Falling stamp duty revenues may topple the Government, says Marc Coleman

Forgive me, for returning once more to the issue of stamp duty. I promise to speak no more of the topic in this column, the present article excepted. But this issue has, as of Tuesday last, assumed an even greater importance in our national destiny than was ever intended.

For as of Tuesday, stamp duty may really be about to influence the outcome of the next election in a manner that a few of us - including yours truly - have dared to predict it might.

We already knew before then that the tax is resented by a significant number of housebuyers, buyers with voting potential.

After all, would you vote for a government that took several years worth of income tax off you in one fell swoop?

What we didn't know, but know now, is that heading into the election the Government's record on public finances may stand or fall on how stamp duty receipts pan out for the month of April and - if the election is held in June - the month of May. If it falls, this is because, instead of broadening the tax base, the Government has allowed itself to become so dependant on an unjust and volatile source of revenue.

Being hoisted on your own petard is, I believe, the appropriate phrase.

On Tuesday, the Department of Finance published Exchequer figures for the first three months of the year. On the face of them, nothing is amiss, total revenue growth is 10.2 per cent for this period, almost bang on the target of 10 per cent a year.

On closer inspection, the figures should cause a few sleepless nights for Government politicians.

Compared to quite conservative forecasts prepared by the Department of Finance, revenues from all but two tax categories fell below expectations for the first quarter. The two exceptions were corporation tax and stamp duty.

More than any other tax category, corporation tax receipts are erratic and affected by timing factors. It is stamp duty which - like the mythical Greek figure of Atlas - is holding up the whole show, preventing total revenues from falling below forecast.

But how long can that go on? Not long, it would seem. Having decelerated from 36 per cent growth last year to 12.8 per cent growth in the first quarter of this year, further deceleration in stamp duties is very, very likely.

This is because like any tax, there is a lag of a few months between something happening in the market and the impact that this has on the most affected tax revenue.

Now I don't need to tell you about the present state of the property market. If anything, stamp duty revenues SO FAR are a mere piquant whiff of what is to come, reflecting a slowdown that was a mere twinkle in Michael McDowell's eye. More recent developments in the housing market, i.e. January to March, are not reflected in the latest tax figures, but will be in April and May figures.

April figures are due out on May 2nd and may constitute a double whammy for the economy as, two days later, European Central Bank president Jean Claude Trichet is likely to announce - in Dublin no less - that rates will rise the following June.

A serious decline in stamp duty revenues will not turn total tax revenue growth negative. But, given that total tax revenue growth is exactly on target and given that growth in other revenue categories is slowing, it will push total tax revenue growth below target.

Compared to the Exchequer returns for early 2002, the Government will find itself basing election promises on tax forecasts that are looking increasingly shaky.

If this happens, the Government will have only itself to blame: the Government should act now to change stamp duty, or risk being changed by it.

Marc Coleman is Economics Editor of The Irish Times.