to turn down. to elaborate, the marked deterioration in the irish fiscal position in recent years reflects in part the effects of strong growth in public spending first during the boom years, and then resulting from the demands imposed by the jump in unemployment. but a much more significant driver has been sharp collapse in tax revenues. the scale of the latter has been remarkable. the tax take, having averaged over 24 per cent of gdp in the first seven years of the new millennium, collapsed to barely 20 per cent of a greatly reduced gdp by 2009. this reflected a fundamental weakness in the tax structure and, in particular, an excessive reliance on revenues related to the value of property transactions. looked at more broadly, this was the continuation of a trend that has been evident over the past two decades, which has seen a systematic shift away from more stable and reliable revenue sources such income tax, vat and excise taxes, towards more cyclically sensitive taxes. the result was more and more dependence on corporation tax, stamp duties and capital gains tax as sources of revenue ; the contribution of this group of taxes grew from about 7 per cent of total tax revenue in 1987 to over 35 per cent two decades later. the buoyancy of these taxes during the boom period facilitated both a reduction in the income tax burden and the numbers in the tax net. it also financed a strong and persistent rise in public spending. while reliance on “ boom time ” taxes made these developments possible for a time, it left the fiscal position particularly exposed to a downturn. it also meant that fiscal policy was effectively operating in a pro - cyclical manner during this period and was itself stoking the boom. ( indeed, it has recently been estimated that the contribution of the residential property market to total tax revenue through vat, stamp duty and capital gains alone more than doubled to over 12 per cent in the seven years to 2006, addison - smyth and mcquinn, 2009 ). there is also the issue of the extent to which the nature and design of the tax system itself partly fuelled the construction boom. tax incentives for developers and homeowners have long been a feature of the irish taxation system and must have contributed significantly to the oversupply of houses which now exists, especially in parts of the country where underlying demand is likely to remain weak for many years to come. the impact of the subsequent collapse in what were in reality largely windfall revenues can be gauged from the fact that, since 2007, total tax revenues

patrick honohan : the intertwined recent experience of the irish and uk economies address by mr patrick honohan, governor of the central bank & financial services authority of ireland, to the british - irish parliamentary assembly 40th plenary conference, cavan, 22 february 2010. * * * introduction i can think of no better topic for an address to the british - irish parliamentary assembly than the similarities and contrasts between the performance of our intertwined economies before and during the global economic crisis. economic activity and employment have contracted sharply and property prices have plunged. our economies have been hit hard by the global financial crisis but in addition, for all of us, the crisis has served to expose strikingly similar pre - existing vulnerabilities in our economies – not shared by most others in europe – which would sooner or later have led to trouble even if it had not been for the global meltdown, notably : • the wide - ranging imbalances created by a credit - fuelled property boom ; • the growing dependence of the financial sector on wholesale market - funding, increasingly in the form of foreign borrowing, and • the extent to which the credit and property booms significantly boosted transitory windfall tax revenues, which came to be relied on to finance strong growth in public spending. while the economy of the republic of ireland was the more vulnerable, and has been hit much harder, i think that these parallels are no coincidence. indeed, the involvement of banks from each side in funding the property boom of the other is an interesting dimension of the pre - crisis bubble. this of course reflects the fact that our economies have long been intertwined on a broader front. as we begin to recover, though, there is one important emerging contrast. inflation has been persistently negative in the republic for over a year, reflecting the unwinding of the bubble against the background of a strong currency. but uk prices have been rising and the international value of sterling has been at historic lows. the contrasting exchange rate, price and wage environment presents its own difficulties, not least for irish businesses struggling to remain cost - competitive, especially when wages had edged up to uncompetitive levels in the last years of the boom. fiscal policy even before the global crisis metastasized in september 2008, ireland ’ s fiscal position was coming under pressure, not just because of an accelerated expansion of spending in the previous few years, but especially because of the sharp fall in tax revenues which began soon after the property prices started