November 4, 2010

David on the Keiser Report

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Discussing Kilkenomics and who killed the economy.


  1. Ton

    Exceptional Property Gains Tax (EPGT), a step towards a solution for our problems?

    On the 4th of November we were informed about the amount of cuts in the coming budget. In the weeks ahead we will hear the details when the budget will be presented by the government. Everyone knows: it will be ugly. More people (the lower paid!) will have to pay income tax and PRSI. Cuts in welfare, in health, in education and so on.
    And than there is the real danger that the cure (cuts and taxes) will kill the patient (economic recovery). Every Euro that will be taken out of the pocket of the lower paid will not be spend in our economy but will probably be used to pay of foreign investors. Cuts will cost jobs. Less jobs will mean less taxes and more people in need of social welfare payments.
    Resentment between people who suffer because of the measures taken by this government and the ones who are sitting on a healthy profit, made by trading in property, will grow.
    I think that we are truly in an exceptional situation. Exceptional measures are therefore needed. The people who have profited from this situation are the first ones who have to pay. The Irish government seems to ignore this completely and wants to force everyone, specially the lower paid, to share the burden.
    In Holland, just after the Second World War, there was also an exceptional situation. A lot of people had lost all their money desperately paying what they could to get a scrap of food. Others had become filthy rich by selling food. A 40 kg bag of corn could be sold for as much as a year salary of a factory worker. After the war, the Dutch government immediately forced the profiteers to pay exceptional taxes. There was a lot of resentment between the people who suffered and the people who exploited the famine. Instead of doing nothing and letting this resentment steadily grow the Dutch government punished the profiteers and used the money to build up the country. In my opinion the Irish government should do the same by forcing the property-profiteers to pay an Exceptional Property Gains Tax (EPGT).
    How does this tax work? First you need a starting date, for example the 1st of January 2002 and an ending date, for example the 1st of January 2010. The purpose of the EPGT is to tax the gains made during the period from the 1st of January 2002 and the 1st of January 2010.
    Only property, that was owned on both dates by the same person and for the same use (residential, commercial or investment) is exempted from the tax.
    The EPGT is calculated as follows:
    1. Value of all not exempted property owned on the 1st of January 2010 by someone (a private person or a company) on that date.
    2. Add: value of all property sold during the tax-period (1st of January 2002 and the 1st of January 2010) at the time of the sale.
    3. Subtract: value of all not exempted property owned on the 1st of January 2002 on that date.
    4. Subtract: value of all property acquired during the tax-period (1st of January 2002 and the 1st of January 2010) at the time of the transaction.
    5. Subtract: costs of improvement of a not exempted property, made during the tax-period, these costs only to be accepted if proof in writing is submitted and if the costs exceed a certain amount (for example €.10.000,== for each improvement).
    The balance (1st+2nd-3rd-4rth-5th) is taxed with a certain percentage, for example 25%.
    The EPGT will have to be paid before the 1st of December 2011 with one exception: the payment of EPGT on gains regarding a property mentioned under 1 can be deferred until that property is sold provided that the amount of EPGT is registered as a charge on the property and that interest is paid over this amount.

    Given the fact that people on average move house once in every seven years I can imagine an exemption for the payment of EPGT if not more than one transaction of residential property takes place during the tax-period.
    A certain threshold for the EPGT would also be reasonable to prevent that people who have made a very modest gain have to pay EPGT.

    What if the balance turns out to be negative? I do not have a problem with negative EPGT for RESIDENTIAL property, but a property investor who made a loss for the EPGT will not receive compensation in the form of a negative EPGT.
    This is an interesting aspect of the EPGT: imagine an unlucky first-time buyer who purchased a residential property in 2007 for let us say €.300.000,==. On the 1th of January 2010 the value has dropped to €.200.000,==: he will be entitled to a payment of 25% of €.100.000,==! A condition would have to be that the payment has to be used for paying towards any mortgage on this property.

    The proceeds of the EPGT should in my opinion in the first place have to be used to mitigate the effects of the budget for the lowest paid and in the second place to create jobs.
    Wouldn’t Mrs Gilmore be happy to pay 25% of her profit from the sale of land for the building of a school towards a fairer and more equal Ireland?

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