Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

Well, first of all, I agree with you that the widespread availability of tax breaks for property investment was a contributory cause to the banking crisis and, consequently, to the fiscal crisis. The property market was stimulated beyond what an economy of our size could justifiably bear and it led, in the first instance, to ... when the property bubble burst, it led to a situation where the collateral underpinning bank loans was no longer worth the loans, so it didn't prop up the loans anymore. So, that commenced the banking crisis. And then it was immediately connected to the fiscal crisis because the Exchequer at that point was relying quite heavily on transactional taxes coming from building-construction, income tax-PRSI from the workers and VAT from the property itself. The rule of thumb at the time was, when I was debating these matters in the Dáil, for every 10,000 houses, the Exchequer was getting €1 billion in transactional taxes. So, when, in 2007, it became clear that there was a falling away on housing starts and that, depending on who you listened to, instead of 100,000 houses finishing in 2008, it would be 50,000, 40,000 or 30,000. It was easy to do the sums. So, if your decline was from 100,000 to 40,000, for example, the rule of thumb was that was €6 billion less to the Exchequer. So, you can see how the banking crisis quickly became a fiscal crisis and, consequently, a sovereign crisis, because the two were linked.

Now, to get to the point of your other question, then, your associated question. In the first budgets that I introduced, I progressively removed the property-related taxes and all the, kind of, section 23 stuff, and all that family of tax breaks was removed. My advice was it couldn't be removed in one fell swoop, but it was eased out over a number of tax years, so that was taken off the Exchequer. The ... we raised capital taxes then in a subsequent budget. I think they were historically, in Mr. McCreevy's time, down to 20%; they're at ... 33% now is the capital tax rate. So, that was part of the increases the present Government brought in. I think what you're referring to on the capital tax breaks was that I decided that persons who bought property - commercial property mostly, but it also probably applied to blocks of apartments - between certain years, would get a tax holiday if they held it for seven years. And that was done because, if you think back to 2011 and 2012, there was no property market. There was nothing happening, nobody was buying anything and we had to incentivise the situation to get people in to buy property. We had, effectively, to create the market.

But I'd a second reason for doing it as well. There was always a risk that when you're creating a property market by interventions, that you'll sell at very low values initially and your purchasers will flip the property and make extravagant profits on the short term. And that was why we had a condition attached that they had to hold for seven years to avail of the break. But I discontinued that then ... it was for a ... it was time-bound, it was for a three-year period.