My logic was based on the following confluences of 'stars':
- Local elections will be over;
- H1 Exchequer returns will be in;
- Tax and Spend an boards will have some papers on the table by then, so a host of new taxes will be ready to roll out, while a host of new measures to evade cutting public spending (i.e various buy-outs and hand-outs and 'fairness' proposals) will also be at hand.
Of course, to save big one needs: political will to break the unions and a reform plan to break the hysteresis in spending. But who has that? Brian? The other Brian? of Mary? In the mean time, there will be plenty of small scratches - €1-5mln here and there, but with a hole of some €30bn to be plugged this year alone, you have to do something BIG.
Now comes another new rumor - that a birdie chirped at my windowsill: the Revenue are now starting to worry that smelling the (rotten) rat from the Upper Merrion Street, our wealthy (what's left of them) are moving assets off-shore faster than Brian can shout 'Tax!" There is a rumor now, allegedly at the Dublin Castle gates, that CGT might come in at or near zero in the nominal terms in H2 2009 and this might even imply - considering bookings on CGT losses for 2008 - a negative CGT return! Now, that would be a nice lesson for the Government and for the likes of Fintain O'Toole and Vincent Browne - tax liquid wealth and see it evaporate.
Here's how it might turn out to be: charts below show my projections for CGT and CAT heads under 3 scenarios.
Scenario 1 assumes that the rest of 2009 will see replay of the same changes as happened between 2007 and 2008. This is a clearly optimistic scenario for H1 2009 projections (remember, H1 2008 fall-off relative to H1 2007 was much smaller than what we are already seeing in Jan-April 2009 relative to Jan-April 2008), but it is probably pessimistic for the last 2 months of 2009. So it might be a wash then across the year.
Scenario 2 assumes that the 2007/2008 dynamics apply to the trend that was established in 2009 to date. This is more pessimistic for CAT, and the intermediate scenario on CGT.
Scenario 3 assumes the same as Scenario 1 except I also consider the possibility of zero monthly returns on CGT in October-December 2009. How can I justify this assumption? Well, in 2008 for the same period, the Revenue collected €626.4mln in CGT. Suppose that this year, by October 2008 some €3.13/2=€1.55bn of Irish capital were to be 'B&B'ed abroad, with owners declaring a loss on these, writing off some €311mln. This will drive the CGT revenue to zero, even if the last year's performance were to be repeated.
Now the two charts for the picture is worth a 1,000 words...
Of course, the problem could have been avoided should we chose to tax illiquid/immobile asset base - i.e land... in the long run, or should we have cut the idiocy of raising taxes in a recession... in the short run.
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