Saturday, May 19, 2012

Ireland's Ire

The people of Ireland are suffering from a self-inflicted economic depression. They voted for a government policy that subsidized land values, hoping to get rich before their real estate bubble collapsed. The “Celtic Tigers” were, rather, opportunistic hyenas, financial scavengers capturing the gains from economic growth. The cause of economic depression is always the distortions of the previous boom due to massive subsidies to land values, captured by speculative scavengers.

If one seeks to play the land bubble, one needs to understand the timing, and the Irish speculators failed to understand that the three elements of real estate gaming is not “location, location, location” but rather “location, location, and timing.” Now the collapse of the Irish land boom has plunged the nation into business failures, high unemployment, and once again, emigration.

The response of the government of Ireland has been austerity. But as with its southern European peers, austerity is self-defeating. Higher taxes on production and consumption shut down even more business, and the government programs that are cut are not the subsidies for the landed rich but life support for the poor.

The German philosopher Hegel wrote in his Philosophy of History that “Nations and governments have never learned anything from history.” The Irish did not learn from the failed head tax that brought down Margaret Thatcher’s government in the U.K. Ireland's households were ordered to register to pay a new lump-sum tax of 100 Euros. But half of the families refused. Thousands of protestors have rallied in the streets. They chanted“can’t pay, won’t pay.”

The protestors understand that the real estate speculators, the bankers, and their political allies created the artificial boom, and that the deals made by the IMF and European Union force the poor and the deprived middle class to bear the burden of a regressive head tax. But they should ask themselves why they voted for the government officials who designed the land boom.

On May 31 there will be a referendum in Ireland on a fiscal union for the EU. This would restrict the power of taxation and government spending of the members of the European Union. If voters regard the European fiscal union as further strengthening austerity, they will vote against it, just as they have overturned austerity chiefs in France, the Netherlands, and Greece.

In 2013 the government of Ireland is scheduled to implement a property tax. Ireland has had no real estate tax for several decades. The government is assembling a data base for the tax.

Ireland’s new real estate tax will backfire if the government mishandles it. The tax will benefit Ireland if it only taxes land value. Buildings and all other improvements should be tax-free. The land-value tax will have greater acceptance if it is implemented as a tax shift rather than a tax increase. The value-added tax should be reduced to the minimum amount allowed by the European Union. The employee pay-as-you-earn (PAYE) tax should be abolished, along with other taxes on income, including the corporation tax and the dividend withholding tax. Excise taxes on goods should be eliminated. “Stamp duties” on property transfers should be abolished. The government should also abolish the “capital acquisitions tax”on gifts or inheritances.

The replacement of this complex tax structure with a single tax on land value would make Ireland truly a Celtic Tiger, this time sustainable, and without rent scavenging. This efficiency and equity tax shift would need to be explained to the people, and there should be provisions for the few who would have significant net losses or hardships.

Ireland is a wonderful nation with great music and a history of valuable contributions. During the Medieval Dark Ages, monasteries in Ireland preserved Latin Learning. Now Ireland has an opportunity to lead Europe out of its economic dark age. With just a bit of economic enlightenment, Ireland could have a tax structure that would unleash its entrepreneurial spirit. The Irish-language name for the island is Eire, derived from the Old Irish name of the goddess of the land. With public revenue from the land, Ireland would replace its ire over punitive taxation with a happy Eire that has reclaimed its land.


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