Dáil debates

Tuesday, 24 January 2023

Ceisteanna ar Sonraíodh Uain Dóibh - Priority Questions

Tax Reliefs

10:10 pm

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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62. To ask the Minister for Finance if he will consider the introduction of timely, targeted and temporary mortgage interest relief in the context of rising interest costs for mortgage borrowers; and if he will make a statement on the matter. [3328/23]

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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I welcome the Minister for Finance and the Minister of State to their first oral questions and wish them good luck in their new roles.

This question is about the reaction required to the European Central Bank, ECB's interest rate hikes. Interest rates have increased by 2.5%, with a further increase of approximately 1% unfortunately expected by the end of the year. These increases are taking time to work through the Irish system, but it is widely expected that they will do so in the coming months. Cohorts of borrowers have already been impacted by them and, therefore, I am asking the Minister to consider options for introducing a timely, targeted and temporary mortgage relief to support hard-pressed borrowers.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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I thank the Deputy for his good wishes and I look forward to working with him over the period ahead.

As the Deputy will be aware, the position is that the formulation and implementation of monetary policy in the eurozone and the setting of official interest rates is an independent matter for the ECB. The Government has no role in setting official interest rates, nor in setting the retail interest rates that lenders may charge on their loans, including mortgages. That is a business and commercial matter for individual lenders.

Regarding mortgage interest relief, and as the Deputy will be aware, the relief for principal private residences was phased out on a gradual basis over the period 2009 to 2020. The decision to abolish it was taken in the wake of the financial crisis, with the cost of the relief being one of the influencing factors. It cost more than €700 million in 2008. It should be noted that, prior to its curtailment and eventual abolition, the top two income deciles in 2005 accounted for close to half of the tax forgone through tax relief. This issue was highlighted in the findings of the 2009 Commission on Taxation report. The relief cost approximately €280 million in 2005.

While I am aware that there have been increases in certain mortgage rates by some lenders, it is important to point out that mortgage interest rates, in particular fixed interest rates, have fallen over the past number of years. For example, in December 2014, the average level of fixed interest rates for new lending was 4.11% compared with 2.48% in November 2022. The Irish average interest rate on new mortgages is now below the eurozone average. In November, Ireland had the third lowest mortgage rates in the eurozone. The differential between the Irish and average eurozone interest rates for new mortgages declined from 1.40% at the end 2021 to -0.27% in November.

I do not intend at this point to introduce mortgage interest relief, but we can have a back and forth on the substance of the issue.

Additional information not given on the floor of the House

The data also indicate that a significant portion of new mortgages - more than 93% in November - are now fixed rate mortgages and this will protect borrowers in the event of a rise in official and market interest rates at least for the period that the interest rate is fixed.

The introduction or reintroduction of mortgage interest relief for principal private residences may not be the best course of action to assist homeowners with rising interest rates. For example, there is additional scope for many borrowers, in particular variable rate mortgage borrowers who have built up equity in their homes, to look at alternative mortgage options and to reduce their mortgage costs. In addition, the reintroduction of the relief is likely to be costly. For example, if it was reintroduced and granted at the standard rate of income tax, my Department estimates that it could cost in the region of €560 million per annum. This tentative costing is based on the latest Central Bank data on primary dwelling mortgage accounts and the average interest rate. As the Deputy will appreciate, even the reintroduction of a more tailored or selective form of mortgage interest relief is likely to involve significant costs.

Finally, as he will be aware, the summer economic statement set out the fiscal parameters for budget 2023. A tax package of in excess of €1.1 billion was announced in budget 2023, which included a substantial income tax component. The budget also included a substantial cost of living package and a large range of one-off measures to assist households with cost-of-living pressures. I have no plans, therefore, to reintroduce mortgage interest relief at this time. It should also be noted that the recent report of the Commission on Taxation and Welfare put forward no case or recommendation for the reintroduction of relief for mortgage interest.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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It is disappointing that the Minister is ruling it out at this point because the full impact of interest rate hikes is yet to be felt, with retail banks still to pass them on fully through fixed and variable rates. Bank of Ireland has made announcements about its fixed rates.

It is widely expected that this position will change in the coming months. The picture is mixed. Nearly 250,000 borrowers are on tracker mortgages and are directly exposed to the ECB rate hikes. The average tracker rate stands at 4.63% compared with 1.15% last June and many tracker rate borrowers will see their mortgage repayments increase by thousands of euro this year. Some 44% of outstanding mortgages are on variable rates and are likely to see an immediate increase in mortgage interest costs when rates rise. For fixed rate mortgages, the fixation periods are relatively short, with borrowers refinancing at higher rates after a shorter period.

We have worked with the Parliamentary Budget Office.

Photo of Seán Ó FearghaílSeán Ó Fearghaíl (Ceann Comhairle; Kildare South, Ceann Comhairle)
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I thank the Deputy, but time is up.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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I will finish on this point. There is a tailored-----

Photo of Seán Ó FearghaílSeán Ó Fearghaíl (Ceann Comhairle; Kildare South, Ceann Comhairle)
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No. Time is up, I am afraid.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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I was just finishing my sentence.

Photo of Seán Ó FearghaílSeán Ó Fearghaíl (Ceann Comhairle; Kildare South, Ceann Comhairle)
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No.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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It was just one sentence.

Photo of Seán Ó FearghaílSeán Ó Fearghaíl (Ceann Comhairle; Kildare South, Ceann Comhairle)
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No. The Deputy's time is up. I call the Minister.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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Jesus Christ. It was just one more sentence.

Photo of Seán Ó FearghaílSeán Ó Fearghaíl (Ceann Comhairle; Kildare South, Ceann Comhairle)
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I am sorry, but you do not have to use unparliamentary language. The time-----

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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It was-----

Photo of Seán Ó FearghaílSeán Ó Fearghaíl (Ceann Comhairle; Kildare South, Ceann Comhairle)
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If you do not like the time that is allowed,-----

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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It is fine.

Photo of Seán Ó FearghaílSeán Ó Fearghaíl (Ceann Comhairle; Kildare South, Ceann Comhairle)
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-----change the time.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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I was in the middle of a sentence.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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The Deputy is correct to highlight the impact of changes in monetary policy on mortgage holders. They also have an impact on businesses and the sovereign. We have to consider all of these issues in the round. For example, we have to consider in the coming weeks a number of various taxation measures that are due to expire. I have no doubt that the Deputy will have certain views on those as well. He will raise at least one specific issue in that respect in one of his upcoming questions.

It must be acknowledged that, in Ireland, the trend for a long time has been for the level of mortgage arrears to fall consistently. This is welcome progress and is a reflection of the strength of the economy. It is also a reflection of the fact that interest rates have fallen. Rising interest rates have an immediate impact on tracker customers and many variable rate borrowers, but it should also be acknowledged-----

Photo of Seán Ó FearghaílSeán Ó Fearghaíl (Ceann Comhairle; Kildare South, Ceann Comhairle)
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I thank the Minister, but the time is up.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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-----that more than 90% of the new mortgages being issued are fixed rate in nature, so many of those who took up mortgages recently are protected.

Photo of Seán Ó FearghaílSeán Ó Fearghaíl (Ceann Comhairle; Kildare South, Ceann Comhairle)
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Deputy Doherty, please.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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I was just waiting for the Minister to finish, a Cheann Comhairle.

The Minister needs to acknowledge something about that last point. People on tracker mortgages were on a low rate for quite a sustained period, but they are now seeing their interest repayments increasing by thousands of euro. In some cases, they are increasing by €3,000 per annum. It is a significant increase. It would not matter if it were an electricity, gas or food bill; it is a bill that many families cannot meet. Approximately 100,000 who have had their mortgages sold on to vulture funds despite the Government's commitment that nothing would change are now paying interest rates of 7%.

What I was trying to say earlier was that we would like to submit a proposal on a tailored and time-based mortgage interest relief. It could use a reference rate of last June and a portion of the increase would be absorbed by the State. Mortgage interest hikes are a cost-of-living expense on individuals and, therefore, I encourage the Minister to consider our proposal.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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I have not seen Sinn Féin's proposal. I am sure it will be published, if it has not been already. If the Deputy wants to send it to me, I will take a look at it.

Targeting through mortgage interest relief is difficult. In my initial remarks, I referenced the way in which the distribution of the benefit of mortgage interest relief in the past was heavily skewed in favour of the highest income deciles. It was just the nature of how that relief worked. Of course, one could build in caps, limitations and so on, but the wider issue is that we have to deal with the cost-of-living crisis in the round. This means introducing a range of exceptional measures on the expenditure and taxation sides, as we did in the budget. The Government has imminent decisions to make in that regard.

All of these issues involve very large sums of public money, which we have to guard very carefully. We must consider all of the relevant facts and make decisions with the full information at our disposal.