Seanad debates

Tuesday, 14 December 2021

Finance Bill 2021: Committee and Remaining Stages

 

10:30 am

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael) | Oireachtas source

A whole variety of issues have been raised in this debate, from the taxation of REITs and IREFs to the issue of taxes on capital raised by Senator McDowell. I will say a word about each of the points I have heard.

I will begin with Senator McDowell's point regarding the level of transactions we have in our economy being influenced, in the first place, by the level of tax on those transactions, a point with which I agree. That is my opening point on where we stand with our housing market at present. I keep saying this every time we get into any debate about housing, but I absolutely appreciate the stress that is caused to many by what is happening with their rents, the worry so many have about their future and whether they will ever be able to buy their own home, and the insecurity that is being caused for many in our society who, despite their best efforts, worry that they will not be able to afford their rent in future or have a roof over their heads on which they are paying their own mortgage. With any issue that is so complex and causing such deep worry at present, unfortunately, the answers we are putting forward are ones that will make a difference over time. People, however, want a very quick response, they want homes to be built immediately and they want easy answers that are capable of delivering quick solutions. I understand why they want that, given the level of concern at present.

This brings me to the issue of REITs and IREFs and the role they play. I contend that their role has to be looked at in the context of the role the State is already playing. The largest builder of homes in our country at present is the State. This year, €4.1 billion has been invested in directly building or supporting the delivery of more homes. I will keep saying this again and again in this debate because I keep hearing the assertion that we have a housing policy that is led by the market. We have a housing policy in which the market plays a role. Those are two fundamentally different things. The areas of planning regulation, the Land Development Agency and local authorities, in particular, have not had more active building programmes for many years than those they currently have.

The examples of this are literally concrete. If the Leas-Chathaoirleach goes to Dominick Street, he will see the quality of the accommodation that is being built by Dublin City Council and people who have been waiting for a home for too long, which I accept, now moving into accommodation and apartments that are of extraordinary quality, as they should be.As a rich country, which we are, and with the national income growth we have had in recent years, we should be in a position to build local authority accommodation of that kind of quality. It is being built. We will have tenants moving into such accommodation soon, for example, the development at Sean Foster Place, just down the road from the King's Inns. Senator McDowell should look at the accommodation that is being built at the moment, which will be opened in March. It is state-of-the-art accommodation being built by Dublin City Council. Examples of that have been replicated all over the country by local authorities. After many years of difficulty, due to the aftermath of the previous crisis, they have had the levels of funding in recent years which is bearing fruit and reaping dividends in new homes being built. That is relevant to the discussion that we are about to have on REITs and IREFs because if we want to make the kind of progress year-on-year on housing that we must make, we need more supply. We need more homes to be built. It is an increasingly unfashionable argument to make, both here in the Seanad and elsewhere, that the private sector has a role to play in the delivery of those homes, but it does. The Government cannot build every home that every citizen wants at every price level they want. The private sector has a role to play in that. If we want more homes to be built, which I do, and I believe this House does, there is a role for the private sector in doing that.

That simple argument leads on to a complex point, which is what is the role of REITs and IREFs. An increasing number of people do not want them to play a role in the country. I ask them to consider whether we want savings from other parts of the world to play a role in the provision of homes in this country. Do we want pensions that are being built up in other parts of Europe and elsewhere in the world to play a role in the delivery of homes in our country? Do we want those who have saved money elsewhere to play a role in building more homes, especially more apartments? I believe the answer to that question is "Yes". The reason is that we are a small economy. Two banks have left the country. We have two banks of scale and a third bank that is trying to build up scale. We have a young and growing population. We need billions of euro of additional investment from the private sector every year in addition to the billions of euro that the State is providing to build more homes. They are complex and increasingly unfashionable arguments to make but we cannot wish away that reality. If we want more homes being built in the country, there is a role for private capital in doing that, and by private capital I mean savings that we make or savings that people make in other parts of the world that they want to be used in a productive way. If we, as a country, decide we do not want that capital, which is the argument that is being put forward by Sinn Féin, we should be under no illusion that if we decide to change the taxation structure of REITs and IREFs – I understand why that is an attractive argument – that is investment that simply will not come to Ireland. It is savings that will be used elsewhere. I believe that those savings have a role to play in the provision in particular of certain kinds of apartments in this country, especially in Dublin city, which in turn will have an important effect of increasing the overall supply and allowing existing housing stock to be used in a different way. That argument may be one that will take time to have an effect, but ultimately, I believe it is part of the answer to what is a very difficult and very complex set of dilemmas that we face in housing at the moment.

The argument that is then made, for example, by Senator Gavan this evening, is that REITs do not pay capital gains tax. He is partially correct in what he said, which is very typical of the arguments that Sinn Féin is making currently on many areas of public policy. It is the case that capital gains tax is not paid by a REIT when a gain is made, but of course where the tax is paid is when the income is distributed from a REIT or IREF, which is exactly the same way we tax pensions. We do not tax the gain that is made in a pension, we tax the gain when the income is distributed from a pension. For the record, when income is distributed from a REIT, a dividend withholding tax is paid on it of 25%. If an Irish investor receives that income, if the person is an individual, he or she must pay tax at the personal tax rate and a company must pay corporate tax on it. An international investor in an Irish REIT will pay tax on the income received from the REIT according to the tax paid in the investor's own jurisdiction. Tax is paid when the income is distributed. There is also a withholding tax in place for IREFs at 20%. That is where the tax is paid. Then again, depending on one's jurisdiction, one will then pay perhaps even additional tax on top of that. I know these are complex arguments in the face of arguments that say that REITs and IREFs should pay more tax or do not pay any tax at all, as some would assert, but that is where the tax is paid. There is a simple point at the heart of all of this complexity, and all of this technical language regarding withholding taxes, taxable events and what a REIT or IREF is, it is whether we want private capital to play a role alongside an active State in more homes being built in Ireland. I make the case in the Seanad this evening that the answer to that question is "Yes", because we are a small, open economy with a limited level of capital ourselves, with a young and growing population and we need more homes to meet our needs and, within that, the private sector has a role to play.

That is not to say that our housing policy is led by the private sector or that our housing policy equals the private sector. For those who make the claim that that is what the Government is doing, they should walk up Dominic Street and look at Sean Foster Place and what is happening at the moment. They should walk around Sean McDermott Street at the heart of my constituency and look at St. Mary's Mansions. I hear again this evening from the Opposition the condemnation of the role played, for example, by approved housing bodies, and leasing in the work of local authorities. They should look at the extraordinary renovations that have been made to St. Mary's Mansions in the heart of Sean McDermott Street. It is local authority accommodation that was run by Dublin City Council and it is now looked after by an approved housing body. Let them make the argument to the tenants who are now living in the apartments in a quality of accommodation that they deserve, that is far better than what they had a few years ago. The reality is that has now happened for them.

I make these arguments because there are consequences to the debate we are having. If we increasingly indicate as a country that we are unwilling to allow a role for private capital investment in either the provision of homes or jobs in this country, that will have consequences, but that is an argument that I am going to engage in and I am going to make the case here for a role for that kind of capital investment supported by the State, which has never invested more in housing and is determined to make a difference.

In response to the argument put forward by Senator McDowell, I must choose my words carefully in this regard, because if there is any area of taxation in which my words will be scrutinised, it is in regard to taxes on capital and capital transactions. I remind the House that we have a Finance Bill before the House that is not making any significant changes to the level of taxation on capital transactions. I wish to make one point to Senator McDowell on the argument he has brought forward. At the outset this evening, I said I believe there is a relationship between the tax you have in a transaction and the number of transactions that occur. However, we are in an economy that at the moment, for extraordinary reasons, is now experiencing many capacity constraints and shortages. Those relate to people to do work or to the kind of capacity an economy needs to ensure that if a transaction happens, it can be executed at normal and affordable prices. There is an economic cycle to the Senator's argument that bears consideration. One can ask whether we are at the right point in our economy at which changes in the level of taxation and transactions would have the kind of effect it did a number of years ago when the last big change was made. We are now in an environment in which rising prices and inflation are an increasingly important issue for us as we form economic policy for next year and beyond. There is an economic cycle dimension to the Senator's argument that I am sure the Senator understands and that is relevant to the argument he is putting forward.

For those reasons, I am not accepting the recommendations that are being put forward. The substantive recommendations that have been put forward here relate to the role of REITs and IREFs. The core contention I am making to the House this evening is we have an active State. It has never spent more. That which we must spend more on is how we deliver affordable homes. There is a role for the private sector in delivering homes and REITs and IREFs tell the rest of the world that we want their savings to play a role in increasing housing supply in Ireland. It is a difficult argument to make at the moment but not making it and potentially even losing it is a recipe for fewer homes to be built here in the future or asking the State to do even more. That itself is something we are willing to do, by the level of capital investment we have at the moment but no state can do everything when it comes to meeting the level of housing needs we have.

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