The Economic and Social Research Institute (ESRI) has urged the government not to put off the implementation of the residential zoned land tax. In its most recent quarterly report, the institute stressed the importance of addressing land prices as a significant method of substantially lowering housing costs. It pointed out that other cost elements such as labour and materials are generally beyond the government’s control.
The planned 3% tax set for introduction next year, will be levied on zoned residential land as a measure against land hoarding. However, resistance has notably come from farmers, who argue they could be taxed on land used for farming.
The ESRI stated that by confronting possible land hoarding, land prices can be targeted, potentially slashing a production cost that typically makes up about 15 to 20% of a residential unit’s cost. With the state’s high expenditure on housing, it is crucial that all means to increase productivity when large public expenditure is involved are considered.
Speaking about the larger economy, the ESRI projected steady, albeit reduced growth over the mid-term, with households seeing benefits from real wage growth and additional decreases in interest rates. Although the headline GDP figure is forecast to shrink by 0.4% this year due to shaky multinational investment, modified domestic demand (MDD), a more reliable measure of domestic conditions, is still expected to expand by 2.3% in 2024 and further 3.1% in 2025.
Furthermore, the ESRI’s Kieran McQuinn emphasized that budgetary resources need to be deployed to address infrastructural deficiencies and obstacles hampering the economy’s overall productive capacity as the economy operates close to its full capacity.
“Fiscal strategy requires discipline to avoid exacerbating existing price pressures and to prevent the overheating of the economy,” cautioned Mr McQuinn.
Touching upon taxation, he stated that there isn’t much room for substantial tax alterations as it would essentially inject money into the economy.
The forthcoming budget, anticipated to be shaped around an €8.3 billion tax and spending package, is projected to comprise additional public expenditure of €6.9 billion and tax initiatives worth €1.4 billion.
A substantial portion of this tax bundle is aimed at expanding tax bands and thresholds to essentially safeguard the budget against inflation for employees.
Mr McQuinn conveyed the ESRI’s support for the indexing approach for its effectiveness in “simply retaining incomes in line with inflation”. He highlighted the importance of refraining from pushing extra money into the economy through tax reductions.
“While the sturdy condition of Ireland’s public finances allows vital infrastructure matters to be tackled, it’s crucial to ensure that any ramp-up in government expenditure is carried out with careful precision and prudence,” he concluded.