Who pays for coalition mistakes?: Builders and developers make §1.9 billion 'excess profits' in 2002

BY ROBBIE SMYTH

Warning to all readers, hold on to your wallet, the government are back from their long and no doubt lavish holidays and they desperately need money. It's not that they are skint personally, as if!

We as a state are short of cash and past government performances have shown that when it comes to finding money in a crisis it is always the ordinary punters who have to pay.

Exchequer figures show that the government has an §892 million gap between income and spending for the year. This time last year there was a surplus of §952 million.

In the first eight months of 2003, the government took in just over £19 billion in tax revenue. Total spending for the first eight months was just over §21 billion. Apart from the question of the cost of borrowing the money, there is the added problem that our Euro membership and commitments to the Growth and Stability Pact seriously curtail the government's ability to borrow, pushing them back towards the PAYE worker as the softest option.

Other information seeping into the public domain this week showed that some wallets are more difficult to prize open than others when it comes to tax issues.

TAX LOOPHOLES

While PAYE workers and their households are paying disproportionate amounts of tax through income and VAT taxes as well as increased service and medical charges, Ireland's top earners are continually showing ingenious ways to avoid tax.

One example that has come into the public domain this week is abuses of the Seaside Resort Scheme, which allowed generous tax reliefs for those involved in the building and purchase of seaside holiday homes.

Some clever high earners with surplus income were leasing the new homes from their buyers for §12,000. They then rented out the homes on short-term lettings. The §12,000 rent also qualified for a double tax relief giving them another §12,000 that would stay in their pockets rather than being taxed, as well as whatever they earned on short-term letting.

The total cost of the scheme could have run to more than §400 million, and that's not counting what was lost in the double rent allowances. Today, this money would be a big help in plugging the growing gap between spending and income for the government.

However, the door is not closed on fully reclaiming this money. The Revenue Commissioners announced this week that it was reviewing some of the settlements made with the 3,675 people who availed of the 2001 tax amnesty.

The amnesty was for those who voluntary gave up their bogus non-resident bank accounts and earned §227 million from the holders of the illegal accounts. Now the Revenue Commissioners are reviewing some of those deals.

Maybe if the government are really stuck for cash they could review all settlements made for this and other types of tax evasion over the last ten years.

STEALTH SPENDING CUTBACKS

Bertie Ahern proclaimed last week that the era of record spending was over and that the government would not avoid "the tough decisions". But there already serious calims for increased spending such as the department of Health who are looking for an additional §900 million while the National Roads Authority "need" another §300 million. Iarnród Éireann need §3.5 billion extra investment over the next ten years.

What Ahern didn't address was the government's abysmal record on actually spending our money efficiently and fairly. Last year, faced with falling tax revenue, the cabinet took a short-term decision to massively cut capital spending.

This means less money for the much needed large and small infrastructural projects that benefit us all. We can see the immediate effects of this on overcrowded substandard trains, in tedious traffic jams, in the hospital crisis and the hundreds of schools with rundown facilities.

Meanwhile, the cost of infrastructure rises. This week, LUAS contractors said they needed another §50 million to complete the project by next August.

The delayed LUAS rail project will now cost §765 million. It was initially claimed in 1996 that LUAS would cost §279 million and would be finished in two years. It will cost §625 million for the Dublin Port Tunnel, even though it was initially priced at §448 million in 2000.

Last week, the government announced that they will build the first section of the M3 motorway between Clonee and Kells, costing §680 million. One wonders how much it will really cost by the time construction actually ends.

MORE BAD JOBS NEWS

Perhaps the biggest problem for the government is the economy and last week brought a series of bad news announcements.

Redundancies rose 40% in August compared to last year. Figures from the Department of Enterprise, Trade and Employment show 2,138 notified redundancies last month, compared to 1,520 in August 2002.

The CSO Quarterly National Household survey shows that total employment rose by 28,400 in the year to April. There are now 1.778 million at work in the 26 Counties. However, the figures are not all that impressive and show that the economy is standing still at best. Of the 28,000 new jobs, 43% were in part-time work. Just over 17,000 were hired into the public service, showing that the private sector only added 11,000 new jobs into the economy. This is hardly a success by any measure.

One example of the jobs being lost to the Irish economy was shown at Sports Socks Ireland, based in Cahirciveen, County Kerry. 147 jobs will be lost, with another 120 under threat

LAND PROFITS

However it is not all bad news. There still is a lot of money flowing around the economy. One example of this can be found in the Building Industry Bulletin, which claims that, in the Fingal local authority area in North Dublin, landowners earned §300 million in excess profits last year. There is zoning for more than 50,000 homes in the authority area.

Site costs in Dublin account for nearly half of the price of a house. Across the 26 Counties, site prices average 42% of house price compared to 20% in the USA and Denmark, or 15% in Portugal.

The Building Industry Bulletin estimates then that landowners and developers are earning 30% more of the price of a house than is the norm and that in the Fingal area this amounted to §300 million extra profits in 2002. Applied to the largest five cities in the 26 Counties, this figure rises to §1.9 billion in above average profits for 2002 alone.

This, though, is only one aspect of the profits being made from housing. Total lending by banks in Ireland to residents reached §150 billion in July, with mortgage lending growing by 24.2%.

There is clearly money flowing around the economy, with huge profits being made by banks and builders, while the rich are clearly not paying their fair share of tax. Ahern said he is going to focus all of his energy and activity on the keeping the economy steady. It clearly isn't steady and Ahern has a lot more work to do. For now it doesn't look like he has faced up to any of these realities and we will have to keep paying for the coalition's mistakes.