Why don't or why can't local authorities collect the Derelict Site Levy?

[Purple]

Have you ever tried to perform a complex surgical procedure on yourself?

The State is more than one person. If it can't fix itself it leaves room for the sort of crazy stuff that's going on in America now.
The rise of the far right or, as we have in this country, the far left, is caused by a failure of the centre, a failure of the institutions of the State.
It's not just a waste of money and human resources, it's a direct undermining of democracy.

 

[Marsupial]

It's not just a waste of money and human resources, it's a direct undermining of democracy.

Agreed. But when a combination of the Courts, the Unions and the EU run things, [or, more accurately, mismanage them] what can any democrat do, other than suck it up?

Any regular poster on this site can list their pet examples of State dysfunction here - among recent examples being: the running sore that is RTE and the ridiculous delays in the FSO's office; but nothing ever seems to change. (Apart of course from changing the names of various Public Bodies into the Irish language to pander to the wishes of an influential minority - yee haw!)

Another recent dysfunctional issue would be the nonsensical carry on over the number of flights allowed into/out of Dublin airport. A problem so intractable that not even the combined forces of the Taoiseach, the Tanaiste, the Minister for Transport and, for all I know, Saint Christopher himself were able to sort out.

So face it, squire, we're bunched.

PS - another example of the utter hopelessness of the Irish State is that illegally built mansion in Meath that's still standing 8 years after the Supreme Court ordered that it be demolished. (I'm sure you're familiar with the case.)

 

[TomEdison]

Income is not a measure of wealth. The ownership of capital is a measure of wealth. I think what you mean to say is that many wealthy people have low incomes and choose to hold their wealth in illiquid assets.

Income is not a measure of wealth, but it is a measure of the ability to pay your bills. For a lot of low-income people who own derelict but developable sites this wasn't a choice they made; it was something that happened — they inherited the site, or it was previously being used productively but that use is now redundant. They lack the working capital that would be needed to develop the site, so it stays derelict. (For the reasons point out by Tom, you need a lot of workin capital to develop property and it will be a fair spread of years before you start to get any return.)

You and I agree, I think, that from a societal point of view it would be better if the site were developed and therefore we should devise mechanisms that incentivise the transfer of the site to someone who will develop it (and/or mechanisms that reduce the cost and duration of development).

I just don't think that the derelict sites levy is a particularly well-designed, or particulary effective, way of doing that.

 

[T McGibney]

it would be better if the site were developed and therefore we should devise mechanisms that incentivise the transfer of the site to someone who will develop it

It's most unfortunate that we don't have any handy examples available of this precise problem being recognised, confronted and solved spectacularly successfully, and that there is now only the faintest folk memory of Charlie McCreevey, a money wizard who used mind the pennies for Brian Boru or some equally long forgotten High King about a millennium ago.

The storied Charlie came up with a cunning plan of chopping in half the tax that was levied on the sale of property, and the poor peasants who owned all the property but who had insufficient money to do anything with it, all rushed to sell.

So much property was sold that almost 500,000 new homes were built for the peasants in a single decade thereafter.

More students should study ancient history.

 

[TomEdison]

Well, as students of ancient history know, that ended badly. The boom in housing construction wasn't just the result of cutting the CGT rate; it probably had more to do with rapidly increasing house prices, and the enormous profits that could be made in a bubble market. These are not conditions we wish to recreate in an attempt to generate more housebuilding today.

Not to say that a targetted CGT cut might not have some role to play. How about a rebate: if you realise a gain by disposing of a derelict site (or perhaps of any undeveloped land) and you can show that it has been developed as housing within (say) three years of the disposal, you get a rebate of 50% of the CGT that you paid?

 

[T McGibney]

A careful reading of the Annals of McCreevey will inform the diligent student that it was the simplicity of his tax-chopping that made it successful, and that his successors failed and failed again to replicate his successes because they were more fond of complicated ideas that simply didn't work.

The McCreevey experiment didn't at all end badly. When he left the scene, the populace was more than adequately housed, fed and watered. The problems started when his successors became more interested in wine, partying and easy money and failed to keep an eye on what the bankers were doing.

 

[Purple]

A careful reading of the Annals of McCreevey will inform the diligent student that it was the simplicity of his tax-chopping that made it successful

The influx of around a hundred thousand skilled construction workers from the Eastern European States that had joined the EU also helped significantly. We also had lower income tax rates and lower welfare rates which incentivised work.

The McCreevey experiment didn't at all end badly. When he left the scene, the populace was more than adequately housed, fed and watered. The problems started when his successors became more interested in wine, partying and easy money and failed to keep an eye on what the bankers were doing.

That's certainly not my recollection of the period, though in fairness to Carlie when he did start to listen to everyone else in the world who knew what they were talking about and try to rein things in he was shipped off to the EU by Bertie.

Broadly speaking the State is usually far more of a hindrance than a help and it should be doing what it can to just get out of the way.

 

[bkenn14]

The McCreevey experiment didn't at all end badly. When he left the scene, the populace was more than adequately housed, fed and watered. The problems started when his successors became more interested in wine, partying and easy money and failed to keep an eye on what the bankers were doing.

I worked for a USA business man and he had a side show buying distressed Businesses breaking the up and selling them on,
in almost every case to find the reason the ran into trouble in the first case was to go back 20/30 years find that guy or girl
The hired who spent there time trying to solve problems that never existed in the first place,

 

[TomEdison]

The only reason McCreevy's rate cut resulted in increased CGT receipts was because there were large accrued but unrealised gains. People were motivated to realise them by the tax cut. But that had to be a one-off; once accrued gains have been realised and taxed, they can't be realised and taxed a second time.

There are two lessons to draw from this.

• First, a CGT rate cut can only lead to a rise in CGT receipts if there are large accrued but unrealised gains, and current CGT rates are operating to disincitivise realisation. That isn't necessarily always the case; you'd need to be satisfied that those conditions prevail now before cutting the CGT rate.
• Secondly, the rise in CGT receipts will be temporary. All other things being equal, after a year or two you would expect to experience a decline in CGT receipts — you've cleared out the backlog of accrued gains, and newly-accruing gains are being taxed at the new, lower rate. And that's exactly what happened with the McCreevy cuts — a rise in CGT receipts for two or three years, followed by a reduction. (Receipts rose again from 2003 onwards, but that was because of asset price inflation.)

The second point means that there is a long-term tax cost to the exercise. This is, all going well, masked in the early years by the flushing out of accrued gains, but that is only temporary. If you're going to suffer a tax cost for this, you want to make sure that it goes towards acheiving your objective of stimulating more housing construction.

How did the McCreevy CGT cut affect the rate of housing construction? It didn't, basically. The rate of housing construction, having been static for over a decade, increased steadily from 1993 onwards, and that rate of increase persisted until 2003, after which it rose sharply. The CGT rate cut in 1997 doesn't appear to have had any great effect on the rate of housing construction; there's no evidence that the 40% CGT rate constrained housing construction in the years before 1997, or that the reduction to 20% stimulated housing constructin in the years after 1997. If the rate cut had been presented as a measure to stimulate housing construction, it would have been judged a failure.

History suggests, then, that an across-the-board CGT rate cut is not an efficient or effective way of generating more housing. The reason for this is fairly obvious; most of the assets disposed of to take advantage of the rate cut are not development land. A deeper rate cut, but applying only to development land, looks like a more efficient way to target the policy outcome; a rate cut applying only to development land that did in fact get developed would be more efficient still.

(But no CGT rate cut will be effective unless the problem, or one of the problems, is that the owners of development land are being constrained from make it available for development by the current CGT rate. While that's not implausible, you can't just assume that it's true. If there are othe obstacles, and you don't identify and address them, even a targetted CGT rate cut is not going to acheive very much.)

 

[Dr Strangelove]

The only reason McCreevy's rate cut resulted in increased CGT receipts was because there were large accrued but unrealised gains. People were motivated to realise them by the tax cut.

The other reason was the extremely rapid rate of economic growth in the late 1990s (aided by lower € interest rates) which led to the increase in the value of almost all assets.

One of McCreevy's civil servants who worked on tax once told me he counselled McCreevy against it but had no idea whatsoever what the impact of the rate cut would be.

 

[T McGibney]

The only reason McCreevy's rate cut resulted in increased CGT receipts was because there were large accrued but unrealised gains

That is precisely the position we're in now.

 

[T McGibney]

How did the McCreevy CGT cut affect the rate of housing construction? It didn't, basically. The rate of housing construction, having been static for over a decade, increased steadily from 1993 onwards, and that rate of increase persisted until 2003, after which it rose sharply. The CGT rate cut in 1997 doesn't appear to have had any great effect on the rate of housing construction; there's no evidence that the 40% CGT rate constrained housing construction in the years before 1997, or that the reduction to 20% stimulated housing constructin in the years after 1997. If the rate cut had been presented as a measure to stimulate housing construction, it would have been judged a failure.

I can only describe this as a gross distortion of the actual trend. There was no real indication in 1995 or even 1996 that we were on the cusp of a housing boom. Annual dwelling completions doubled between then and 2003.

 

[Purple]

The other reason was the extremely rapid rate of economic growth in the late 1990s (aided by lower € interest rates) which led to the increase in the value of almost all assets.

I sold my car and bought an apartment in 1996 when I read that interest rates would drop by about one third after European Monetary Union in 1999. Leaving Cert economics told me that if demand stays the same but the cost of money drops by one third then the price of housing will increase by a half. The apartment was beside Christchurch and it cost IR£54,000, less the £3,000 first time buyers grant. That's a net €64,770.
I was 2 years qualified in my Trade, working 65-70 hours a week, making around £45,000. Income taxes were lower, there was a PRSI ceiling (a point above which you stopped paying PRSI, remember that?) and no USC.

There was far less wealth in the country so the price of housing set by demand, interest rates and, crucially, the value of labour. We weren't part of an international property market inflated by bail-out money and we had a population with a much lower age profile and a higher average household size (the number of people living in each home). That made housing much more affordable.

There's is also no comparison between the conditions in the decade or so leading up to the mid 90's and the conditions in the decade or so leading up to the present day.

 

[mathepac]

Fortunately, Mr. Hennessy came to my rescue!

Shouldn't that be Monsieur?

 

[Purple]

Shouldn't that be Monsieur?

No. An explanation would take the thread off topic.