Paudge Connolly (Cavan-Monaghan, Independent)
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Question 66: To ask the Minister for Finance if he intends to introduce a more equitable stamp duty regime on house purchase; and if he will make a statement on the matter. [19451/06]

Brian Cowen (Laois-Offaly, Fianna Fail)
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Any proposals concerning the rates, structure and impact of stamp duty are a matter for the budget. I have acted already in several respects to reduce the burden of stamp duty on low value properties and on first-time buyers. New houses are generally exempt from stamp duty. Considerations of equity within the stamp duty code must be balanced by requirements for equity in the overall tax system. It is a question of ensuring that a fair share of taxation is paid all round.

Paudge Connolly (Cavan-Monaghan, Independent)
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Does the Minister agree that there appears to be no end to the present spiral in house prices with the advent of 100% mortgages which lending agencies are prepared to give us? The rates drawn up do not reflect the market price. The rates for first-time buyers are punitive. If a person wants to bid more than €381,000 for a house, the price will automatically rise by €11,400 before he or she bids. This works against the first-time buyer, especially when compared with the 4% stamp duty rate in Britain. It is punitive for people in the housing market in this country or who want to move up and keep the property business alive.

Does the Minister agree that the €40,000 stamp duty take on the average house bought last year is punitive? Does he agree with the guidelines for the purchase of a site for a house? People who want to buy a piece of land to move out of a county council house and off the housing list, or from an apartment must pay a rate starting at €10,000. Where does the Minister think this will come from? It moves up in increments of €10,000. This does not reflect the market. The rate for a site for a house costing €100,000 is 7%, it is 8% for a house costing €120,000 and 9% for a house costing €150,000. That is on top of the price of the house. Anyone looking to buy a site in proximity to a town will get nothing for €150,000. This is the case throughout the country. The Minister must agree that these tables must be revised. Has he any intention of revisiting these tables? Will he ensure that they reflect the recent market trends?

House prices have gone through the roof. A house priced at €250,000 seven years ago would have been a mansion whereas this is now the price of a standard house, in particular in the Dublin area. A price of €381,000 does not give first-time buyers a fair opportunity. A total of €2 billion in stamp duty is paid on housing transactions and this is a hefty imposition on people who are trying to better their situation. It is not fair to the consumer and these guidelines should be revised to reflect the market. I ask the Minister again to state his plans for that change and whether he will take on board that pricing structures have gone through the roof.

Brian Cowen (Laois-Offaly, Fianna Fail)
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Changes to the current stamp duty regime must be approached with caution as even minor amendments may significantly alter the dynamics of any housing market. I have no plans at present to introduce changes although the position is kept under review at all times. It is important to stress to the Deputy that there have been increased contributions from capital taxes generally as a result of the tax reforms introduced by the Government. I would have thought that people who regard themselves as being broadly on the left of the political spectrum would welcome such an idea, that the level of taxes on workers' income would be reduced. To have a sustainable budgetary position, one must decide what percentages are to be provided by other parts of the revenue line. If income tax has been reduced in the past ten years as a proportion of the total revenue collected from 36% to 30% and capital taxes have increased their contributions from 4% to 11%, corporate taxes have increased their contributions from 10% to 15%, and thankfully there are many more corporations and many more people at work.

To ask a Minister for Finance about his plans in the period between budgets will never obtain a clear answer because these are matters for consideration at appropriate times in the financial year and they can be kept under review. If it is the case that sites are costing €150,000 on the outskirts of towns in County Monaghan, it may be a sign that things are not quite as bad up there as people led me to believe.

Paudge Connolly (Cavan-Monaghan, Independent)
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I do not know whether they are quite so bad but sites in the towns are closer to €200,000 and this is reflected around the country. I do not know whether this is a reflection of how well counties are doing or of the money being pumped into them, but that is the reality. Will the Minister consider raising the limit to reflect the way the market has gone? Will he then consider a flat rate, a realistic rate for first-time purchasers?

Brian Cowen (Laois-Offaly, Fianna Fail)
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I would have thought the Deputy might have referred to the fact that I raised rates and thresholds in the past.

Paudge Connolly (Cavan-Monaghan, Independent)
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To a realistic level.

Brian Cowen (Laois-Offaly, Fianna Fail)
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What does the Deputy mean by realistic levels? They must be financially sustainable. I introduced an initiative on one occasion and the first-time buyers were happier than they would have been if I had not introduced the initiative. There is always the question of the ultimate effect such an initiative will have on the housing market and it is a case of balance because there are arguments for and against. The suggestion that I should just keep raising the rates and every purchaser would automatically benefit is something that must be taken into account from bitter experience.

Paudge Connolly (Cavan-Monaghan, Independent)
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I am concerned about the first-time purchaser, not about the guy who is buying a second house or is investing in property.

Brian Cowen (Laois-Offaly, Fianna Fail)
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It helps those people also.

Paul McGrath (Westmeath, Fine Gael)
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Question 67: To ask the Minister for Finance if he has assessed recent trends in the housing market and the capacity of this market to destabilise economic progress; and the strategy of the Government to protect against such a threat. [19699/06]

Brian Cowen (Laois-Offaly, Fianna Fail)
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Demand for housing has risen strongly in recent years. This demand has been underpinned by demographic factors, the innate strength of the economy and the impact of an accommodating monetary stance, including historically low interest rates. Housing supply has responded to demand with completions for 2005 reaching a historic high of about 81,000 units which, on a per capita basis, was among the highest in the world. House prices have also risen rapidly in recent years. As in the case of housing output, fundamental factors also largely account for the increase in prices. It is reasonable to assume that over time the large increase in new housing supply will restore equilibrium to the market. This should allow output to move gradually closer to sustainable demand and result in more moderate price increases.

There is currently a broad consensus among commentators such as the OECD and the IMF that the most likely outcome for the housing market is for what is termed a soft landing. However, we cannot be complacent by assuming this is inevitable. As I said on a number of occasions and acknowledged in the stability programme update published with the 2006 budget, the fact that the construction sector now accounts for a historically high share of economic activity and employment implies that the economy is vulnerable to any shock affecting this sector.

For its part, the Government continues to run a prudent, stability-oriented budgetary policy which gives it room for manoeuvre in the event of an economic downturn, whatever the cause. Its planned infrastructural investment programme is largely being funded out of current revenues rather than borrowing, while the careful choice of appropriate projects enhances the overall productive capacity of the economy and thus should underpin future growth.

In addition, I announced in budget 2006 that a range of specific property-related tax incentive schemes were to be discontinued on foot of a comprehensive review of the schemes undertaken by independent consultants in the course of 2005. In line with the recommendations of the consultants, the 2006 Finance Bill provides that the tax schemes in question, several of which include a significant housing component, will be discontinued subject to transitional arrangements. These arrangements provide for full tax relief on qualifying expenditure in 2006 and with decreasing levels of relief available in 2007 and in the period from January to end-July 2008, after which the relief will cease. The gradual phasing out of the tax relief schemes is designed to avoid any sudden shock to the construction sector generally, having regard to the current important contribution of this sector to the Irish economy.

Paul McGrath (Westmeath, Fine Gael)
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The rate of inflation in the housing market in provincial areas in 2002 averaged 11.5%, 13% in 2003 and 11% in 2004 and 2005, and the corresponding figures in Dublin were much higher. Is the Minister aware this has added about 50% to the cost of a house for somebody entering the housing market, all within a period of four years? This is horrendous for people who are trying to get into the housing market.

Is the Minister aware that of the 81,000 units to which he referred, only about 4,000 are local authority houses and a further 2,300 are affordable houses? How does he expect that with housing inflation running as it is, people will be able to find a house for themselves?

The Minister referred to the tax take from housing. Earlier in the year he conceded that the tax take on new houses was running at 35%. A house costing €300,000 will give the Government a tax take in the region of €105,000. This gives the Minister an annual tax take in excess of €10 billion from family homes, which is approximately 25% of the Minister's total tax take and is extra to the tax take from infrastructure and commercial building. The tax take from the housing sector and the general building sector is remarkably high and this was conceded by the Minister in his reply. What percentage of the total tax take is this? It must be 25% or more. If even a fraction of this amount is taken out of the tax take, will there not be knock-on consequences for the services which need to be provided? What steps will the Minister take to avoid a sudden fall in the housing market?

Brian Cowen (Laois-Offaly, Fianna Fail)
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As I have said on previous occasions, the increase in house prices since the mid-1990s is seen in the context of considerable structural changes and advances in the economy since then. Employment has risen by about 50% since the mid-1990s, while per capita wages have also risen significantly over that period. This has been supplemented by a reduction in the burden of income taxation. Demographic factors such as immigration and the increase in the cohort of 25 to 30 year olds have also been important in terms of the demand for housing.

The role of lower interest rates from our participation in the economic and monetary union, EMU, has also been important. For instance, real interest rates, that is, mortgage rates adjusted for the impact of inflation, have been close to zero since 2000, compared with typical rates of around 7% in the early 1990s. Financial market liberalisation, competition and innovation have also played a role by improving access to credit. These fundamental factors largely account for the increase in prices since the mid-1990s.

The Deputy will have to table a separate question if I am to give an accurate figure for the contribution made by building materials, for example, in the context of the overall tax take. If he tables a question to that effect, I shall see whether Revenue can provide him with the details. The fact is we all acknowledge that the current contribution of the construction industry is equivalent to twice the European average in terms of gross national product. That is a factor of the process of national development, the fact that our demographics are so different from the continental economies, for example, as well as greater domestic demand. The strong preference that people in this country maintain for the acquisition of private property as a means of pension provision for the future is another consideration.

Paul McGrath (Westmeath, Fine Gael)
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The Minister referred to real interest rates, real money and so on. An ordinary couple paying €300,000 for their house must make repayments amounting to between €1,300 and €1,500 per month. If the economy takes a downturn, the consequences for them in terms of the increased interest rates they might face are serious, not to mention the other serious consequences if one of them must give up work. Does this not conjure up grave consequences for the future of the economy? When this is factored into the take the Minister has from the building sector and the knock-on effects, will this not have to be examined seriously in the context of preparing a budget at the end of the year?

Brian Cowen (Laois-Offaly, Fianna Fail)
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One has to take these figures into account and the state of the construction industry, given that it represents 12% of national output. We must take into account what the relative health of the construction industry would be in trying to project forward Revenue figures, given the good contribution it makes, as I have acknowledged. This is true in terms of the building industry, the materials that go towards the construction of residential and other properties and the stamp duty payable based on the conveyancing of those purchases by developers or other private owners. These facts must be taken into account. It is extraordinary in some respects looking back over the past decade, that the affordability of housing is still sustainable.

As the Deputy has said, repayments of up to €1,500 are commonplace. Given that average industrial wage earners now have on average a take home pay of €11,400 more than eight years ago, that helps to put in context why, perhaps, it is now more affordable for people to make those types of repayment as a percentage of total disposable income. Wages growth has well outstripped inflation and there has also been tax reform which has made the difference between the net and gross disposable income in Ireland the narrowest in any OECD country. A much younger cohort of people is coming into the market because of the changing demographic profile. Their earning capacity and the types of jobs being created in the economy that bring them into the market are such as to give rise to this unprecedented growth. People in the construction industry and commentators in general, including economists, have been forecasting a cooling off in the requirements for increased output in the housing sector for at least four or five years, yet housing output is again at record levels this year, compared with 2005.

Paul McGrath (Westmeath, Fine Gael)
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Is it not of concern to the Minister that 50% of the uptake in new housing last year was accounted for by investment properties bought by investors getting into the market? Is this not of concern to him vis-À-vis first-time buyers and young people trying to get on the property ladder?

Brian Cowen (Laois-Offaly, Fianna Fail)
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It is important we try to ensure that first-time buyers have access to the market. We have taken some initiatives in that regard. It is to be hoped that the success of social and affordable housing initiatives will see a greater contribution from that sector than before. A great many interventions have been introduced, some of which have been successful and some less so. Ultimately, supply and demand will dictate the market.