Tuesday, 20 March 2007
Question 86: To ask the Minister for Finance if he is satisfied regarding the structure of stamp duty, which greatly amplifies the growth of revenue from house buyers at times of rising house prices; and if he will make a statement on the matter. [10436/07]
The Government is very aware of the importance of the construction sector to the economy, as evidenced by the large numbers working in the area and the sums that come from it in taxation. With the sector directly responsible for 13.5% of total employment, Government policy should be aimed at supporting an important driver of economic activity.
The provision of adequate numbers of new houses has been a key policy priority in recent years. We have seen numbers of house completions increase to over 93,000 in 2006, up from 52,000 in 2001. We are now at a stage where housing demand is beginning to match housing supply, and that is reflected in the market, with a significant slowdown in property inflation. That is clear evidence that our housing policy is working well.
The stamp duty code applies a single rate to the full value of the property, where the rate applicable depends on the value of the property concerned. Given the growing market of recent years, it is not surprising that the yield from stamp duty has increased. However, such growth cannot be taken for granted in future. However, as the Deputy is no doubt aware, no stamp duty is paid on the vast majority of new houses bought by first-time buyers and other owner-occupiers.
Consideration of ways to improve the structure of the tax would have to have regard, among other things, to simplicity and cost. For example, the estimated cost of introducing a system whereby stamp duty would be applied on a marginal basis for houses priced above the current exemption thresholds, based on the full year 2006 yield, is €553 million — that is, more than 42% of the yield on residential property.
In particular, the Government wants to assist those who are trying to buy their first home. That is why I increased the exemption and reduced stamp duty rates for first-time buyers in budget 2005 and why I increased mortgage interest relief for first-time buyers in budget 2007, with benefits to those about to purchase and those who had purchased in the last seven years. By making these changes, I was able to assist first-time buyers directly without impacting on the overall market conditions.
This must be a key consideration in the continuing evaluation of policy in this area given the vital importance of the construction sector to the economy.
Stamp duty is a significant contributor to the Exchequer, which helps fund public services such as health and education, while keeping the direct tax burden low, thereby facilitating continued economic success which is of benefit to all taxpayers. It has helped us to reduce taxes on work and enterprise with clear benefits for the economy as a whole.
Would the Minister agree that a tax which accelerates so rapidly as house prices rise, is inequitable because of its extraordinary structure? Is the Minister aware that the amount of stamp duty collected in 2006 was fourfold that collected in 2002? Is he also aware that in 2002 the stamp duty paid on a typical house was 4% and came to €9,000, while now, just four years later, the corresponding figure is 7.5% with the average person paying €29,000? Would the Minister agree that the structure of this sort of tax, with such a sharp acceleration in take from many young families is unfair? It needs to be reformed so that the tax is equitable in the way it is applied and is also proofed against this extraordinary rollercoaster of huge surges when house prices rise.
The Deputy will be aware that the stamp duty code has applied a single rate to the full value of the property where the rate applicable depends on the value of the property concerned. That has been the nature of the tax since its inception. While there have been increases in the yield of this tax in recent years as a result of increased property prices, that is not something we can factor into future revenue yields either from that tax or the general Revenue take. Nor can we expect that market conditions, which have softened in recent times, will be renewed with the increased price inflation that would result.
When considering how to improve structures of taxes such as this, one must have regard, among other issues, to simplicity and cost. If the threshold issue was applied to current rates, the full cost of it would be over €550 million or 42% of the yield on residential property. We have been able to reduce the direct tax burden on income, which means there has been an increased contribution from capital taxes and stamp duties as a result. This must also be borne in mind.
I would like to ask the Minister a straight question. Does he believe it is fair that the exemption limit for first-time buyers is now 40% below the average house price in Dublin? The exemption limit for second-time buyers — many of whom are families trading up from smaller homes — is just 23% of the average house price in the capital. In a tax code that is supposed to be fair, what is the meaning of exemption thresholds that are set so far below the price at which anyone can buy a house? Does the Minister not recognise that those sort of thresholds are unfair because they have been left there for so long without taking account of what has happened in the market in the intervening years?
I changed the thresholds in budget 2005, increasing them considerably in respect of first-time buyers of second-hand houses. According to data available to the Department of the Environment, Heritage and Local Government, in the first half of 2006, over 50% of houses purchased by first-time buyers of second-hand properties in Dublin were valued at under €317,500 and were not liable for stamp duty. Those are the figures up to mid-2006, but statistics for the third quarter are not yet available. In terms of total Revenue take, it is important to recognise the significant changes we have made in income taxation. The contribution these taxes make to the Exchequer must also be taken into account.