Pearse Doherty (Donegal, Sinn Fein)
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So the Minister is talking about the guts of €1.5 billion for the lifetime of the measure. As I have said, the issue here is that the vast majority of the money this year, all of it next year and a good bit the following year will be for apartments that are already under construction.

If we take the issue of whether it can be applied just to new builds, the Minister says it cannot and that is fair enough - I take him at his word - but he also told us that we could not do what we are doing now. That is a fact. I am not suggesting the Minister was misleading us at the time but that is the case. There is also a suggestion, as I have said, and the Minister claimed that if legislation were introduced that sought to apply different rates of VAT to the sale of identical goods at the same point in time, based on the circumstances of timing of when work on those goods began, it could breach the principle of fiscal neutrality. I would like to tease this out. The Minister is saying it would breach fiscal neutrality with regard to the sale of the same types of goods at the same time if there was differentiation based on when the production of those goods started. However, what does not breach fiscal neutrality is the sale of the same types of goods, but the size of the goods does not breach fiscal neutrality. The definition means an apartment block which does not include three units with common access will not benefit from this. There are other conditions as well that would mean not benefiting from the measure. There are differentiations in relation to the same product that would be sold because of how we are defining an apartment block in relation to this code.

Fiscal neutrality is not defined anywhere in the VAT directive. It is not a rule of primary law. We have had the Court of Justice of the European Union set out that it is a principle of interpretation to be applied concurrently with other principles of interpretation. The court has also described fiscal neutrality as a principle under which economic operators carrying out the same transactions may not be treated differently in relation to the levying of VAT. It is also widely accepted that there are two aspects to fiscal neutrality. The first, which does not really apply here, entails that VAT should be exactly proportional to the price of the goods and services, and deals with the reduction of VAT output by the amount of VAT input, whereby businesses can deduct the VAT paid in the producing of goods or delivering of services. This is not relevant in this context. The second aspect of the neutrality principle in VAT reflects the general principle of equal treatment. It is not clear that using a commencement date to qualify for a lower rate would constitute a breach of equal treatment, and it is even less likely it would override the social policy aspect. I say this genuinely and in the context that I have acknowledged the Minister has provided the committee, us as Deputies and the Dáil record with information that is no longer correct today.

In my view, that was not done out of malice but with the best advice and the best interpretation of where things were at the time. There has been a change to the EU VAT directive, but I am talking about information that was provided post that change to the EU VAT directive. In a way, that does not surprise me because some of this is down to interpretation and how we look at it.

Going back to 2017, the Minister told us the VAT directive does not allow us to differentiate between different categories of house purchase, which is fine. Again, it was restated in 2021 that it is not permissible to differentiate between the supply of different types of residential property, such as apartments and housing, for the purposes of applying VAT rates. That was fine. Then, as we know, in April 2022, Annex III of the VAT directive allowed for different flexibilities, which we are now using. The tax strategy papers prepared by the Department of Finance clearly stated in 2023 that it was “not permissible to differentiate between the supply of different types of residential property, such as apartments and housing, for the purpose of applying VAT rates.” We are doing that now.

As I said, for the previous year, under Annex III of the VAT directive, it became possible for Ireland to apply a reduced rate of VAT of 9% to the supply and construction of housing as part of a social policy, and to the repair and renovation of residential housing. Non-residential construction was not within the scope of the reduced rate. In providing for this reduced rate for social policy purposes, there was a requirement for member states to define social policy. Therefore, that has existed since 2022. Fast-forward to the next year, and we had the tax strategy papers as I have described. Of course, the tax strategy papers for budget 2023 are from 2022, so we have to bear that in mind.

The then Minister, Michael McGrath, in the following year, 2023, made the point, “It is possible for Ireland to apply the 9% reduced VAT rate to the supply and construction of housing as part of a social policy”. The following year, he put on record, “There is ... no expectation or requirement that a VAT reduction would result in lower prices for consumers.” That is fine. We then have the tax strategy papers post the changes to the EU VAT directive stating very clearly, “it is not permissible to differentiate between the supply of different types of residential property, such as apartments and housing, for the purpose of applying VAT rates.” That information is not correct today, as we know. The tax strategy papers went on to look at that. They said that we cannot differentiate between different types of properties, such as apartments, but, because we could just decide to take everything in construction down to 9%, they went on to say that consideration would need to be given to whether developers of high-yield apartment blocks and short-term rental properties should benefit from a further reduced VAT rate. I agree with them on that.

We then have the tax strategy papers for budget 2025, which are from last year. Again, they state, “it is not permissible to differentiate between the supply of different types of residential property, such as apartments and housing, for the purpose of applying VAT rates.” The papers went on to suggest that if we were to reduce everything to 9%, great care would be needed in designing such a policy in order to prevent the inappropriate exploitation of such a measure by the construction sector. I see no measures here to deliver that great care.

The reason I put all of that on the record is not, as I said at the start, that wrong information was given. I believe the right information was given at the time. This was the interpretation the Department and the Minister had, and I do not see any malice in it. However, the reason I say that is that it is not clear-cut. This is an issue of interpretation. The people who support the Minister in Fianna Fáil and Fine Gael are going to do this because they support giving more money to developers anyway. They may not admit it but they have no problem in relation to that. Surely to God, however, it would make sense to change this. This is hundreds of millions of taxpayers’ money that the Government has decided not to give in a cost-of-living package but to give to developers for apartments that they are already building. It makes no sense.

The Minister said it is not possible to carve out a commencement date. I would say there is a very good chance it is possible because the Minister is already differentiating between the sale of products. For example, to allow this to happen, it has to be in the context of social policy, and the section has defined social policy. What is social policy? For the first time ever, the Bill states that a social policy is “The supply of housing, as part of a social policy, being the supply of an apartment, used or to be used for residential purposes, in an apartment block within the meaning of section ... of the Stamp Duties Consolidation Act”. I would argue there is a provision that would allow for the supply of an apartment that was commenced prior to such and such a date. It would not differentiate between the sale and there would be equal treatment of all apartments beyond that date. As I said, an apartment block that is going to be sold in two years' time could end up being subject to a higher rate of tax if it does not comply with the conditions that exist.

I strongly disagree with this. Over €1.5 billion of taxpayers’ money is going to be given to developers. It comes on the back of a previous amendment that also provides additional support to developers. Some of these developers, the biggest in the State, are looking at profit margins of 20% or 21%. The amount of deadweight here is spectacular. I have been a good number of years at the finance committee, as has the Minister, on and off, in his different Departments. I do not think I have seen a measure that for the next year has 100% deadweight. That is what the Minister is bringing forward. He is bringing forward a measure that is not a couple of hundred thousand euro or even a couple of million euro. We are talking about millions and millions of euro and all of it is deadweight, that is, every one of these apartments is being built anyway, yet they are going to benefit from this reduction next year.

What was it that the Minister told me in reply to a parliamentary question? Was it that it is costing €20 million a month already? Since this was introduced through a motion on budget night, this measure has already cost us €20 million, or close to that, for apartments that were ready to be sold. Everybody thought they were going to be sold at a higher rate of VAT but the Minister has ensured they are being sold with a nice wee bonus for the developers in the run-up to Christmas. It is completely and utterly wrong.