Brian Cowen (Laois-Offaly, Fianna Fail)

On amendment No. 2, the programme for Government contains a commitment to establish a commission on taxation, which would give a wide remit to consider the structure of the taxation system. The commission will be charged with examining the balance achieved between taxes collected on income capital and spending and reporting on it and reviewing all tax expenditures with a view to making recommendations on those that are unjustifiable and those that can continue to be justified on a cost-benefit basis. The commission will also have the opportunity, as mentioned in the programme for Government, to consider options for the future financing of local government. In the context of maintaining a strong economy, it will investigate measures to protect and enhance the environment, including the introduction of a carbon levy or tax.

I will bring proposals to Government in the near future on matters relating to the establishment of the proposed commission, including formal terms of reference, but I do not consider it appropriate that the terms of reference be the subject of legislative provision, as envisaged in the amendment.

The Government's position on stamp duty is clearly set out in the programme for Government and our emphasis is on assisting first-time buyers who are those most in need of assistance. This has been the consistent approach of successive Governments of different political compositions for the reasons I have given and to which Deputy Kieran O'Donnell adverted. We have committed to the abolition of stamp duty for all first-time buyers and this is being addressed in this second Finance Bill. We have also committed to increasing the ceiling on mortgage interest relief for first-time buyers in the next budget, having doubled it in the last budget from €4,000 to €8,000 for a single person and from €8,000 to €16,000 for a married couple. The changes to the ceiling on mortgage interest relief will affect first-time buyers and those who bought a house in the past seven years so there are more beneficiaries than merely those currently in the housing market.

Having doubled mortgage interest relief in the last budget, I will propose in the next budget changing it from €8,000 to €10,000 for single people and from €16,000 to €20,000 for couples or widowed persons. I will also propose maintaining this tax relief at 20% for all home owners even in the event of future income tax rate reductions that were also envisaged in our manifesto on the basis of maintaining a strong economy.

This is what we said we would do when we went to the people and I now feel honour-bound to enact our proposals. There has been a vigorous debate, in part instigated by others, and the issue has had a full airing in the public domain and in political debate for some time, although people will probably continue to disagree on it.

Deputy Mansergh referred to re-inflation and this is something that has not been thought through. At the moment we are seeing a correction and a reduction in housing output and this must take place because double-digit house price inflation is unsustainable. It could have caused an unhealthy housing environment where issues of affordability were prevalent. There have been eight mortgage interest rate increases of one quarter of one percent and this has also softened the market. These matters are not in our direct control but are decisions made by the European Central Bank in the interest of price stability in the euro area.

Even allowing for this, we are in a much more benign interest rate regime now then ten, 15 or 20 years ago. The issue here is to have a targeted and affordable initiative that will address the matter of getting people on the first rung of the housing ladder. The point made by Deputy Mansergh in response to Deputy Shatter is fair. We have seen huge gains in capital appreciation for the category of person under discussion, although I accept that they are mentioned merely as an example. The fact is that there is no annualised property tax in this country, as has been mentioned, and we have a full principal private residence exemption in respect of capital gains in the event of sale. The argument that the imposition of the tax duty might prevent a person trading down, in the context of capital appreciation with a full tax exemption, does not stand up to robust scrutiny. The payment of stamp duty by instalments, as has been suggested, could have implications for the registration of title in the registries. As Deputy Shatter will be aware, documents presented to the Land Registry or Registry of Deeds must be stamped with the full duty chargeable under the stamp duty code.

Notwithstanding the ideas and suggestions made by the Opposition, as Deputy Finneran noted, the context of this debate is the need to bring stability and certainty to the market. Strong views have been expressed in the discussion of these matters. Let us not forget that when the Fine Gael proposal, which was subsequently supported by the Labour Party, emerged it resulted in continuing uncertainty. This has been documented.

I could not see how it was equitable, sensible or a good idea to sort out a perceived problem facing the 53,000 people who enter the property market in a given year by changing the taxation code at a cost of up to €600 million — the anticipated figure for year two or three following implementation of the measure — to be paid for by 2.2 million other people in tax forgone. It is inevitable that we will return to a political debate during our interaction this afternoon. I regarded the proposal as a vote-catching exercise because it failed the basic equity tests.

I concur with Deputy Burton that it is important to protect the tax base. While this does not preclude reform, it precludes introducing measures costing hundreds of millions of euro annually to address a matter related to purchases of residential property, which last year affected 54,000 people. The focus of much of the argument has been the high cost of stamp duty for houses costing more than the threshold of €635,000. The 4,500 people who bought houses above this threshold last year would be significant beneficiaries under the Opposition proposals.

At some stage, one must ask what we are trying to achieve. Our purpose is to assist people to get into the property market and stabilise and bring some certainty to the market. In so doing, we want to be equitable and ensure any measures we introduce are affordable.

As Minister for Finance, I argued my case within the constraints imposed upon me by my office because any comments I make will be picked up by the market. It is a misrepresentation of my comments to contend, as has been done continually, that I stated there would be no change. I said three things, namely, that I would not enter into speculation, that anything we would do would assist first-time purchasers — I have introduced two initiatives to assist first-time buyers in three budgets — and that I would not do anything to disrupt the market. I did not say I would not do anything.

I found the span and scope of the proposals made by the Opposition parties to be disruptive of the market because they would have a reflationary effect in a period in which a correction to bring longer term sustainability and stability to the market is taking place. The benefits of their proposals would not go to the purchaser in the vast majority of or even all cases. As Deputy Mansergh stated on the issue of affordability, if, in a sellers market, the stamp duty imposition on a house costing €350,000 is reduced to €10,000, another €20,000 in equity becomes available to the buyer. That is the way the market works. These basic dynamics, which are observable to all, greatly invalidated what I am sure was a well-intentioned effort to introduce comprehensive reform of stamp duty. I still do not believe it is the right way to go. There will be those on the other side of the House who will defend their position and continue to argue with me about it.

As was noted, this issue has been discussed. We have hit every door in Ireland and said what we would do. We are here in Government and I am honour bound to do this. If the Members opposite were on this side of the House, they would tell me what they intended to do. Fine Gael intended to do this over a three-year period. It was pretty indeterminate as to when it would happen but it was going to happen at some stage.

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