Dr. Tom McDonnell:

I agree with everything Ms Bennett said about help to buy. It was close to the top of our minds that it is inequitable, it increases prices, represents a high level of dead weight and the cost. It is true for so many tax expenditures generally. It was informed by the view that tax expenditures should be used only in extremis where it is impossible to rectify a structural market failure through any other means. Research and development would be the classic example which is structurally under-produced by the market and another would be the cost of greening the economy and those types of tax expenditures where there might be an argument for temporary, timely expenditures and so on.

Classically the affects of using these tax incentives have been quite negative. They have distorted incentives in the economy which have diverted capital from more productive uses. Overall, short-term reactive tax measures should not be used to tackle cyclical housing challenges. Rather, we should recognise the housing crisis as something that requires a different set of solutions. To the extent that affordablity is an issue, we advocated that welfare measures were better than tax incentives because they are based on needs assessment, are better targeted and so on. Obviously that is a patch. The actual fix is about housing supply over the medium to longer term and structural reforms in the state provision of housing, development of cost-rental models and cost of land which a site value tax would help with, as would a vacant site tax if done properly. It could also be dealt with by other means such as reforms in planning and regulation, access to credit and helping the private sector. Using tax expenditure, in our view, was a mistake and remains a mistake.