A report on the effects of the property market on the public finances has estimated, in a worst-case scenario, a severe downturn in the construction sector could lead to a €3 billion shortfall in tax revenue next year.
The Davy Stockbrokers report also describes the abolition of stamp duty on property as 'risky', saying the Government would have to plug a €2.7 billion revenue gap. It says this could amount to 'an inequitable cash transfer', as existing home-owners and developers would gain.
The Davy report says tax revenue from the property market - including VAT, stamp duty and capital gains tax - has tripled since 2002 and will account for almost 17% of tax receipts this year. It says the public finances are now exposed to a downturn in the property market.
Economist Rossa White estimates that each 1% drop in the volume of property built or traded could cost €105m in tax. Each 1% drop in price is worth about €75m. A 20% fall in both price and volume could affect tax receipts to the tune of €3 billion, leaving the Budget deficit close to the 3% of GDP EU limit.
The report also says it is 'far from certain' that the Government could compensate for a building downturn by spending more on infrastructure.
Meanwhile, the Economic and Social Research Institute has estimated that the Finance Minister Brian Cowen could have up to €2.7 billion to spend on Budget day.
At its Budget Perspectives conference in Dublin, ESRI economists predicted that tax revenues would grow by 11% next year, driven by a 7.4% increase in consumer spending. They also estimated that current spending would need to rise by 8.5% next year to fund current services.
