Under pressure to appease the envious,the antidevelopment Greens and those angered by NAMA,the government is in the final stages of applying a confiscatory 80% "windfall" tax to rezoned land as an amendment to NAMA legislation. As usual with socially envious taxation,we will cut off our nose to spite our face,deliberately it seems. If developers expect such a tax to last for several years or more,there surely will be very negative consequences for property development,which,whether we like it or not,is still one of the biggest industries and a major source of employment. In a recovering economy,shortages of developed land will become a major bottleneck to economic growth.
How will those shortages come about? Under Ireland's very strong constitutional property rights,there is an economic incentive to accumulate land slowly in landbanks to prevent a handful of stubborn holdouts from extracting exorbitant prices for the last few pieces of the jigsaw necessary to complete land acquisition programmes. Even if landbanks make big windfall gains,given their important function they should not be subjected to 80% confiscatory tax.Those envious of their profits ignore landbank windfall losses in recessions,which losses have been catastrophic to the biggest developers in the present recession/depression. As well,landbanks earn no income until land is sold,which can cause severe liquidity strains. Most landbanks and most farmers will refuse to sell,waiting patiently for a more rational approach to taxation.And who will want to invest in landbanks in the future?
The 80% tax gives a compelling incentive for landbank investors to invest abroad. This will have a similar effect to the incentive for commercial property developers to invest abroad when Finance Minister McCreevey raised the stamp duty on commercial property developments to an internationally high 8% to curb speculation. Billions in Irish financed property deals moved abroad.