Brian Cowen (Laois-Offaly, Fianna Fail)

To pick up on what Senator Mansergh stated, I have sought to be circumspect and I have not engaged in any speculation regarding the future of stamp duty and the role it plays in our taxation system for the obvious and valid reasons outlined by him in terms of the budgetary context of how all these matters are handled.

Now that it has been decided to put out this as a centrepiece of Fine Gael's taxation proposals in the next general election, I have no option but to respond on the merits or otherwise of these proposals. It is easy to identify the problem with it; the measures have not been thought through at all. People have built up significant equity. I will refer to pensions in due course. Many people have invested in property as part of their efforts to have pensions or increase their assets base. This proposal does not do anything to secure that. Quite the opposite is the case.

I contend that the ESRI will refer in its quarterly review, due out this week, to the fact that there is an issue here that is in the process of taking place through market conditions in an orderly market that needs to be settled on and to feed its way through in a manner conducive to a continued orderly and buoyant market. This is why I say intervening in this market in the way suggested in this proposal has all of the potential to destabilise the market. I do not suggest that is the intention of Fine Gael but that is the effect the measure would have. Many people at the forefront of this market who understand how it works, both in the economic field and in the industry itself, would confirm this.

If one puts oneself in the position of a person at whom this policy is directed, especially first-time buyers, one can understand why one would hold back. As has been said, these people are coming to the market with little or no equity and are depending on the financial institutions to enable them to get their first step on the property ladder. As has also been stated, the proposal seeks not only to reform the rates of stamp duty but the whole methodology by which it is calculated. Fine Gael has taken an expensive route and it is one which must be seriously examined.

The issue of pensions was raised, and I wish to comment on it although it is not germane to the amendment. We have decided to use the social partnership context as a means of resolving this issue. We must encourage people who in the past would not have made pension provisions because they did not have sufficient disposable income and who, having paid their social insurance, on retirement were dependent on a State pension that gave them some modicum of dignity and allowed them to hold body and soul together. A significant group of people were on such low incomes that supplementary provisions meant nothing to them because they did not have the disposable income to defer spending on essentials and to invest it in a pension for the future. We must address this.

Under the auspices of social partnership, we suggested we are prepared to develop an SSIA-type arrangement that might encourage people to invest in pensions. I refer to people who in the past did not consider supplementary pension provisions as being for them. We need to create a sufficiently attractive incentive so that people see the benefits of saving, in the same way the SSIA scheme brought home to hundreds of thousands of people the benefit of avoiding consumption of all one's resources in good times to provide for one's retirement years.

I have been proactive in this area in an attempt to be careful and calibrated and not give rise to adverse effects. It is a little unfair to suggest the doubling of the mortgage interest relief for first-time buyers was a minimalist move. Approximately 125,000 first-time buyers benefited from the improvements to mortgage interest relief in the budget. There is no specific information on the exact number of individuals who benefitted from the relieving changes in the 2005 budget. At that time, I increased the threshold from €127,000 to €317,500 to exempt first-time buyers from stamp duty in the second-hand market and to give them that choice. As far as one can gather, the number of first-time buyers who bought second-hand homes in 2005 was no greater than 16,000. My approach in the 2007 budget brought a benefit to ten times more people than simply changing the thresholds. When one changes the threshold, the impact will be felt by prospective buyers. It does not do anything for those already in the market having to buy at those buoyant prices. That was the wider social justice argument in favour of the doubling of the mortgage interest subsidy and that is the reason I went with it, although there were many campaigns going on in the media and elsewhere at the time suggesting I would do something else.

We must be careful about the best course of action in this case. I doubled the mortgage interest relief to ensure that in the first seven years first-time buyers are in the marketplace, that would cover the interest on a 33 year mortgage, at 4.75% for a mortgage in the region of approximately €320,000. That is a significant assistance to the payment of the interest. We are not paying back the principal also. That remains the responsibility of the purchaser but we are making a significant contribution. In that first seven years the interest on such a mortgage for a married couple would be covered up to €16,000 per year. That is significant. It was suggested that we had subsequent interest rate rises but the measure had a cushioning effect. I also increased the thresholds somewhat for those non first-time buyers in receipt of mortgage interest relief, and that too had a cushioning effect. One has to be careful as to how one intervenes, and these are the considerations and criteria one has to apply.

Regarding Senator Hayes's question, as Senator Mansergh said, the couple concerned appear to have been poorly advised. In determining the applicable rate of stamp duty, both the price of the house and its contents must be taken into account. Normally, price negotiations would address from the outset what was to be included in the price. It would be unusual for an add-on to the price to be introduced after a price has been agreed.

If the law did not require the full proceeds, including payment for contents to be taken into account in determining the stamp duty rate, there would be a strong incentive to over-value the contents to stay within a lower stamp duty rate. In determining the applicable rate of stamp duty, both the price of the house and the sale of contents are taken into account. That rate is then charged on the price paid in respect of the house only. The contents are excluded. What would happen is that they would pay the rate of the next threshold on €317,000, not on €320,000. It does not change the actual payment by much; that is just to be technically accurate about it. The contents are taken into account, therefore, in terms of whether the stamp duty is applicable but then one charges within the threshold value in respect of house only. The contents are not included in the computation of the tax.