airline, and could lead to higher fares. Michael O’Leary insisted that won’t happen – but a number of analysts disagreed.
Shares in the airline tanked as much as 4.4 per cent as the court ruled that the home base to which Ryanair crew are assigned was a “significant indicium” of the “place where the employee habitually carries out his/her work”.
The ruling was seen as undermining Ryanair’s long-standing position that its crew are employed under Irish law and that any contract disputes fall under this jurisdiction.
An analyst with Merrion Capital said the ruling could drive up costs 5 per cent, adding €100 million to the airline's spend. Another analyst, with HSBC, put the potential increase to costs at 10-15 per cent.
