On Tuesday the National Treasury Management Agency set out its “Information Memorandum” for 2010 for State bond holders, current and potential. The document gives an overall assessment of the economic health of the State and sets out future plans. Given that the document is introduced by the Minister for Finance, Brian Lenihan and deals with government plans, it is worth exploring any impact on NAMA’s operation.
Property taxes – the MfF says that “In future budgets the emphasis will be on
broadening the tax base by the introduction, for example, of a property tax and water charges for domestic use.” The Irish Independent yesterday interprets this as a “pledge” to introduce property taxes and water charges. Actually in terms of language and remembering the MfF is a barrister and has in the past used clear language, I think this language is unclear. The intention to broaden the tax base is clear. But it is unclear if property taxes and water charges are examples of ways in which this *might* be done or *will* be done. Elsewhere in the Irish Times yesterday, Green Party Minister for the Environment, John Gormley, is reported to have ruled out a flat-rate property tax saying “All the evidence is that people are prepared to pay taxes if they are brought in on a fair basis” which implies a more progressive tax reflecting, presumably, the value of the property. Water rates are also to be based on usage. These statements from the Minister seem to give the green light to employ an army of water meter installers and property valuers for the 2m homes in the State. The main reason for introducing the taxes is to plug the deficit. However in a weak property market a side effect will be to depress further the value of property, though the impact on different sectors of the property market may vary depending on how the property tax is calculated. Given that NAMA is depending more and more on an increase in property values, these new taxes will not be helpful to the agency’s operations.
Economic growth – “Based on demographics, estimates of spare capacity and other factors, the Irish economy is projected to expand at an average annual rate of 4 per cent between 2011 and 2014.”. Unit labour costs are forecast to come down by nearly 10% between 2009 and 2011. No forecast is provided for unemployment though previously it was forecast to peak at 13-14% in 2010 and would then gradually reduce by 1-2% per annum. No projections are given for the future population though the report does emphasise the strong growth in population during the boom years and, in my opinion, downplays the effect of the potential for mass emigration in the near term. The report says “Demographic trends: The growth in labour supply has played a key role in Ireland’s economic development over the past decade. Ireland’s labour force has grown strongly, driven by both natural increases in the Irish-born population and inward migration. The stock of foreign labour as a percentage of the total labour force is above the OECD average. Moreover, Ireland has the most favourable old age dependency ratio in the EU and this will still be the position in 2050.” “Demographic trends” are clouded, in my view, by the future scale of emigration. So the return to growth may instill confidence but the effects of wage cuts and unemployment are likely to be a drag on long term purchasing decisions.
NAMA Wine Lake 