Ciarán Lynch (Cork South Central, Labour)

Last week, I spoke at a debate organised by the Historical Society of University College Cork entitled, "The Recession Then and Now". The debate compared our current economic difficulties to the economic problems of the 1980s, focusing specifically on personal circumstances and how individuals are faring now and how they fared then. It became apparent in the course of the evening that the circumstances leading up to the current recession are similar to those leading up to the economic problems of the 1980s. In both cases, Governments pursued reckless policies, we had poor governance and the political system failed members of the public, not because of its structure and processes but because of the type of leadership shown by those who had responsibility to govern.

On the evening of the debate, as I headed across the UCC quad, two young lads of about 13 or 14 years who happened across my path on their bicycles recognised me and said "Hello". As one approaches a general election, it is always nice for a candidate to have one's face or name recognised. Given that one does not normally see 13 or 14 year old children cycling on the grounds of University College Cork, I jokingly asked the two boys which subject they were studying. They replied that they were studying economics and were currently dealing with the bond markets. I was struck by this response because it highlights the level of discourse among members of the public about the current economic crisis. Financial terminology such as "bond markets", "subordinated debt", the "International Monetary Fund" and other technical vocabulary have become everyday language, as reflected in my conversation with two 13 or 14 year old children. However, while members of the public may have a better grasp of the discourse of national and international economics, do they understand our current problems better than people understood the problems of the 1980s? The big question being asked of the Finance Bill is whether we are recreating the past or building something new. It appears the Government is essentially seeking to recreate the conditions that led to the problem.

When discussing the property market commentators frequently refer to taxation and measures that would lead to a recovery in the market. The last thing the country needs is for the property market to recover to the levels we saw in the past decade. Taxation policies and measures created the current crisis. In 1999, when Deputy Eamon Gilmore was the Labour Party spokesperson on housing, my party published the Drudy report. The report warned of a future crisis if national policy on housing was not adjusted and identified a number of key future problems. Its warning that the employment sector would become over-reliant on the building and construction industry was proved correct when 20% of the economy subsequently became tied into the construction bubble and pyramid scheme.

The Drudy report also argued that the property market would overheat. This proved to be the case when so-called affordable homes - subsidised homes to enable people to enter the housing market - were placed on the market at €250,000. The cost of affordable housing has since fallen by half as prices start to reflect the real economy. During the years from the late 1990s to 2007, house prices and house price inflation reflected a parallel universe.

These developments were the result of the Fianna Fáil Party's policy of incentivising property investment through taxation measures. Homes became commodities to be bought and sold for investment purposes, at the expense of families, communities and the model of sustainable development. Individuals bought property using loans on which they repaid the interest for two years before selling it on in the knowledge that the price would have increased. Tax relief on interest repayments, capital gains tax changes and the stamp duty regime were used to incentivise and facilitate these types of investment.

The cost of the Government's approach was that it drove the price of housing up and put it out of reach for ordinary working people. Calculating the value of a house is a simple equation. In normal times, a typical three bedroom, semi-detached house costs three to four times the average household income.

At the height of the property madness we saw house prices for first-time buyers reaching eight to 12 times a household income depending on the region. In rural areas the cost could be six, seven or eight times a household income, while in Dublin - particularly in suburban areas of high demand - the figure could be between ten and 12 times.

Another way of measuring house values is to determine the annual rent a property will accrue and then multiply that figure by ten or 12. Nonetheless, property values at that time were well in excess of the multiple based on annual rental income. All the alarm bells were ringing to tell us that a serious difficulty would arise in this respect, but Fianna Fáil - in its different manifestations over those years - continued to introduce further taxation measures to create what in essence was a pyramid scheme. People were led to believe that if they joined the scheme it would deliver in six, 12 or 18 months' time. They were encouraged to grab the money and reinvest it. The inference was that the pyramid scheme would continue forever on the simple premise that house prices would increase infinitely. That could not be logical, however, if the housing market did not reflect the real economy, and it has not done so for a long time.

The term "normalisation" must be used loosely regarding property sector taxation. The Government must choose one area of the property sector over another. The Government can either promote the concept of the principal residence and its ownership, which comprises home owners, or, as we have had to date, it can give preference to a taxation regime which incentivises investors to speculate by buying and accumulating properties, thus driving prices up.

In order to have a normalised housing market, the Labour Party believes a policy is required which reflects and promotes the concept of home ownership and principal residence, although that has not existed in this country for over ten years. For that to occur, we must have a taxation system that is neutral at least and positive at best in favour of principal residence occupation.

Over the past 12 months, we have seen suggestions emanating from the Central Bank and the Financial Regulator to the effect that such an approach would be taken. In July 2010, the Governor of the Central Bank and the Financial Regulator published new recommendations on mortgage lending. Those recommendations referred to getting back to the ratios I mentioned, as well as having more robust measures to examine people's incomes and other steps to ensure that such a crisis cannot recur.

For those of us who first entered the Dáil in May 2007, that date now seems like a century ago. In terms of perception, Ireland was an entirely different country to what it is now, although the writing was already on the wall. An examination of the books showed that the difficulties we are in currently were well and truly under way.

The 31st Dáil, to be elected shortly, will face an entirely different climate to the one that existed when I first entered this House in 2007. The next Dáil will have to realise that we are not in the business of recreating or revitalising a type of housing market through various taxation measures. Research shows that the more tax incentivisation is given to property, the more it drives prices upwards. As surely as night follows day, if one incentivises property investment through significant tax relief, the price of property rises. While those gaining tax relief may be beneficiaries to some extent, those who are trying to buy property, either as a retail or manufacturing business investment, or simply as home owners, will not benefit from that taxation model.

In moving towards a normalised taxation system and housing market, we will have to begin picking up the pieces left by the current Government's policies. Some 300,000 home owners are currently in negative equity as a direct result of the Government's taxation policy which drove up house prices to unsustainable levels. In addition, 30,000 to 40,000 householders are in mortgage arrears to the extent that it is becoming a registered problem with their lending institution. Even if they are employed and can complete robust assessment criteria to obtain loans, first-time buyers will find it difficult to get money because banks are not lending and the price of borrowing will increase significantly.

I will revert to the two young lads on bicycles whom I met in UCC on Monday night. We may have a different type of language to describe our current economic difficulties compared to the 1980s. We may now have a broader discourse involving subordinated debt, sub-prime lending and other terminology, but are we any wiser than we were 25 or 30 years ago? Are we again in between recessions and, if so, will we be having debates in UCC and other universities in ten years' time on future recessions and the periods in between? In order to have economic stability, the type of governance we have witnessed in the House for 17 of the past 20 years needs to come to an end. Political tampering and tinkering with a taxation system that benefits very few, and for which most of us must pick up the pieces, is no longer acceptable. We need not just a new Dáil in March or April with new Deputies, but also a new governance and structure for politics. Thus, when we debate taxation policies, it will be for the benefit of the economy and society as a whole, not just the select few who have benefited from this Government over the past 20 years.

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