A REPORT BY officials in the Department of Finance has suggested that jacking up the local property tax (LPT) could pave the way for a big cut in income tax.

The report suggests that by targeting revenues from the LPT, a major income tax cut could be delivered, improving Ireland’s competitiveness by bringing down wage costs for employers.

A €1 billion target for the LPT would represent more than a tripling of the tax, which has raised around €310 million for 2013 and 2014 to date.

The Department points to research by the OECD which shows that taxes on fixed property assets have the “least distortive” effect on the economy.

Such a policy would be contrary to the Government’s position on raising the LPT, which the authors acknowledge, saying that they are “fully cognisant of the commitment…that there will be no increase in the LPT until 2016 at the earliest”.

They also accept that “a €1 billion increase in property taxation would represent a substantial policy shock”, and say that the target can be scaled down.

The paper argues that the economic benefits of such a move, however, are clear. The results show that real GDP would be 0.3% higher under the new regime, with employment also climbing by 0.4% and unemployment dropping by 0.5%.

SME lending reform

The report also calls for a reduction in the cost of credit to Small and Medium Enterprises, which it says is significantly higher for small businesses than for larger corporates.

Suggested ways of bringing down the cost of capital for SMEs include financial market innovations to encourage the growth of non-bank lenders, or facilitating new banks in entering the Irish market.

If the cost of capital were to come down by 1%, the report finds that small businesses could deliver a 0.5% boost to GDP by 2020, with employment increases of one third of a percentage point.

Would you prefer a higher property tax and lower income tax rates?