Budget 2007:Reform of stamp duty in tomorrow's Budget would be dangerous, a leading economist has warned.
"With the predicted and indeed welcome 'soft landing' in the residential property sector, interference with stamp duty at this point could have a detrimental effect on market forces by falsely stimulating the market in the short term, leading to a harder landing in the medium term," said Goodbody Stockbrokers chief economist Dermot O'Leary.
"Increasing mortgage interest relief for first-time buyers would not have this impact and would deliver tax relief to those in the market for property who are most in need of a helping hand."
Mr O'Leary also cautioned against cuts in income tax. The predicted cut in the top rate of tax by 1 percentage point to 41 per cent was "not needed" when the economy is in an expansionary mode, he said. Further tax-reducing measures may be necessary in the years ahead to compete with the threat from newer members of the EU, but the timing needs to be managed, according to Mr O'Leary.
Mr O'Leary said he expects a generous and stimulatory package in the Budget tomorrow, with spending likely to exceed 11 per cent.
Launching Goodbody's new report on the Irish economy, Forging Ahead, Mr O'Leary predicted that Ireland's GDP growth will peak next year at 5.6 per cent.
Strong momentum will continue into 2008, with GDP growth of 3.5 per cent which will still be impressive by international standards, according to Mr O'Leary. Consumer spending will grow by 6.4 per cent this year before accelerating to 7 per cent next year.
Tax receipts have tripled in the past 10 years, from €15 billion to €45 billion, and there have been big changes in the revenue mix.
"VAT receipts are now the biggest revenue earners for the Exchequer, with income tax receipts now accounting for 27 per cent of the total. Unsurprisingly, the property market is now a significant revenue gatherer for the Government, accounting for 17 per cent of total revenues. Therefore as the property market slows over the coming years, revenue from this source will wane."
Housing construction will peak at 92,000 this year, dropping to 88,000 next year and 77,000 in 2008, said Mr O'Leary.
