Article: Booming property market keeps Celtic Tiger roaring

ballooba

Booming property market keeps Celtic Tiger roaring
03/01/2007 - 19:01:37

Ireland’s still-booming property market is continuing to fuel the Celtic Tiger economy, exchequer figures showed today.

Stamp duty and capital gains tax accounted for more than half of the total €45.5bn in tax revenue during 2006, Department of Finance officials said.

Economic forecasts contained in last year’s budget fell short of the overall exchequer figures published tonight.

Department official Barra Ó Murchadha told a media briefing: “We expected a slow-down in the property market but it continued to boom.”

“We’re now talking about economic growth of about 6% in 2006, compared to forecasts of between 4.5% and 5%.”

Defending the shortfall in the forecasts, he added: “Our job is to make predictions. That is what we do, and they are published with the budget more than a year in advance.”

The Department of Finance said that an expanding labour market due to increased immigration would also continue to boost economic activity.



Up to €10bn from the remaining two thirds of SSIAs will also mature in April and May and could boost consumer spending.

The 2006 figures show an overall exchequer surplus of €2.265bn for the year, compared to an exchequer deficit of €499m in 2005.

Minister for Finance Brian Cowen claimed the nation’s debt now represents less than 25% of national income, compared to nearly 120% 20 years ago.

“These results confirm the prudent and far-sighted approach being taken by the Government to planning the nation’s finances,” a statement said .

Mr Cowen added that unparalleled economic growth since 1997 had helped improve public services and infrastructure, eased the tax burden and provided for future pensions.

“We are now able to provide for exchequer expenditure on Government services in 2007 in the region of €56bn,” he said.

From: http://www.breakingnews.ie/ireland/?jp=CWSNKFIDKFQL&rss=rss1

I'm no economist but how can a domestic property market keep an economy going? Or SSIAs for that matter?

This article seems a bit ludicrous to me.

Akrasia

ballooba wrote:

From: http://www.breakingnews.ie/ireland/?jp=CWSNKFIDKFQL&rss=rss1

I'm no economist but how can a domestic property market keep an economy going? Or SSIAs for that matter?

This article seems a bit ludicrous to me.

Its called a speculative bubble. the market is feeding off expectations with nothing to back it up except cheap and easy access to huge amounts of credit.

InFront

Absolutely: this type of economic activity is simply not sustainable. Demand for housing will fall. What the government should be doing, and what financial institutions should be doing, is simultaneously curtailing the availability of access to the housing market.

The overvaluation of Irish house prices combined with rising interest rates from the ECB may well result in a return of house prices to their fundamental values, or if the bubble continues to expand beyond a certain point, below their fundamental value. For an economy so heavily dependent on the construction industry, this would spell disaster for us.

Not only that, but while this may be seen as "good news", and no doubt will be advertsied as such, as Joan Burton says in tomorrow morning's Irish times, the fact that Cowen and Co. did not foresee these figures is in itself worrying:

Labour's finance spokeswoman Joan Burton said the figures "beggar belief".
"The gap between the figures forecast in last year's Budget, and the outturn published today is quite simply enormous," she said.
"A projected exchequer deficit of €2.2 billion, has been turned into a surplus of €2.9 billion. In other words, Minster Cowen got his sums wrong by €5,192,000,000," she said.
"We are supposed to believe that this represents clever economic management. It is anything but. It represents a serious failure of forecasting and financial management."

"Had the Minister gotten his sums right, he could have used part of that €5.2 billion to either reduce taxation, or to improve public services. Instead, he has 'accidentally' collected more, and spent less, than he could have. Errors of this magnitude come close to making a mockery of the entire Budget process," Ms Burton said.

stepbar

InFront wrote:

Absolutely: this type of economic activity is simply not sustainable. Demand for housing will fall. What the government should be doing, and what financial institutions should be doing, is simultaneously curtailing the availability of access to the housing market.

The overvaluation of Irish house prices combined with rising interest rates from the ECB may well result in a return of house prices to their fundamental values, or if the bubble continues to expand beyond a certain point, below their fundamental value. For an economy so heavily dependent on the construction industry, this would spell disaster for us.

Not only that, but while this may be seen as "good news", and no doubt will be advertsied as such, as Joan Burton says in tomorrow morning's Irish times, the fact that Cowen and Co. did not foresee these figures is in itself worrying:

Its outragous when you think the vast amounts of money that is being spent on land in south dublin. First Sean Dunne spends near 300m on the site in Ballsbridge and then we hear today about a bid for Foxrock Golf Club topping 400m. Add to that the price the Ringsend Glass Factory went for and you begin to realise how stupid the whole thing is. Who the hell is goin to live in all these houses / apartments? And what will happen to the White Elephant aka "Section 23" houses down the country?

miju

Akrasia wrote:

Its called a speculative bubble. the market is feeding off expectations with nothing to back it up except cheap and easy access to huge amounts of credit.

nail on the head there Akrasia , this bubble and the economy is completely and utterly unsustainable we're shedding manufacturing jobs to lower cost countries and while employment is growing the "lost" jobs are being replaced by lower worth jobs in service sector etc , so it half masks the figures to joe public

can anyone answer what happens when inventory builds up in a speculative bubble??? these are only the first in the massive houe of cards thats the irish economy and with interest rates now very much expected to hit at least 4% this thing will start to snowball , though it was inevitable anyway once the ECB started raising rates which in turn reduces the max amount you can borrow while at the same time costing more to service mortgage the only thing that can give in the scenario is prices and with all the speculative building that will more than likely dry up over the next two years as things go pear shaped thats plenty of jobs down the swanny as well sending this whole economy into a tailspin IMHO

ballooba

My point was that the property market is internal as is SSIA (SSIA money there comes from our own pockets i.e. tax revenue). How can an economy be based on an internal market?

However, regarding what miju said above, slightly off topic but... I was watching a program on RTE this week, could have the Joe Duffy one on tuesday night or Six One, where they were referring to Google as skilled jobs. They were making out that Google jobs were higher quality than the manufacturing jobs we were losing. Most of the Google jobs are AdSales, AdSense and AdWords i.e. telemarketing/telesales. FF have been preying on people's ignorance for years dressing call centre jobs up as eCommerce/IT.

InFront

yes we should be interacting a lot more, using our position within the EU for our gainful advantage with regards foreign trade and attracting investment, etc. The government are doing precious little about that imo.


I just noticed this line...

“These results confirm the prudent and far-sighted approach being taken by the Government to planning the nation’s finances,” a statement said .

Is he intentionally taking the micky or what!

silverharp

When the property market turns down this will create a huge negative feedback loop in people renting and tax revenue. The gov won’t be allowed borrow more then 3% and unlike Germany the EU will come down on Ireland like a ton of bricks if they try to breach it. Interests rates will move regardless of what goes on in the Irish economy and this will compound things. Wait for the gov to say its not our fault and try to blame the euro or interest rates when I do believe they took credit for the preceding boom. Any budding politicians out there should be able to get elected on an anti Euro and immigration stance post 2010.

Dr_Teeth

We desperately need the government to start building up reserves now, while we have a surplus.

As silver says, the government isn't going to be able to borrow much and we will have no control over interest rates. The only quick way out of the recession will be government spending, which won't add up to much when all the hot money (property developers etc.) and 'hot people' (eastern europeans) leave this country for more profitable ones.

silverharp

Dr_Teeth wrote:

We desperately need the government to start building up reserves now, while we have a surplus.

It would be a prudent thing to do if not against EU rules, A reserve for the NDP could be created so that half competed projects are not abandoned, the pension reserve could probably be reinvested in infrastructural projects like toll roads however doing this would probably pi** a lot of the money away and it may not be prudent to create more infrastructure when the underlying economy is less able to support it. Looking at Japan, they tried to build their way out of a property bust but it didn’t work, that of course won’t stop our visionary politicians from trying.
The only positive is that it would not affect employment in multinationals based in Ireland and lets hope the gov has learned that pushing up personal tax doesn’t work

miju

silverharp wrote:

The only positive is that it would not affect employment in multinationals based in Ireland and lets hope the gov has learned that pushing up personal tax doesn’t work

i'd be interested in your reasoning as to why it won't as all evidence (including current and planned job losses in Xerox , Maxtor , Creative etc) says differently this economy is not far off being too high cost for the multi nationals

silverharp

miju wrote:

i'd be interested in your reasoning as to why it won't as all evidence (including current and planned job losses in Xerox , Maxtor , Creative etc) says differently this economy is not far off being too high cost for the multi nationals

It’s one of the headwinds facing the economy to be sure but as an economic factor it won’t be highly correlated to a property bust in Ireland, unless the bust is caused by a global recession which effects employment in the export sector. A worst case scenario is a global recession or Peak Oil which would knock all the “pins” down at once whereas a local property bust would not affect the operations or employment at Intel/Microsoft or the IFSC as examples. I guess there will be local impacts if Dell pulled out of Limerick for example.

MrPudding

silverharp wrote:

I guess there will be local impacts if Dell pulled out of Limerick for example.

Which it would seem they are going to do.

MrP

The_Minister

For future reference, there is an economics forum.

constitutionus

look at the brightside lads, all you not in the market yet would make out like bandits with the resulting collapse. if memory serves only 1/3rd of the market is first time buyers so you'd be talking about having your pick of an extra two thirds of the supply that second hand buyers will be desperate to get rid off to offset negative equity and the landlords cant fill cause all their houses were rented by construction labourers thatve gone to pastures new.

might hang onto my SSIA to buy a little four bedroom number in foxrock


EDIT* ironically this might actually be good for the multinationals. sure loads of people in the country would be out of money but the economy would have to react to that and lower prices of goods and services to get what little money is left, and they'd pretty much be the only game left in town. cant see people paying 6 euro for a cappachino when half the country is in hoc to the banks for the next 40yrs with no income from the investment that suddenly became a ball and chain.

is_that_so

So what's the political solution to this? From what I can see most of this thread is a discussion of an imminent economic collapse. What kind of practical political decisions need to be taken in order to this? What can we the electorate do?

MontgomeryClift

What can we the electorate do?

Pray.

ballooba

is_that_so wrote:

So what's the political solution to this? From what I can see most of this thread is a discussion of an imminent economic collapse. What kind of practical political decisions need to be taken in order to this? What can we the electorate do?

Well, I think the main implication of the article is that the Irish Examiner/TCM/BreakingNews.ie is misleading the public/electorate. 54 per cent of the excess tax revenue came from the property market in the form of CGT and Stamp Duty.

http://www.finance.gov.ie/viewdoc.asp?DocID=4417

silverharp

is_that_so wrote:

So what's the political solution to this? From what I can see most of this thread is a discussion of an imminent economic collapse. What kind of practical political decisions need to be taken in order to this? What can we the electorate do?

ditch benchmarking and all the other scams the gov wastes our money on and spend wisely on the assumption that the surpluses wont be around for ever.

John_C

breakingnews.ie wrote:

Stamp duty and capital gains tax accounted for more than half of the total €45.5bn in tax revenue during 2006, Department of Finance officials said.

This is not true. I just checked the budget and these two add up to just under 7 billion, not 23 billion.

miju

link by any chance john_c ? i looked but couldnt see

ballooba

John_C wrote:

This is not true. I just checked the budget and these two add up to just under 7 billion, not 23 billion.

Yes. You're right, I hadn't even noticed that.

They should have said over half of excess i.e. total increase over target.

Richard Bruton is quoted in the below article as saying that 25% of tax revenue this year came from property.

http://www.ireland.com/newspaper/frontpage/2007/0104/1167776630472.html

ballooba

miju wrote:

link by any chance john_c ? i looked but couldnt see

It's the first post in the thread.

In retrospect, maybe that article was just written by a halfwit.

John_C

miju wrote:

link by any chance john_c ? i looked but couldnt see

http://www.budget.gov.ie/2007/default.html

They should have said over half of excess i.e. total increase over target.

And there's a very big differnece between the two. We don't have all our eggs in one basket, rather half our discretionary eggs in one basket. It would probably have been a bad idea to use these eggs to increase spending or cut taxes as we're not guarenteed to have them again next year.

ballooba

John_C wrote:

http://www.budget.gov.ie/2007/default.html

And there's a very big differnece between the two. We don't have all our eggs in one basket, rather half our discretionary eggs in one basket. It would probably have been a bad idea to use these eggs to increase spending or cut taxes as we're not guarenteed to have them again next year.

No, we have 25% of our eggs in one basket.

I think the point Joan Burton is making is that if FF had a handle on the economy then they wouldn't have gotten it so wrong.

miju

John_C wrote:

http://www.budget.gov.ie/2007/default.html

thanks , my eyes must be getting worse , off i go to specsavers

constitutionus

is_that_so wrote:

So what's the political solution to this? From what I can see most of this thread is a discussion of an imminent economic collapse. What kind of practical political decisions need to be taken in order to this? What can we the electorate do?

well ordinairly we'd increase interest rates but thanks to the Euro thats a no no.

honestly at this stage i think it's too late. its not a question of if its going to happen its when. we're off the cliff so now its a wait for the ground to hit:D

we probably could do something to restrict the ability of banks to lend money but to be honest i dont like the idea of legislating for economic phases, its bad law. so maybe the reintroduction of the levy they hit the banks with 2yrs ago on their profits would get em to get in line. if they werent so cavalier with credit and 100% loans it'd go a long way to stoping the market over heating. take the old standard of loaning someone 3 times their salery for a mortgage, if something similar was reintroduced it soon stop the nonsense of lending people 13 times their wages. when you consider 80% of the country earns less than 34k a year it'd remove practically all the heat in the housing market (of course that then fecks up the renting market!)

of course the net result of this is a catastrophic "readjustment" of the market so either way alot of people are gonna be fecked . but at the very least the insanity would be stopped so from a national interest point of view it'd probably be the best thing to do. course it'd be political suicide for any gov that tried it so it'll never happen.

enjoy the crash:D

Lennoxschips

Japan still hasn't gotten over the 1989 property bubble bursting.

miju

indeed only recently has it raised it's interest rate from 0% to 0.25% if i remember correctly