Honohan and Regling-Watson banking reports. Fianna Fail's culpability.

You will probably have heard a little this morning about two reports on the Irish banking collapse commissioned by the Government - one compiled by the head of the Central bank Patrick Honohan, the other by international banking experts Klaus Regling and Max Watson.

Both  will form the basis for a Statutory Commission of Investigation to be carried out this year. The Government, however, has excluded its own role in the terms of reference of investigation. Some investigation, then. It sounds like holding the Nuremburg trials without the presence of war criminals.

Of course Fianna Fail wanted to portray the economic mess as something caused by outside factors, or the banks alone, but even the two reports it commissioned show the Government itself culpable.
The two reports are here: Honohan report      Regling-Watson report

Here are some snippets I found interesting. The range of property-based tax shelters and dodges is breathtaking, as is their duration (you can still see them on the property pages of the papers today):

Honohan Report, pages 31-32.

2.27 Throughout this period, the Government made extensive use of taxation incentives aimed at the construction sector.21 The rates of stamp duties, which were high, were lowered several times in recent years (in 2001, 2002, 2003, 2005, and 2007), sometimes with the aim of improving the affordability of housing to first time buyers (as was the case with the Bacon initiatives 1998-2000).

 In addition, different classes of construction investment have attracted sizeable income tax concessions extending over long periods. At the height of the boom, in 2004-06, schemes existed for urban renewal, multi-storey car parks, student accommodation, buildings used for third level educational purposes, hotels and holiday camps, holiday cottages, rural and urban renewal, park and ride facilities, ―living over the shop‖, nursing homes, private hospitals and convalescent facilities, sports injury clinics and childcare facilities.

 After some transitional arrangements, most of these incentives were abolished by 31 July 2008, after the expiration date of the schemes had earlier been extended on several occasions during 2000-08.

Regling-Watson report.

In relation to taxation policy and competitiveness.  Page 22.

Of course, some loss of competitiveness is the natural mechanism through which growth is slowed in a euro area economy that is overheating. In Ireland, however, an imprudent expansion of bank lending, accompanied by an unwise policy on tax exemptions, resulted in this natural economic cycle becoming much more extreme than should have ever have been the case.

In relation to tax policy and property.  Pages 27- 28

...Ireland is one of very few countries where interest payments on mortgages can be deducted from income tax yet there is no property tax (which would provide a stable source of revenue for the public sector). While this approach narrowed – again – the tax base, it also interacted in a negative way with the emerging real estate bubble by giving additional incentives to households to invest in real estate.


Third, the Irish tax system includes a large number of “tax expenditures” (tax allowances, reliefs and exemptions from income tax which – to some extent – reflect the income tax cuts mentioned above). According to the OECD, by 2005 the cost of “tax expenditures” had become larger than the remaining income tax receipts. As a percent of total tax revenue, tax expenditures in Ireland are more than three times larger than on average in the EU. Again, this excessive reliance on tax relief narrowed the tax base.

In addition, it contributed – again – to the property bubble, as some of the tax relief was directed to the property sector, often in particular regions of the country. And it contributed to a more general misallocation of resources as some of the tax concessions seem to have been granted on an ad-hoc basis in a not fully transparent way. After a review by the Department of Finance in 2006, a number of tax expenditures were eliminated and some restrictions on the use of certain tax reliefs were imposed.  Nevertheless, the system remained distorted.

And it still is. 

The opposition must not allow Fianna Fail to detract from its central role in creating the property bubble.  And they should also ask themselves what they were doing/saying at the time.

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