Irish family values: Victim to the Troika
The Irish government is issuing swingeing property tax demands to millions of outraged home owners, with threats of deductions from wages for those who refuse to pay
How disreputable and demeaning can the world of politics become?
David Cameron gave a ‘cast-iron’ promise of a referendum on the Lisbon Treaty and then refused to honour his promise. But at least Mr Cameron offered the excuse that a referendum was impossible after the Czech Republic signed up to Lisbon.
The Lisbon Treaty was now a done deal, Mr Cameron said, so a referendum would be impossible, thereby making a necessity out of virtue, given that he never wanted a referendum in the first place.
Now consider Ireland.
The coalition government of Fine Gael and Labour gave a cast-iron pre-election guarantee that they would not, under any circumstances, introduce a property tax.
The property tax was a major issue that separated the coalition parties from the then incumbent government of Fianna Fail, and that cast-iron guarantee very likely won the coalition the Irish general election in 2011.
Today, the Irish coalition government is issuing swingeing property tax demands to millions of outraged home owners, with threats of deductions from wages for those who refuse to pay.
But the problem for the Irish home-owner is not simply another broken promise by venal, EU-subservient career politicians. The problem is that both the economy and property values have collapsed, and the property tax is based on much of the inflationary values that caused the financial collapse of the economy in the first place.
For example, house prices in Ireland quadrupled between 1996 and 2007, with home-buyers borrowing up to €400,000 or even €500,000. Much of this was financed by cheap money in the euro zone with bank regulators turning a blind eye to risky property speculation.
Today, many of those properties, particularly in the outer suburbs, have no realistic re-sale value as there are few buyers in a defunct economy. This is negative equity on a huge scale, yet the unfortunate mortgage holders are now faced with a property tax based on those same economy-destroying inflated prices.
A house in an outer Dublin suburb that cost €300,000 in, say, 2004 might (if a buyer could be found) have a re-sale value of €150,000, yet the property tax is based close to the inflated purchase price of €300,000. Essentially, the property tax is based on an imputed price that has no real, long-term market sustainability.
Furthermore, many home owners are living on unfinished derelict housing estates that were abandoned in 2007 by unpaid building workers. Footpaths and roadways are unfinished and half-built houses litter the abandoned building sites.
These people are holding mortgages on properties in what are essentially private sink estates that would be condemned on health and safety grounds if they were council owned. Such properties have little or no market value, yet the Irish government is levying a property tax on them.
Mortgage holders in Ireland today, mainly families who took the responsibility to put a roof over their heads rather than depend on local council housing, have been hit with a double whammy: hugely inflated mortgage debt to bailed-out banks and a grossly unfair property tax to enable the government to repay the EU-IMF bailout.
In effect, the average Irish mortgage holder is repaying debt to the bailed-out banks and paying for the bank bailout—a win-win situation for the banks and a lose-lose situation for the mortgage holders.
More than a quarter of those mortgage holders are now in serious financial distress. Ireland is now a society where the hard-working, socially responsible middle-income class are paying the price for years of government and financial recklessness.
The property tax has also created an urban-rural, Dublin-rest of country split. An ordinary middle-income owner of a three-bedroom house in Dublin could pay a tax of €600 or €700 annually. A professional-income owner of a five or six-bedroom rural property on a hundred acres could pay €90.
The collapse of the property market in Ireland brought down much of the rest of the economy. One estimate has it that over 20 percent of the Irish economy depended on the building industry.
Unemployment is now almost 15 percent, with youth unemployment over 30 percent, a figure that would be substantially higher but for emigration. Almost 90,000 young people left the country last year.
From a macroeconomic point of view, introducing heavy property taxes on struggling debtors in a collapsed economy might be considered economic suicide. Ireland is, according to one report (McKinsey consulting report on global debt) one of the most indebted countries in the developed world, with total debt (including household, government and company debt) at 662 percent of GDP.
From any sane macroeconomic viewpoint, the country desperately needs economic growth, not more taxes. Consumer disposable income is historically low because of the hugely inflated mortgage debt. The last thing struggling home-owners need is a property tax.
But the Irish government has little say in Irish economic matters. It’s the ECB, the IMF and the European Commission, otherwise known as the Troika, that decides economic policy in Dublin. The EU wants to be repaid its bailout money, even if it means further impoverishing the Irish householder.
Vincent Cooper is a freelance writer
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