Wednesday, 6 December 2006
Financial Resolution No. 1: Income Tax
(1) THAT, as respects the year of assessment 2007 and subsequent years of assessment, section 122 of the Taxes Consolidation Act 1997 (No. 39 of 1997) is amended by substituting in the definition of "the specified rate" in paragraph (a) of subsection (1)—
(a) "4.5 per cent" for "3.5 per cent" (inserted by the Finance Act 2004 (No. 8 of 2004)) in both places where it occurs, and
(b) "12 per cent" for "11 per cent" (inserted by the Finance Act 2003 (No. 3 of 2003)).
(2) IT is hereby declared that it is expedient in the public interest that this Resolution shall have statutory effect under the provisions of the Provisional Collection of Taxes Act 1927 (No. 7 of 1927).
This resolution amends the specified rate used to calculate the taxable benefit to employees, usually bank employees, for example, from loans provided by their employers at below the market rates of interest. Where an employee receives such a loan at a rate which is below the specified rate, the employee is chargeable to tax on the benefit-in-kind reflected by the difference.
The specified rate, which is differentiated as between home loans and other loans, is reviewed annually in the light of the rates available in the marketplace to ensure that it remains within the range of market rates. The review this year showed that home loan rates have been rising and are now in the range of 4.24% to 4.53%. That is up 1% on the last market rates of 3.25% to 3.56% when it was reviewed this time last year. In line with this, it is proposed to increase the specified rate for home loans by 1%, that is, from 3.5% to 4.5%.
In regard to other loans, the A category overdraft rate used to determine the specified rate for such loans has also increased and is now in the range of 10.8% to 12.2% or 12.25%, increased from a range of 10% to 11.65% at this time last year. The specified rate on these loans is also being increased by 1% from 11% to 12%. This change will take effect from 1 January 2007 for the year of assessment of 2007 and subsequent years. The 1% rate in the specified rate will result in an increased yield to the Exchequer from benefit-in-kind in respect of this type of loan, up €3 million in 2007 and €4 million in a full year. In other words, this is an annual review of those individuals who benefit, almost exclusively bank employees, from loans their employers give them at below market rates of interest. It has not been changed for the past few years because there was no need based on the calculation. This year there is a need, and it is as per the figures I have given.
As I understand it, the purpose of this resolution is to raise the thresholds for the relief on income tax for preferential loans as distinct from the ordinary loans that people take out. I was interested to hear the Taoiseach's presentation to the effect that people who get loans at below the market interest rate should not enjoy an additional benefit from having got such a loan. This deals with the whole area of home loans and home purchase.
There were great expectations before the budget that there would be considerable relief for those purchasing their homes. I welcome the measure to increase mortgage interest relief and this resolution is somewhat related. However, it has to be borne in mind that in the past 18 months alone the mortgage repayment on the average loan has increased by approximately 50%. In some cases people are paying €500 per month more for their home loan than 18 months ago. It is hitting people very hard. The measure announced today, while welcome, will be wiped out once there is another increase in interest rates which is anticipated.
The other measure which I regret was not addressed by the Minister for Finance was the question of reforming stamp duty.
Anybody who looks at the small print of the Budget Statement for what might be done for stamp duty will see in B.13 that things are being done. There is a new stamp duty relief for Stock Exchange members. That is an interesting idea for the first-time buyer who needs to trade up from the small home or the one or two bedroom apartment, to more suitable accommodation when he or she has a family. Some of my constituents in those circumstances are caught for a stamp duty bill of €30,000. In looking for reform of stamp duty they will be greatly relieved to read in this budget that stamp duty is being reformed for Stock Exchange members but not for people buying a home.
During the past couple of months the Government has perpetrated a very cruel deception on young people who are seeking to buy a home. The Minister for Justice, Equality and Law Reform, Deputy McDowell, was the first to say that something would be done in the area of stamp duty. In fact, on day one he was going to abolish it altogether saying we did not need it.
I am delighted at the opportunity to make a brief contribution. I will not stray any wider than Deputy Gilmore has done. There are many favoured employees of financial institutions who get loans from the financial institution at no interest charge. There is a benefit-in-kind at which this financial resolution is directed. I do not think any of the employees of these financial institutions, many of whom live in the leafy suburbs of Deputy Gilmore's constituency, will complain too much about the increase of 1%. This applies not only to mortgage loans but ordinary loans that these people sometimes take out to buy cars. That is included here where the rate is increased from 11% to 12% as well as the increase from 3.5% to 4.5% for the mortgage.
In regard to home loans generally, the Deputy said stamp duty is a cruel deception. At all times the Minister for Finance, Deputy Cowen, has stated that this is not the time to raise the stamp duty issue.
Deputy Gilmore said that mortgage payments have increased by €500 per month which is equivalent to €6,000 per year. Interest rates have increased by approximately 1%. Therefore, he is talking about loans of €600,000. It is far from €600,000 that the people who reside in Deputy Rabbitte's constituency or mine would have mortgage payments.
The price of apartments, affordable housing and shared ownership housing for which my constituents borrow would not amount to an increase of €500 per month or anywhere near it. I commend the resolution to the House.
I wish to raise a point which the Minister might take on board. Recently I dealt with a case where a young couple in my constituency bought a site and built a house on it. They were put to the pin of their collar to do this on modest incomes. They received a significant bill for stamp duty on the site. As they did not build the house themselves because they needed to get a builder to build a house on the site, the site was subject to stamp duty. If they had claimed to have built the house themselves, it would have been exempt. In circumstances where young people who take the initiative to purchase a site and cause a house to be built, having the site liable to stamp duty is not much of an incentive.
Arising from Deputy Ardagh's intervention, when considering home loans the Government seems to consider that every action it might take to address the issue would cause inflation in house prices. I do not know what has been happening for the past ten years. To my mind that is what has been happening.
The Chair was wrong to allow Deputy Gilmore to develop the argument outside the scope of the resolution. Deputies Ardagh and Rabbitte then came in and now the Deputy is speaking. All those contributions have been outside the scope of the resolution.
—— and preferential home loans and the taxation element that levels the preferential options for those who have preferential loans as opposed to those who do not. There are countless variations of the intervention that could be taken that could have managed the market in such a way as to allow first-time house buyers to be able to compete in the marketplace like everybody else. We were able to do that when there was no money in the country.