By Brendan O’Connor
To charge ordinary homeowners for other people’s debt forgiveness is a step too far, writes Brendan O’Connor
Some day, a story will be told about a whole generation of Irish people who were sold down the river. Our story starts in the Irish soil and the Irish psyche. We are a nation obsessed with owning property, with having a roof over our heads, that no man can take away from us, a little square of the earth that is ours.
And in many ways the generation that came of age in the last 10 years were just like the previous few. They were encouraged to get on the property ladder, to get out there and get themselves some bricks and mortar. But this generation were encouraged to take on huge debt to buy bricks and mortar. Because this time, a combination of speculation, cheap money, and a booming economy had made property wildly expensive.
For 10 consecutive years in the boom, property rose an average of 14 per cent per annum in price. But it was OK. Because this bright new generation were doing well. Women no longer gave up work when they got married, so many young households had two incomes coming in. And this generation worked very hard. They probably worked harder and longer than previous generations. They were willing to work hard for a while, maybe put off having a family, in order to get set up in life. Then eventually they would change gear and enjoy more quality of life. Some day. Little did they know that day would never come.
Those who worked in the private sector were making money on building and computers and plenty of overtime, and those in the public sector were rolling in it like never before, because of benchmarking and partnership, a deal whereby the Government bought industrial peace.
And, of course, there was credit everywhere; money was cheap and freely available. Foreign banks had introduced competition to our mortgage market.
While it had been traditional for people to save a chunk of the price of their house before buying, you didn’t even have to do that anymore. You could get a mortgage for the full price of the house. And the banks didn’t mind if you fiddled the numbers on your application form to suggest you were earning a bit more than you really were. What is more, people’s parents were able to get their kids started by borrowing money against their own invaluable houses.
And it wasn’t only the general public that was getting seemingly rich off this gold rush. The State was the biggest player in the property market. In the good years, it could take in €2bn or €3bn from stamp duty alone.
Every time anyone bought a house, you see, they would have to give the Government a big chunk of money — for nothing really. And the Government became as addicted to this money as we all were to watching how much our houses had gone up in value. So, while the people had what was called “the wealth effect”, which was a feeling of being rich they got from their houses, a feeling that caused them to spend lots of money, the Government had it too and it shovelled its property spoils into the public sector and the welfare system. And the Opposition’s only problem with this was that the Government wasn’t throwing around enough cash.
An interesting sidebar to this, that we would only find out later, was that not only were the consumer economy and the public sector economy all based on the building and property bubble, our whole banking system was based on it too. Which makes it all the stranger that the Government decided to kill it off.
While we all now know that the bubble was wrong, there could have been a less fraught ending to this story. The best-case ending would have been that things would have levelled off or even eased off a bit in the property market, but in some kind of a sustainable fashion. Instead, there was a bloodbath.
The Government decided, when the property bubble was cooling off anyway, that it needed to cool it further. It decided that — despite the fact that, as the Government itself admitted, it didn’t even need the stamp duty money at that point — it would keep charging stamp duty because it acted as a disincentive for people to buy and sell property. And the Government wanted to penalise property transactions, mainly, it said, because it would bring property values down and that would help first-time buyers get their foot on this property ladder that everyone needed to be on.
First-time buyers were actually only a tiny proportion of the population. But still, it was decided that everyone else’s primary asset should be devalued for the sake of the first-time buyers, who were regarded as saintly victims next to the moneybagses who actually owned their own property. The moneybagses who owned their own property were regarded as wealthy speculators, a landlord class, even though most of us just owned our own houses and worked hard to pay for them.
What the Government didn’t take into account was that many of the people who owned houses had just bought them, and that if the value of those houses fell then those people would straight away be trapped — owing more on their houses than those houses were worth. So those people would never be able to progress along the property ladder model, whereby you traded up your house as your needs changed.
Having convinced a whole generation to work doubly hard, to get into huge debt, the Government then aided and abetted in pulling the whole property rug from under everyone’s feet by aiding and abetting a crash.
You could say it even managed the unlikely feat of pulling the rug from under its own feet.
Admittedly, the world economy came in to exacerbate the crash, and it was probably worse than was envisaged by even the civil servants who thought a serious adjustment was necessary.
That whole conned generation are now being asked to sit back and watch while everyone who colluded in their downfall is bailed out. But they are told that they themselves cannot be bailed out due to affordability and moral hazard. Worse again, they are being asked to pay for the bailout of the banks — for whom affordability or moral hazard are not issues, apparently. And lest you think that it is the IMF that is bailing out the banks, be very clear that the IMF is just loaning us the money to bail out the banks. We will pay for it.
The final insult is now being visited on this generation. They are to be taxed on their millstones. The tens of thousands of people in this country who cannot pay their mortgages, and the hundreds of thousands whose houses are worth less than they paid for them and who may be trapped forever in unsuitable houses, in unsuitable relationships, are now going to be charged for the privilege of having bought a house.
The Government cannot find any more economic activity to tax, so they are moving to the next level, which is taxing people for doing nothing. If we ain’t going to buy and sell houses, they will tax us just for having houses.
This is a combination of two types of thinking. First, this are harking back to bygone days when property was something that was owned by wealthy people. Second, it is the next level of taxation — we want your savings. So even if you don’t earn anything, or do anything, or buy anything, we will tax you for just sitting there.
The fact that this money will go to bail out the banks, and the fact that many people’s houses are now a liability and not an asset, will make this tax even harder to swallow. The symbolism is not good. Bad enough to say there will be debt forgiveness for everyone except ordinary homeowners. But to actually charge ordinary homeowners for other people’s debt forgiveness is a step too far.
They say it’s the little things that trip you up in politics in this country. You have to wonder, when those letters arrive at people’s houses looking for that property tax, will it be the thing that eventually drives our compliant coping classes on to the streets?
You can push us so far, but don’t try and make complete fools of us.