Seanad debates
Wednesday, 29 November 2006
Tax Code: Motion
5:00 pm
John Paul Phelan (Fine Gael)
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I move:
That Seanad Éireann calls on the Government to use the opportunity of the forthcoming budget to reform the existing stamp duty regime as a means of helping first-time buyers and those who have an existing house and are seeking to trade down into smaller properties.
I welcome the Minister of State at the Department of Foreign Affairs, Deputy Treacy, to the House for this important debate. I am disappointed, however, that neither the Minister for Finance nor the Minister of State at that Department are present.
It is my privilege to propose the Fine Gael motion on the stamp duty regime. I begin by expressing my surprise at the content of the Government's amendment. Our wide-ranging motion refers specifically to stamp duty with reference to first-time buyers and those wishing to trade down. The amendment put forward by the Government, however, focuses on income tax, with only one line referring to those wishing to purchase a home. I had hoped this debate would have afforded us the opportunity to discuss, a week before the budget, the differing views among Government and Opposition Members and also within Government on the subject of stamp duty. I am especially disappointed that the Government has tabled an amendment which has no relevance whatever to the motion being discussed.
I signalled last week during the debate on the Estimates that one of the main areas in which this Government has failed citizens is in property prices. The Government has been quick to claim in the past ten years that time began in 1997. In that year, however, one could buy a house in Dublin city for €88,000. Outside Dublin, the average price of a house in 1997 was approximately €70,000. These prices have increased by a multiple of five. The average price of a house in Dublin is now €424,000, while the national average is more than €310,000. A huge proportion of that increase goes to the Government in different forms of taxation, including stamp duty.
The way in which it has neglected those struggling to get on the property ladder is the greatest single indictment of the Government. Every action it has taken in this area during its time in office, whether the abolition of the first-time buyer's grant or its tinkering with stamp duty provisions some years ago, have had negative effects for those seeking to purchase their first home. As soon as the exemption threshold was changed to €317,500, for example, the cost of a two-bedroom house in Dublin increased beyond that level. It is clear that the Government's meddling in this sector of the economy has had disastrous consequences for those who wish to provide themselves with a home. Striving to ensure that citizens can do so should be a basic principle of any government.
The Government does not even succeed in getting its statistics rights in its amendment to the Fine Gael motion. The amendment congratulates the Government on ensuring that 80% of income tax earners pay tax at the lower rate. The statistics are at variance to this. Up to 31% of PAYE workers still continue to pay the top rate of income tax. The Government parties' amendment to the motion is factually wrong. Information garnered in a parliamentary question by one colleague in the other House proves this.
The Construction Industry Federation recently pointed out that in excess of 40% of the cost of a new home goes back to the Government in taxation in one form or another. This figure is continuing to grow despite words to the contrary from different Government spokespersons over the past several years. Frequently, first-time buyers find themselves with stamp duty bills in excess of €20,000. This year it was estimated that stamp duty would garner €2.7 billion for the Exchequer. The actual figure will work out at approximately €3 billion, €1 billion of which will come from residential stamp duty. Of this figure, just €44 million will come from first-time buyers.
In September the Tánaiste and Minister for Justice, Equality and Law Reform stated it was his belief that the Government does not need all the revenue earned from stamp duty by people moving from one home to another. That is correct. As we face into the budget, the Minister for Finance must consider removing first-time buyers from the stamp duty regime, particularly as they only contribute €44 million to the overall figure.
I am disappointed the Government parties put down this amendment, particularly as the Progressive Democrats has its own stance on this issue. I am disappointed the Progressive Democrats Senators will not support the Fine Gael motion which simply asks the Minister for Finance to review the position on stamp duty. Maybe I should not be surprised by the stance. A previous Progressive Democrats election manifesto stated there was a need to reform stamp duty. For five years, the party sat in Government but did nothing by way of positive reform of stamp duty.
The Government must examine how some of our EU neighbours handle stamp duty on residential property. In the United Kingdom, stamp duty stands at 3% for residential property under the value of STG£500,000 and 4% for property over that threshold. In other European countries, the rates are significantly lower. I ask the Minister for Finance to draft a similar stamp duty system to those of other European states.
The current rate of stamp duty is indefensible. Despite the efforts of the Government to ignore the issue, it will not go away. Stamp duty is a large impediment to those trying to get on the first rung of the property ladder. The Government must do its utmost in next week's budget to ensure this obstacle is significantly reduced if not entirely removed. I would welcome support from all Members for my motion.
Brian Hayes (Fine Gael)
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I second the motion. This has become a political issue since the Tánaiste and Minister for Justice, Equality and Law Reform put his two big feet in it in September. Having neatly shafted one of his party's most popular politicians — which made him the most unpopular party leader — he announced his views on stamp duty at a press conference after his alleged party think-in. The only problem was he had no real proposal for it. I suspect the idea came from cleverer sources in his party. Nonetheless, he has now backed himself into a corner. It was amplified by the muddle the Government parties were in last night and this morning over the motion. It is most unusual that a Private Members' motion, on the day it is to be debated, does not have an amendment on the Order Paper. This pathetic amendment from the Government parties only came on a Supplementary Order Paper this afternoon. Until 1 o'clock they were in a huddle deciding which way to go on the motion. Seven days before the budget and they do not have a position.
Martin Mansergh (Fianna Fail)
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Of course not. We are waiting for the budget.
Brian Hayes (Fine Gael)
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There is no comfort for them in this pathetic amendment.
I welcome the interest the Progressive Democrats has shown in this area. However, as Senator John Paul Phelan pointed doubt, after five years in Government it has done nothing in the area. The only change in the stamp duty regime was a paltry change for first-time buyers last year when the exemption limit was raised slightly. The Fine Gael Party had argued for this in three previous budget submissions. In many towns and cities, particularly the Dublin area, people buying average-priced houses must pay up to €70,000 on stamp duty. It is hurting hard and makes a difference in people's ability to buy a house.
The Tánaiste and Minister for Justice, Equality and Law Reform broke from collective Cabinet responsibility in September yet still there is no official Progressive Democrats stance on this, only a vague notion. The Government, at sixes and sevens on the issue due to his remarks, needs to get its act together.
It will make a difference. Politicians tampering with stamp duty may only have the effect of raising house prices again. There is some evidence that the Dublin auction market has stalled since the Tánaiste made his Homer Simpson-like remarks. Many people have told me they will not buy or sell until the matter of stamp duty is clarified in the upcoming budget. The most unpopular leader in politics makes his remarks and the housing market goes at a neutral pace for four months while we wait and see what crumb of comfort he can get in the budget. That is an astonishing act of collective responsibility by the Government.
It is still a ridiculous proposition for the Government to argue that first-time buyers should pay stamp duty at 3% on the price of a property over €317,500. There is a good case for the abolition of stamp duty for first-time buyers of both new and second-hand properties, particularly as 10% of the cost of a property, in some cases up to €50,000, must come put up-front. If the house is over the value of €317,500, already a low price for a house in Dublin, a first-time buyer will be hammered with stamp duty. There is a good case to be made for the abolition of stamp duty for first-time buyers because of the particular difficulties they face in the housing market. My party has long held the view that there is also a good case for older people in large houses who want to trade down. Some choose not to sell because they do not want to pay tax but might do so if they were not charged stamp duty. The Government should consider this because it would free up more four or five bedroom houses in which people in their sixties may be living alone or with partners. That is a sensible and socially desirable action which could have the effect of releasing more large houses onto the urban market.
A bigger problem is the time when people must pay stamp duty. It is outrageous that as soon as the price of one's property reaches a certain level one is levied at that rate for the entire cost of the property. By contrast in Britain there are two rates, applying above and below a certain price level. People here decide not to trade up because of the significant tax that will be imposed if they choose to further themselves and their families by buying a bigger house. The Tánaiste claims we do not need the almost €3 billion raised by this duty. Why then do we not use it in a way that would make a difference as some of these proposals do?
This Government and its predecessor have made some pathetic interventions in the past nine years that have made no difference to the housing market, except by their ineptitude which has made the situation worse. What difference did that great guru, Dr. Bacon, make with all his famous reports connected to the economic doctrine of Fianna Fáil?
I hope the Government takes the opportunity of next week's budget to do something in a sparing and sensible way that makes a difference as against increasing the price of property even more. The Tánaiste will then hopefully learn the lesson of his rant and rather silly remarks last September and those to which he should have listened sooner.
Martin Mansergh (Fianna Fail)
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I move amendment No. 1:
To delete all words after "Seanad Éireann" and substitute the following:
"notes the very significant improvements in the Irish tax system under the current Government, including:
increasing the number of income earners who are now out of the tax net from 380,000 ten years ago to 776,000 now;
exempting those on the minimum wage from tax;
reducing from 20% to 8% the tax burden for the married one-earner on the average wage. While the annual gross income has increased by €12,000, the tax bill has fallen by €1,500;
ensuring the four-fifths of earners pay no more than one-fifth of their earnings in income tax; and
reducing the tax rates under most tax heads while ensuring that tax yield continued to rise due to extra economic activity accompanying the policy, and calls on the Minister for Finance to continue the reform of the tax system, having regard to the competitiveness of the economy and the equity of the system and asks that the Minister bears in mind the situation of house purchasers and the housing market in framing his Budget."
I welcome this discussion, which can be only a discussion because any budgetary decisions will be taken in a week's time and the Government does not have a substantive position on tax matters a week before the budget. Senator John Paul Phelan tried to make the case that every change made in the past ten years made matters only worse. The moral of that would seem to be to leave things exactly as they are.
James Bannon (Fine Gael)
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The Government could at least fulfil its promises.
Martin Mansergh (Fianna Fail)
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Can Senator John Paul Phelan seriously suggest that the Government was wrong for example——
John Paul Phelan (Fine Gael)
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To get rid of the first-time buyer's grant, I absolutely agree.
Martin Mansergh (Fianna Fail)
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——to make an exemption for second hand houses? I disagree. There are wider economic factors at work. Contrary to what the Senator says the rest is relevant. A budget must be considered and the entire Government needs revenue. Economic commentators have said that construction and housing are in a bubble and one cannot rely on the revenues from them.
John Paul Phelan (Fine Gael)
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About what is Senator Mansergh talking?
Martin Mansergh (Fianna Fail)
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Effectively the argument is that we should make permanent cuts to the tax base despite that.
John Paul Phelan (Fine Gael)
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If the Government cannot rely on cuts——
Martin Mansergh (Fianna Fail)
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A submission by the Construction Industry Federation which calls for the abolition of stamp duty on new homes is relevant.
Martin Mansergh (Fianna Fail)
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It cites an estimated cost of approximately €300 million; numbers benefiting "not available". That is very eloquent because if one were to abolish the duty on first homes the Construction Industry Federation might well be the sole and entire beneficiary, and that might be why numbers are not available.
The motion proposes a simplistic solution but one must consider its effect and who will be the real beneficiaries. The same applied to mortgage interest relief. There are no property taxes here, bar capital acquisitions tax and so on. In Britain there is an annual council tax of approximately €1,500 which would add up to a significant sum over ten years, let alone a lifetime. Homes are not exempt from capital acquisition tax when they are handed on to families. If they are valued at £300,000 or more one pays tax. I do not hear any proposals from the Opposition for a property tax here.
I note Senator Ross is here but unfortunately I do not have the benefit of having heard his contribution.
Shane Ross (Independent)
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Senator Mansergh would attack it anyway.
Martin Mansergh (Fianna Fail)
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There was a motion tabled in his name last week about how inflation should be the overriding consideration. I question the radical measures advocated by, among others, the main part of the paper of which he is not the business editor. I wonder what would be the inflation effects of doing that.
I also question the equity in the suggestion that older people should not pay tax on the transfer of their homes. Older people have seen a major appreciation in the value of their homes. Fine Gael suggests that in addition to a major capital gain on the sale of their homes they should not have to pay stamp duty on downsizing.
John Paul Phelan (Fine Gael)
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The Senator should read the motion. It does not suggest that.
Martin Mansergh (Fianna Fail)
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The rise in house prices is already a serious problem for intergenerational equity and this measure would make it worse. As the Government amendment makes clear——
Martin Mansergh (Fianna Fail)
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We have produced in general a relatively low tax economy. The point on income tax, in case Senator John Paul Phelan missed it, is what the effective tax rate is. If one is self-employed or a farmer the Revenue Commissioners tell one what the effective tax rate is. That is quite different from what one might pay on a marginal part of one's income.
There are two bottom lines.
Martin Mansergh (Fianna Fail)
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One is that we must be careful not to do anything that would give yet another spurt to an unsustainable rise in prices in the long term. A record number of houses will have been constructed this year, approximately 85,000. If we give more concessions will we just add to house price inflation and who will benefit from that, the purchaser or the developer? The second point is important at a time when there are so many demands to improve services. I heard this morning, for example, about the amount of investment that is required to improve care in private nursing homes. The same is true of many other areas. We still have a debt of €36 billion. The idea that the Government does not need revenue is——
John Paul Phelan (Fine Gael)
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That is what the Tánaiste stated in September.
Paddy Burke (Fine Gael)
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Senator Mansergh should be allowed to speak without interruption.
Martin Mansergh (Fianna Fail)
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To be fair to the Tánaiste, he was speaking as leader of the Progressive Democrats Party. He was referring to Progressive Democrats policy——
John Paul Phelan (Fine Gael)
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He has separated himself into two people.
Paddy Burke (Fine Gael)
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Senator Mansergh should be allowed to speak without interruption.
Martin Mansergh (Fianna Fail)
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——going into the next general election. He made that clear in subsequent comments. He is quite entitled to have his view.
Martin Mansergh (Fianna Fail)
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I am concerned that the revenues of the State would be protected. I accept that one of the inequities in the current stamp duty regime is the sudden step change. When one goes over a particular threshold, one then pays that higher rate or starts paying on the entire amount. In an ideal world that is not particularly equitable and ways and means should be found to address it when the opportunity arises.
James Bannon (Fine Gael)
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The Minister has had ten years to do something about it.
Martin Mansergh (Fianna Fail)
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The question is whether the best time to do it is when one has record numbers of house purchases. One of the achievements of the Government is the significant increase in the supply of housing by 85,000 units. I do not know the figure for 1997 off the top of my head but I suspect it was something like half of that number. The population is rising sharply. I do not deny the problems faced by first-time buyers but I am concerned that the solutions would help them rather than, as Senator John Paul Phelan so eloquently put it, the Government's meddling making matters worse.
I am pleased we are discussing this subject. I suspect if changes are to be made, either now or in the future — we are not just talking about a once-off change in the next budget — it is a matter for ongoing review and the decisions need to be taken carefully and not made in a sweeping manner.
Shane Ross (Independent)
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The members of the Fianna Fáil Party must wake up every morning and say, "Thank God for Senator Mansergh."
Noel Treacy (Galway East, Fianna Fail)
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We thank God every morning for giving us another outstanding Member.
Shane Ross (Independent)
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It appears to me that nobody has walked the intellectual tightrope better than Senator Mansergh did this afternoon. Set the task of defending what is after all pretty well indefensible, he resorted to that great trick of attacking a speech that has not yet been made and, unlike others in the House, is not scripted, so it is difficult to anticipate, and defended a budget that has not been decided upon. I congratulate him on having done a masterly job.
He referred, as is absolutely his right, in vague, broad principles about what could be done. He went a bit further than the amendment to the motion, which I agree with Senator John Paul Phelan is pretty laughable and refuses to tackle the issue. That will be the conspicuous characteristic of those speeches we will hear from the Government benches. The Government side is at sixes and sevens on this issue. They do not know what they think about it and probably have not decided yet. As Senator Brian Hayes stated, this is a massively politicised issue at this stage.
To be fair to the Government, this is a massively complicated issue. The abolition of or reduction in stamp duty is not a simple issue. It is not easy to work out what would happen in certain circumstances. In fact, nobody knows the answer to that question. However, certain things should be acknowledged. The Fine Gael attempt to tackle this issue in an imaginative way is to be applauded. This is a complicated issue and arguments exist — which have not been made by the Government side because they are frightened of making them, as they do not know what their Minister will do next week and it would leave them flat-footed if they did — to the effect that the abolition of stamp duty would hand the amount forgone to developers.
There is also scope for a great deal of imaginative tax reform in this area which might help first-time buyers. I do not know what would be the effect of the abolition of stamp duty but let us be honest and say that, one way or the other, we are looking for a subsidy for first-time buyers. I have no problem with that. Worse people get subsidies than young people who badly need their first house. I see no point in denying this. We are saying let us take this cost away from them one way or the other without giving it to the developer. That is the honest truth of what we are asking.
The Government does not appear to have the scope or the imagination to do that at present. We are only talking about first-time buyers at this juncture. They are the most afflicted and the ones who most need to get on the property ladder. If first-time buyers are not made to pay this stamp duty, the cost to the Exchequer is only €70 million. That is a pittance. I recall Senator Mansergh previously referring to €180 million as being a pittance. We are only talking about €70 million here. That is nearly a third of what he dismissed as so little in the past.
Shane Ross (Independent)
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I will give Senator Mansergh something constructive to say if I keep going. We are talking about a tiny amount of money to be saved by a large number of people who badly need houses. Quite honestly, I do not care if this comes about through the abolition of stamp duty, mortgage relief or by injecting that money straight into people's pockets. This is a justifiable cause and a justifiable expense. Other than for first-time buyers, stamp duty should be a different kettle of fish.
Senator Mansergh acknowledged one awful inequity — the graded form of stamp duty whereby one pays the full amount rather than paying the steps up. One goes from 3% to 6% to 9% and then one pays 9% on the whole lot at a reasonably low level. That is pretty inequitable. However, I do not think it is inequitable for old people to be exempt from paying stamp duty on the new houses they buy if they trade down. The reason for this is twofold. It is quite ingenious on the part of the Fine Gael Party to come up with this idea. First, it would save old people a certain amount of money but, second, it would get some mobility going in certain areas where old single people occupy large houses and young people with families occupy small houses. It is as simple as that.
We live in a dysfunctional environment. It would be simple to have a system whereby a person could sell his or her house without paying any capital gains tax if he or she lived in it, move into a smaller house and pay no tax on the move. People would begin to move, which would allow younger people with families move into larger houses. In north Dublin and probably in other areas of which I am unaware, there are many old people hanging on in large houses feeling paralysed about moving at their old age because they do not want to spend that 9% or perhaps less on stamp duty and removals.
That is an imaginative proposal the Government could happily take up and it could also take up the same proposal for disabled people. It would not cost much and would obviously have a beneficial social effect. It is not beyond the imagination of anybody in the Government to devise a means whereby a removal of the stamp duty would not go straight into the hands of the developer. That should be done quickly, in fact, it should be done in next week's budget. I note Senator Mansergh did not have the mandate to come out and say it would not be done.
Martin Mansergh (Fianna Fail)
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That is right. The Senator has been around long enough to know that.
Shane Ross (Independent)
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The Senator had to waffle. Every word of what the Senator said was waffle. Not a single word of it was anything but waffle.
Martin Mansergh (Fianna Fail)
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Where is the slightest evidence that old people are deterred from selling their houses? The Senator is waffling.
Paddy Burke (Fine Gael)
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Senator Ross without interruption, please.
John Paul Phelan (Fine Gael)
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I thought only Senator Bannon could upset Senator Ross.
Shane Ross (Independent)
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Is there a doctor in the House? There are problems other than stamp duty in the housing market. When Senator Mansergh said there was no property capital tax in the housing market he was wrong. Property tax and capital gains tax applies to anybody who owns a second house. Anybody who sells a house on more than one acre has to pay capital gains tax.
Martin Mansergh (Fianna Fail)
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I was talking about a single property, not multiple property owners, for God's sake.
Shane Ross (Independent)
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The Senator should have said so. It would have been a fact rather than waffle.
Martin Mansergh (Fianna Fail)
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There is not much substance in the Senator's speech.
Paddy Burke (Fine Gael)
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Senator Ross without interruption, please.
Martin Mansergh (Fianna Fail)
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Will the Leas-Chathaoirleach tell the Senator to address the Chair?
Shane Ross (Independent)
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When Senator Mansergh does not tell us what he is talking about until afterwards, it is very difficult for us to know to what he is referring.
Martin Mansergh (Fianna Fail)
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It is perfectly clear from the context.
Shane Ross (Independent)
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It is kind of him to interrupt anyway.
There are one or two other problems in this market which should be highlighted. The problems of moving are huge for people, not for first-time buyers. If one moves from a €1 million house which is not exorbitant any more, one pays auctioneers fees of probably 2%, approximately €20,000, and solicitor's fees of €10,000. If one moves into an equivalent house it will cost one €90,000 in stamp duty plus the fees. Therefore, the actual cost of movement in the market is approximately 15%. What does one expect to happen with these costs? One expects a certain amount of paralysis and that is what is happening in the market. As pointed out by Senator John Paul Phelan, rather than moving, people are building small or vast extensions for €45,000 or €50,000 rather than paying the extra stamp duty of €40,000 or €50,000, which means mobility in the housing market is paralysed as well. People are prohibited and obstructed from moving by this tax. There is a very good case which the Government will recognise next week but which Senator Mansergh did not recognise today——
Shane Ross (Independent)
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That is why the Senator said nothing. There is a very good case for removing the stamp duty or changing it in such a way that there is more mobility in the market.
John Minihan (Progressive Democrats)
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I welcome the Minister of State and his officials to the House and congratulate the Fine Gael Party, despite its pointless call to hear the budget a week early, for continuing to belatedly row in behind the Progressive Democrats and call for stamp duty reform.
John Paul Phelan (Fine Gael)
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We live in hope. The Progressive Democrats rowed out.
John Minihan (Progressive Democrats)
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Proposals on stamp duty reform were put forward by the Progressive Democrats, and other parties, despite their initial jitters on the subject, have entered the debate. Following our considerations in September, stamp duty reform became an issue of political prominence and reductions in tax for low to middle income earners remain a priority for my party as we prepare for the next general election. The choice for voters after the next general election is clearly between a coalition involving the Progressive Democrats which is committed to tax reductions or a coalition which, at best, is committed to keeping income and corporation tax at current levels.
We have focused some attention on the effects of stamp duty on principal primary residence and, particularly, its effect on couples with children seeking to move home. Among the solutions we discussed were the abolition of stamp duty for moving home, a reduction in stamp duty rates, the banding of stamp duty rates across the rates and the option of allowing stamp duty to be paid over the lifetime of the mortgage. We recognised and articulated our contention that stamp duty is an issue of huge concern for thousands of home owners and would-be home owners throughout the country. Furthermore, the Progressive Democrats stated our belief that there is scope for significant adjustment to the stamp duty regime as it pertains to home owners. We stated clearly our intention to address the issue in our election manifesto which will be published early next year. This stance is totally in keeping with a party that has always advocated a fair taxation policy. We must accept that a fair taxation system is not only more just but more successful because with fairness comes compliance and a greater revenue for expenditure on social provision. I am delighted the parties opposite agree with out taxation policies and concur with our policy for a review of the stamp duty regime.
John Minihan (Progressive Democrats)
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It is somewhat confusing as to who agrees with who on what changes should be made. According to Senator Mansergh in a recent debate on the Estimates, it appears that Fianna Fáil agrees with the Labour Party's suggestion.
John Minihan (Progressive Democrats)
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Not for the first time, the Green Party agrees with nobody and nobody seems to agree it. Nobody understands the Shavian proposals and perhaps not even itself. How galling it must be for Fine Gael to find itself agreeing with the policy of the Progressive Democrats, although it may be late in the day.
John Minihan (Progressive Democrats)
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I welcome its motion if for no reason——
James Bannon (Fine Gael)
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Is the Senator supporting the motion?
John Minihan (Progressive Democrats)
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——other than it supports my party's initiative for the reform of stamp duty.
James Bannon (Fine Gael)
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If the Senator agrees with Fine Gael——
John Minihan (Progressive Democrats)
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Perhaps the Senator would listen. The Senator spoke to the amendment. If he had spoken to the motion he might have had some chance of knowing what he was talking about. What is also interesting about the Fine Gael motion is that given all the recent policy kite-flying it chose a Progressive Democrat policy as the subject of its Private Members' motion. Imitation, no matter how pale, is the sincerest form of flattery. It is interesting the House is not considering a motion on sending bold boys into the Army, rewarding good boys with laptops or what to do with teachers who fail their five-year assessment. Perhaps they will put them into the Army or give them laptops to further their education.
On a more serious point in regard to the timing of change to stamp duty, Fine Gael should know the timeline of the budgetary process follows a strict convention and tradition and it is a sad that Fine Gael seeks to break this. I remind Fine Gael that the budget is on Wednesday next, 6 December. No responsible Government would or should announce the contents of a budget in advance.
John Paul Phelan (Fine Gael)
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We did not seek the contents of the budget in any shape or form. That is complete rubbish. That would a red herring.
John Minihan (Progressive Democrats)
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It would be inappropriate for any Government to——
John Paul Phelan (Fine Gael)
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I did not think the Senator was supposed to read from script.
John Minihan (Progressive Democrats)
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——in some way drip-feed the contents of a budget in response to a series of Private Members' motions.
John Paul Phelan (Fine Gael)
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What is the position with regard to scripts in the House?
John Paul Phelan (Fine Gael)
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On a point of order, can the Chair explain the position in regard to scripts?
Paddy Burke (Fine Gael)
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Senator Phelan, you can refer to a script.
John Minihan (Progressive Democrats)
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All parties should agree, as they all now agree, that there is a need for reform of stamp duty——
John Minihan (Progressive Democrats)
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——and following the lead of the Progressive Democrats in this regard, despite the initial derisory remarks from the Fine Gael Party and other parties, they have suddenly woken up to the dawn chorus and support our calls.
John Minihan (Progressive Democrats)
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On the broader issue, raising interest rates has resulted in a slowing down of the housing market.
John Paul Phelan (Fine Gael)
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After ten years the Progressive Democrats Party is talking about stamp duty. It has a brass neck.
John Minihan (Progressive Democrats)
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A levelling of prices is of course good. However, there is a difference between a levelling of prices and uncertainty.
John Paul Phelan (Fine Gael)
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Which was created by the Tánaiste in September following his comments on stamp duty.
John Minihan (Progressive Democrats)
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The country needs stable price and equilibrium between demand and supply.
John Paul Phelan (Fine Gael)
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The Senator should say that to his leader.
John Minihan (Progressive Democrats)
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I am saying it on the record of the House, if the Senator would only listen.
John Paul Phelan (Fine Gael)
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The Senator might say it to him at his parliamentary party meeting.
John Minihan (Progressive Democrats)
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The Senator is welcome to attend. It is interesting that the print media responded more quickly to the stamp duty issue than did many politicians. The Sunday Independent contributed to the debate by identifying options and monitoring public opinion. I strongly support the need for reform and changes in the application of stamp duty as set out by my party some months ago. Such change should be confined to the residential property area and in particular to first-time buyers and couples trading up as well as some trading down via the application of the bands. For example, application on a tiered basis could reduce the stamp duty paid by up to 50%. Whatever changes occur we must ensure the benefit does not simply pass on to the developer but clearly goes to home buyers who plan to occupy the house purchased. Changes must be considered, targeted and effective, delivering benefits to those who currently bear the greatest burden.
The Progressive Democrats were the first to advocate change in the stamp duty regime and we are committed to it. Political and public opinion supports the change. In the lead-up to the budget and the subsequent Finance Bill there will always be second-guessing of the Government's intentions. The Government must consider all its options and what decision it makes must be in the interest of the economy as a whole, including the stabilisation of the housing market. That is the responsible and correct approach.
Derek McDowell (Labour)
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I do not support wholesale across-the-board reductions in stamp duty. I am proud to be a tax-and-spend social democrat. In order to improve social services we need to spend public money. To pretend that we could greatly reduce the rates of stamp duty would be hypocrisy on my part. In the context of the housing market, an overall reduction putting extra money in everybody's pockets would be a very serious mistake. If we give people greater capacity to bid up the price, they will bid the price up to the benefit of developers. Therefore we cannot do this in an across-the-board fashion. In fairness the motion does not ask us to do that and therefore we can support it. The motion specifically asks for assistance for first-time buyers. Nobody in either House would dispute that first-time buyers are finding it pretty difficult as matters stand.
I used to represent a part of Dublin where the problem is particularly acute — a part of Dublin with which Senator Mansergh has a greater acquaintance than he had some time ago. I believe I met someone known to him in my locality. It is now virtually impossible for anybody born and living in Dublin North-Central to stay there and buy a house of their own unless they earn approximately three times the average industrial wage. Not many people seeking to buy their first house earn such money. While it is possible to buy some apartments, very few of those are available. As a result large numbers of young people from my part of the city are required to go to the commuter counties of Kildare, Meath, Westmeath and Louth.
Some interesting academic research shows that many of them are quite happy when they get there. They put down roots, and their children go to school and happily grow up in Ratoath, Ashbourne and other places. However, considerable research suggests that some of them are anything but happy. They are displaced from family and friends. They are involved in long commutes to work and to social settings to meet their friends. They leave dormitory towns where virtually nothing happens during the day and they hate it. This is causing real social resentment among people I meet on a day-to-day basis. I am sure other Members of the House have had similar experiences. We need to do something to assist those people in particular to get into the housing market and buy their first houses.
I do not agree with the CIF proposal to exempt all houses for first-time buyers, which would be ludicrous. Those in a position to spend €500,000 on a house are in a position to pay some stamp duty. However, scope clearly exists to increase the thresholds or to take a number of other measures, some of which have been outlined by my party's finance spokesperson in the other House, Deputy Burton, in recent days. The measures must be targeted specifically at first-time buyers.
I wish to make some points that others have not made. There are abuses in the stamp duty regime, avoidance measures being taken by developers in particular, which must be drummed out. I mention two such measures. There is a scam whereby developers, without taking legal title to the property, effectively procure a conveyance of land straight from the landowner to the house purchaser. They do this in effect by getting a licence to build rather than taking conveyance of the land. The result is that the developer, who in effect is the beneficial owner of a property worth many millions of euro, is paying no stamp duty on it. I know the Minister has undertaken to review the issue and we need a result fairly quickly.
Another scam is one whereby rather than transferring the land, in effect the shares of a company that owns the land are transferred and capital duty at 1% is paid rather than stamp duty at 9%. Although this scam is not widely known, it is of a kind that causes enormous resentment. Ordinary purchasers are required to pay 9% on properties worth more than €635,000 and large companies, developers or wealthy individuals pay nothing or perhaps 1% on properties worth many millions of euro. It is a classic example of one law for the rich and one law for the not so rich. I hope the Minister is seriously considering these abuses and will rectify them.
My party's spokesperson on the environment in the other House is committed to doing something on mortgage interest relief in the event that we are in a position to do so. An argument exists in favour of giving a particular benefit to first-time buyers. I am not in favour of an overall increase in mortgage interest relief for everybody, as it would not help greatly. However, we should benefit first-time buyers in particular, perhaps by permitting them to get mortgage interest relief on all their borrowings and giving relief at the higher rate of tax for everyone concerned.
While my party has no proposal on the matter, as someone who used to act as a conveyancer on occasion and still does the odd bit, I am conscious that the band system is inequitable, as all other speakers have said. In the longer term it needs to be reviewed. I do not suggest that we should reduce the income to the State in doing so. Owing to the jamming effects it has on the market at the pinch points, it should be reformed in any event.
The motion also mentions trading down. I am at risk of what Senator Ross would call waffling. I can see both sides of the argument. Plenty of people living in my part of the city are sitting on properties that are worth a considerable amount of money and in most cases, I suspect, they are mortgage free. It would be desirable for them to dispose of those properties and move to smaller properties. However, I have some sympathy with the view articulated by Senator Mansergh that there is little evidence that the stamp duty liability is stopping them from moving. I suspect that in many cases they are staying in their own home because they think of it as their home as it has been for 50 years and they do not particularly want to move. I am not persuaded — although I could be persuaded if my Fine Gael colleagues could manage it — that we should move on that issue. My instinctive reaction is the same as that of Senator Mansergh. I am not sure the blockage is where it is suggested. However, I am open to be persuaded by Fine Gael colleagues in that regard.
Martin Mansergh (Fianna Fail)
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Having regard to the election pact.
6:00 pm
Derek McDowell (Labour)
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That might have something to do with it.
We need to do this in a focused way and know what are our objectives. There is a danger — we have witnessed some of it this evening — that it will become a debate between political parties as to who can say the most populist thing. In that context, we must be conscious of two issues. First, we must recognise that the housing market is very responsive to what we and our betters in the Lower House say in a way that most other sectors are not and, second, we must accept there is a cost involved. As officials of the Department of Finance once informed me, this is a nice little earner and it is not necessarily a tax revenue that is guaranteed into the future. Unlike the position in respect of income tax, which we can reasonably expect to be always on the increase in terms of revenue accruing to the State, it is likely that, at some stage in the future, there will be a slowdown in the housing market and that the take from stamp duty will be significantly reduced. I do not believe we can afford to be as cavalier in respect of revenue to the State as we might, perhaps, be tempted to be in the months immediately preceding an election.
Michael Kitt (Fianna Fail)
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I welcome the opportunity to contribute to this welcome debate.
There has been a great deal of comment on stamp duty from different political parties and individuals in recent months in the context of the forthcoming budget on 6 December. Fianna Fáil has made much progress in respect of stamp duty. In 2001, there was a zero rate of stamp duty on houses with a value of up to €190,500. In the budget of December 2005, this rate was extended to properties with a value of up to €317,500. Those are positive and welcome developments and there will be other opportunities — whether in the budget or in next year's Finance Bill — to introduce more changes in respect of stamp duty.
There has been somewhat of a dip in the cost of houses in recent weeks. However, there remains a shortage of properties. People have borrowed large amounts to purchase homes and they are obviously keen to discover the position vis-À-vis stamp duty. In preparing to contribute to the debate, I came across a number of figures relating to those who either are or are not first-time buyers. For example, on a €600,000 property the stamp duty might be €36,000 for a first-time buyer and it could be €45,000 if the person is not a first-time buyer. Those are large amounts to be obliged to pay in tax, and we must acknowledge that stamp duty is a tax.
I become most annoyed when people begin discussing the average cost of houses. Some of these averages are nonsense. Certain properties in Dublin change hands for a few million euro, while many houses in rural areas are reasonable and affordable. As the Minister of State and the Leas-Chathaoirleach are aware, one of the advantages of living in the west is that houses are not as expensive as elsewhere.
Senators Ross, McDowell and others referred to a certain type of abuse that exists in the property market. There is a great deal of hype about certain properties. One matter about which I am upset and in respect of which the Government should take action is the concept of buying off the plans and selling on. A number of people approached me about this matter in recent weeks. Some of them were concerned that because they were buying houses which, effectively, were second-hand properties, they might be obliged to pay stamp duty. However, I explained the situation and informed them that they could have bought two properties and still remained under the €317,500 limit. There is a great deal of questionable behaviour in respect of this matter and it should be investigated.
I sympathise with Senator John Paul Phelan in respect of people trading down. In my opinion, there should be greater mobility. I do not know, however, whether the latter would be the effect of trading down. This is not rocket science. The late Eamon de Valera referred to this matter in his own way when he spoke about very large families in the west.
John Paul Phelan (Fine Gael)
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I did not think Dev would be invoked in respect of a debate on stamp duty.
Michael Kitt (Fianna Fail)
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In the event that Senator John Paul Phelan is not aware of it, the late former President and Taoiseach, Eamon de Valera, spoke about a family's house — it would probably have been big because there would have been many children — being left to the oldest child and a smaller house built alongside it into which the parents could move. That was a type of mobility and trading down. This is why I have some sympathy for Senator John Paul Phelan. It is difficult to know whether what the Senator said will happen. Older people are naturally attached to their homes, localities and communities and there may not be a massive amount of mobility. However, it is important there is a degree of mobility.
I was interested in an article Moore McDowell wrote in respect of a Fine Gael proposal on introducing a new form of SSIA to assist first-time buyers. This is a good idea because the entire SSIA concept has been extremely successful and people's SSIAs will mature this year and next. I am concerned, however, that this might emerge as being similar to what happened in respect of the first-time buyer's grant where, unfortunately, developers added on a commensurate amount to the price of houses. That did not help young people——
Michael Kitt (Fianna Fail)
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——who were buying or building houses for the first time and the grant did not prove to be of great benefit to them.
John Paul Phelan (Fine Gael)
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That is nonsense. It is absolute rubbish.
Michael Kitt (Fianna Fail)
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Mortgage relief is probably a better way to help people who borrow substantial amounts. If a scheme similar to that relating to SSIAs were introduced in respect of first-time buyers, it would certainly help them to save money.
Many prophets of doom stated that when SSIAs matured, the price of houses would rise. However, that does not appear to have happened and the trend seems to be moving in the opposite direction. The insurance sector has issued a warning regarding the consequences that might result if Fine Gael's proposal were accepted. Like the Minister for Finance, I encourage people to continue saving when the SSIA scheme comes to an end.
My final point relates to a worrying trend, which has been well publicised in the newspapers, in respect of people we would regard as having good incomes. Reference was made to the incomes of gardaí, nurses and teachers not being sufficient to allow them to purchase houses in the larger towns and cities. That is a matter about which one would be concerned. As Moore McDowell pointed out in his article, at the end of the day one's income must match the price of housing and what is really important is finding a way to extend one's loan or obtain good terms in respect of a fixed loan. The most important issue is the percentage of one's income one can afford to devote to mortgage payments. Incomes have risen and that is why the article to which I refer, which concentrated on members of particular professions who were well able to buy houses in the past, is important. I would be concerned if those people could no longer afford to purchase properties. However, that is not really the issue we are discussing this evening.
I hope we will continue to have reforms. A number of changes have been made since 2001 and I hope further changes will be introduced. I also hope the difficulties young people face will be alleviated by their introduction.
James Bannon (Fine Gael)
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I welcome the Minister of State, who is present to debate the important issue of stamp duty. I endorse the points made by Senators John Paul Phelan and Brian Hayes.
In a typical Irish dance, the Tánaiste, Deputy Michael McDowell, has been advancing and withdrawing in respect of the issue of stamp duty for the past couple of months because he is apparently unsure of the political consequences for himself and his party. He is keen to avoid making a nasty slip. A number of slips have been made in respect of this issue.
Stamp duty is one of the most emotive issues facing politicians. First-time buyers and those seeking to trade down and move into smaller homes are falling victim to the cruel and, according to the Tánaiste, unnecessary tax that is stamp duty. On 18 September, the Tánaiste said the State does not need the money accrued through stamp duty. Perhaps we should thank God the Tánaiste and Minister for Justice, Equality and Law Reform was not made Minister for Finance. Not that that would have been much consolation for the efficient working of the Department of Justice, Equality and Law Reform. His performance in that Department can be summed up easily. He has promised a great deal and delivered very little, for example, in recruitment and resourcing the Garda. This will come back to haunt him over the years.
John Minihan (Progressive Democrats)
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About what is the Senator talking?
Rory Kiely (Fianna Fail)
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We are not debating the Tánaiste and Minister for Justice, Equality and Reform.
John Minihan (Progressive Democrats)
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It took 80 years to reform the Garda.
James Bannon (Fine Gael)
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What Government would, in a "dog in the manger" way, insist that hard pressed couples, struggling to get a foot on the property ladder, pay a tax that forces them to face lifelong repayments, yet tell them it is unnecessary and unwanted? What justice is that? The Government is ripping us off and it is interfering with the efficient conduct of the property market. Stamp duty is widely unpopular and a penalty on living and it interferes with the normal movement of people through different property types during their lives. In the past nine years, the Government has collected €13 billion from home buyers through this controversial tax. Fine Gael would abolish stamp duty for first-time buyers on properties up to the value of €450,000, while the best the Government can do, in the face of mounting pressure, is consider marginally increasing the stamp duty exemption threshold from €317,500 for first-time buyers, with broad reform unlikely. Continuing the "dog in the manger" approach, the Minster for Finance is unlikely to bring in sweeping concessions, while the Progressive Democrats, in the face of public opinion, are pushing stamp duty reform, for which they would get the credit, but they will not get their way.
Currently, the rates of stamp-duty applicable in Ireland are less than €127,000, exempt; €127,000 to €190,500 exempt for first-time buyers, 3% full rate; €190,501 to €254,000 exempt for first-time buyers, 4% full rate; €254,001 to €317,500, first-time buyers exempt, 5% full rate; €317,501 to €381,000 first-time buyers 3%, 6% full rate; €381,001 to €635,000, first-time buyers 6%, 7.5% full rate; and more than €635,000, first-time buyers rate 9% ,and 9% full rate. Second hand houses are exempt from stamp duty for first-time buyers up to the value of €317,000 while a first-time buyer of a property worth more than €635,000 will pay 9% duty. The percentage of tax receipts from stamp duty has increased considerably in recent years and it represents a greater share of revenue for Ireland than any other European country for which data are available, as pointed out by my colleagues, Senators John Paul Phelan and Brian Hayes. In Britain, for example, stamp duty is charged at 3% on properties valued at less than Stg£500,000 and 4% on those valued higher.
While the exemption threshold amounts in Ireland have been raised ad hoc in the past few years, they have failed to keep pace with property price inflation and the rate at which stamp duty on residential property is charged has led to large revenue gains. Of last year's take, approximately €949 million was generated by residential sales and when investors are excluded, it is estimated that €600 million was paid by those buying their first property or trading up. In contrast, in most other European countries property price inflation has been moderate and-or stamp duty is charged at a fixed level, not as a percentage of the value of the transaction.
Ireland does not impose a residential property tax and is unique in the EU in this respect. Stamp duty is a tax on the transfer of property, while residential property tax is a tax on the ownership of property. A tax on the ownership of an asset does not impinge on the workings of the market as punitively as a tax on its sale or purchase. Taxes on the transfer of assets are ineffective in that they discourage the operation of the free market and tend to encourage owners of assets to hold on to them longer than they might otherwise consider doing. The presence of stamp duty will reduce willingness of buyers to pay the reserved price by a certain amount, particularly in the case of first-time buyers, thereby further delaying the point at which the asset can be sold on to the person most likely to develop it to its best use.
Two groups are adversely affected by the imposition of stamp duty — younger people looking to get a foot on the property ladder and those looking to trade up. Young people can be hardest hit with a stamp duty bill of between €20,000 and €30,000, while established purchasers are looking to trade up to a larger more costly property. Stamp duty on a €1 million property will cost them a staggering €90,000. As the Tánaiste and Minster for Justice, Equality and Law Reform has stated, the money collected on residential property could technically be foregone this year. The Government should, therefore, seek to return the tax for this period rather than just abolishing it. However, for how many years could a Government throw away more than €1 billion in revenue? The easiest solution would be to retain the tax in principle but, as Fine Gael is recommending, abolish it for first-time buyers on properties up to the €450,000 and levy stamp duty at a rate of 9% on excess value, which would cost less than €35 million a year.
Fine Gael would also target proposals for the old and disabled trading down and moving into more suitable accommodation and it is proposing the same exemptions for those over 70 years as for first time-buyers and the abolition of stamp duty on properties under the value of €550,000 for people with disabilities. Fine Gael is also proposing a house deposit saving scheme, similar to the SSIA scheme, for those saving for a deposit on a first home.
Noel Treacy (Galway East, Fianna Fail)
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Is cúis áthais dom a bheith ar ais aríst chun cuidiú leis an díospóireacht thábhachtach seo faoi chód cánachais na tíre, agus go háirithe faoin dleacht stampála. Molaim gach aon Seanadóir a ghlac páirt sa díospóireacht.
I am pleased to have the opportunity to contribute to the debate on the Government's tax policy and its record on taxation. The Government's approach to tax policy is set out in the Agreed Programme for Government and in recent budgets and Finance Bills. In addition, the partnership agreement, Towards 2016, states the Government is committed to a taxation policy designed to maintain and strengthen the competitive position of the economy, foster improvements in productive capacity, economic and social development and equity, while maintaining a sound fiscal stance. That is a balanced statement of the goals we have set ourselves in Government.
Improvements in the tax system since 1997 have meant more than 776,000 income earners are out of the tax net compared with approximately 380,000 ten years ago. Those on the minimum wage are exempt from tax. In addition, the tax burden for the married one-earner on average earnings has fallen from 20% to 8% under our watch. The married one-earner on average earnings has seen his or her annual tax bill fall by almost €1,500 even though his or her annual gross income has increased by more than €12,000 in that time. Even for those whose tax is calculated at 42%, the effect of the new fairer tax credit system brought in by the Government parties in 1999, combined with the other income tax changes to rates and bands, means that four fifths of earners pay no more than one fifth of their earnings in income tax. Tax rates have reduced under most tax heads since 1997. At the same time, the tax yield to the State has continued to rise due to the extra economic activity accompanying this policy. In some cases, such as capital gains tax and corporation tax, the tax yield increased substantially after rates were cut by us. This additional tax revenue has been used, among other things, to reduce tax on the ordinary PAYE worker, remove lower income earners from the tax net altogether and fund the provision of increased public services. This Government's tax policies have been designed to promote the competitiveness of our economy, support enterprise and reward work. Full employment is tangible evidence of the success of these policies in delivering fairness and dignity to ordinary families.
Under the Government, people are earning more and paying proportionately less tax, there is greater equity in the tax system and more people paying no income tax. This is a record to be celebrated and a great statement concerning our country. To give some examples, approximately 80% of people pay less than 20% of their wages in income tax and a one-earner married couple with two children and earning two thirds of the average industrial wage has seen the proportion of its income paid into income tax, PRSI and levies fall from 7.8% in 1997 to 2.8% after budget 2006. A similar person on the average industrial wage has seen a fall from 20.3% to 7.7%. For a one-earner married couple with children and earning 150% of the average industrial wage, the fall has been from 24.4% to 16.8%.
Under the age exemption limit system, those aged 65 years or over are exempt from tax up to specified limits. In 2006, the limits are €17,000 in the case of a single or widowed person and €34,000 in the case of a married couple where at least one person is aged 65 years or over. For the first time, the highest earners are restricted in the extent to which tax relief can be used in any given year to lower their tax bills. Following an extensive review last year, most of the property-based reliefs are being phased out.
Our achievements were accomplished within the constraints of the overarching commitment in the programme for Government regarding the need to pursue a responsible fiscal policy and to maintain the public finances in a healthy condition. The Government has achieved its objective of exempting those on the minimum wage from income tax. Prior to the Government gaining power, there was no statutory minimum wage. The Government's priority in its current term has been to target the available resources for income tax changes at those on low pay, including the elderly.
In international terms, we have maintained a favourable position in recent years. In each of the years since 2000 for which comparative data are available, Ireland has had the lowest tax rate for a single employee in the European Union and one of the lowest in the OECD. On a comparative basis, we lead the EU and the OECD in our economic, interest rate, inflation, job creation and house-building performances.
If one examines who is paying tax, many who are nominally liable at the higher rate effectively pay no more tax than they would at the standard rate. Allowing for this effect, the latest data indicate that approximately 80% of income earners paid tax at the standard rate in 2006. Tax credits offset the 42% liability in the cases of all but approximately 20% of income earners. The data show there are approximately 237,000 income earners, or 11% of all earners, with a marginal tax rate of 42% who pay no more than 20% after their tax credits are applied. Average taxes paid by the typical worker have fallen consistently during the Government's term as a result of a combination of changes in allowances, credits, bands and rates, which has been made possible through careful management of the economy.
Tax rates have fallen to such a point that we have one of the lowest tax rates in the OECD. A person on the minimum wage is outside the tax net entirely, the average wage earner is on a marginal rate of 20% and taxpayers in the 20% and 42% bands are paying less on average, even as a percentage of their earnings, than was the case in 1997. For example, the combined effect of tax and wage developments is that after inflation, a one-earner married couple with two children on 67% of the average industrial wage has an extra €63 every week, a similar couple on the average industrial wage has an extra €118 every week and a similar couple earning 150% of the average industrial wage has an extra €139 every week.
Recently, stamp duty arising from residential property has attracted much notice. As it is levied on an ad valorem basis, the yield has increased as a result of the large increases in house prices that resulted from a number of factors, including the increased demand for housing and the lowering of interest rates, which allowed people to borrow greater amounts. This year, new house completions are expected to be in the region of 90,000 to 95,000 with a similar number in 2007. In general, no stamp duty is payable on these houses.
The House is aware that the 2005 budget introduced a stamp duty-relieving measure for first-time house purchasers who are owner-occupiers of second-hand houses by increasing the stamp duty exemption threshold from €190,500 to €317,500 and by reducing rates for houses valued up to €635,000. This measure assisted affordability for first-time buyers and helped some first-time buyers who might not otherwise have been able to do so to afford starter homes. It also helped to open the second-hand market more to first-time buyers who had been increasingly deterred by the impact of stamp duty.
The reductions in stamp duty for second-hand houses removed the distortion between the new and second-hand markets for first-time buyers by reducing the degree of concentration of first-time buyer demand on the former. The average price of a second-hand house is often quoted when commenting on stamp duty. In Dublin, the average price of a second-hand house is quoted at €516,589 in the second quarter of 2006. However, the fact that half the houses sold in Dublin were sold for less than €381,000 is more relevant.
I will respond to some of the points made by speakers. In his opening speech, Senator John Paul Phelan referred to how we abolished the first-time buyer's grant and stated that we should not meddle in the stamp duty market. We carried out a serious examination of the grant and, taking account of the house prices charged and the different taxes paid by purchasers, determined that the net maximum value per house was €500. Placing restrictions on sizes, capacities, income levels, mortgage developments and so on was unfair to the discretion of purchasers and the market. That we abolished the grant to free up the market and to ensure that people would have discretion in choosing houses in a modern economy was the proper action to take because it levelled off the market and eased the burden instead of inflating prices——
John Paul Phelan (Fine Gael)
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Prices did not decrease when the grant was abolished.
Noel Treacy (Galway East, Fianna Fail)
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Prior to entering the Dáil, I spent 15 years as a financial services manager and a property marketing officer in a company. I know the market well. We were inflating the price of property for unfortunate first-time purchasers and we took the right action.
Noel Treacy (Galway East, Fianna Fail)
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There has been greater choice in the market as a result of the action.
Senator Brian Hayes stated that we were tampering with the market in that people who want to trade up will not buy because of "pathetic interventions", but that is not supported by the market or the returns. Mobility in the market has never been greater and the number of houses traded has never been better. The facts speak for themselves.
Senators Mansergh and Minihan stated that we have a responsibility to maintain a solid, careful and positive fiscal policy that provides returns to the Exchequer, is equitable and fair to the consumer and ensures we can deliver public services across the range of demands in order that the economy continues to prosper. We must be careful not to distort the overall solidity of the revenue base in our use of tools and mechanisms and our choice of innovations. It would be foolish to decide to abolish something because, with an election around the corner, it would be politically wise to do so. When making decisions, we must care for the medium-to long-term interests of our nation and the common good of the people.
Senators Ross and Brian Hayes spoke about politicising stamp duty, but no one on this side of the House is politicising it. We have made our position clear and we are responsible in what we say. I do not accept that many old people living in big houses would like to trade up, out or down or that many young people with large families are living in small houses. The market is not showing such. I live in remote, rural, rugged and beautiful east County Galway, where the houses being purchased are bigger than ever. I am sure that is the case in the Senators' own constituencies.
I listened with interest to what Senator Ross had to say. He talked about high professional fees but he is surely not suggesting the State should not receive a commensurate tax to ensure balance in society or that, as individual citizens and collectively, we should not make an equitable contribution to the development of our country.
I pay special tribute to Senator McDowell, whose speech was very measured, balanced, focused and fair. He spoke about licensing and share transfer, which we abhor and which the Minister for Finance has asked the Revenue Commissioners to examine. The Revenue Commissioners are carrying out a detailed analysis at present and will report to the Minister, Deputy Cowen in the new year. When the report comes forward we will take the necessary action in the Finance Bill. We do not want distortion in the market but sustainable transparency to ensure fairness for all involved.
I am sorry Senator Bannon has left. He accused the Government of ripping off people and wanted to exempt everything up to €450,000. When his party was last in Government it put stamp duty rates, in Budget 1997, up to 9% on transactions worth €170,000. We are not ripping off anybody but have reduced personal taxation, corporate taxation and capital gains tax and the returns show we have created stimulus in the economy by doing so. In year ten, the final year of Mr. McCreevy's tenure as Minister for Finance, we took in more money from the aforesaid taxes than in the nine previous years. That shows the reductions had a positive impact on the economy by ensuring people could trade and do business, creating a circular transfer of cash resources. This not only benefitted the individual and the companies which employed our people but also the public services in the country.
We continue to act in a measured way. How can Senator Bannon accuse us of ripping off people when the SSIAs were brought in by this Government? Mr. McCreevy was Minister for Finance at the time and his policies have been continued expertly under the guidance of the present Minister for Finance, Deputy Cowen, but we were attacked for bringing in SSIAs and accused of throwing away money and wasting resources. We created a savings culture in the country and a liquidity and reserve position. We gave people the opportunity to save and we educated young people in the necessary, traditional values of saving by rewarding them for doing so. The economy and resources of our country will be all the better for it.
Far from ripping off people or being mean we have been more than generous, to people individually by means of our tax policies and to the country in general by abolishing many of the impediments to economic activity in the tax system, which had existed for many years.
A slowdown in the housing market, which has long been predicted, now appears to be happening. The Minister for Finance, Deputy Cowen, has indicated that he is reluctant to interfere in this area as the market is dynamic and interference could have unintended consequences. That is a serious statement. If stamp duty were abolished who is to say prices would not inflate? The Minister is conscious that any reduction in stamp duty payable by purchasers may lead to higher prices, with no benefit arising to purchasers and at the expense of the Exchequer, as stamp duty has always had a moderating effect on all aspects of our property market over the years.
I hope I have put the matter in context and that Senators understand the Government's position on taxation right across the board. They can be assured the budget will be fair, equitable, measured and generous.
Paddy Burke (Fine Gael)
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I am delighted to speak on this motion and welcome the Minister to the House. It is clear there is a wide gap between Fianna Fáil and the Progressive Democrats on stamp duty.
John Paul Phelan (Fine Gael)
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Senator Leyden did not hear all of the debate.
Paddy Burke (Fine Gael)
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The Tánaiste and Minister for Justice, Equality and Law Reform must have done more to check the housing market in this country in one hour than anybody else has done in the past ten years when he said stamp duty should be abolished completely and that the State could do without the €2 billion it generates. I do not think anybody on this side of the House has said that stamp duty should be abolished completely.
I support the motion tabled by Senator John Paul Phelan this evening, which is designed to look after the first-time buyer in particular and outlines two ways in which it can be done. The Government has treated young and first-time buyers with contempt in the past ten years with its record on stamp duty. Not only did it take away from them the first-time buyer's grant of £3,000, the equivalent of €4,000, it also raised VAT on construction costs by 1.5% from 12% to 13.5%, which amounts to approximately €4,000 for the average house. What has been the result of that? The result has been 35-year mortgages and, in the past two years, 120% loans.
As Senator John Paul Phelan asked, when the first-time buyer's grant was abolished, did the price of houses come down? I do not think anybody saw a reduction in house prices. The first-time buyer's grant of €4,000 was very valuable because it helped purchasers to fit out and furnish their houses and it helped them with many necessities. Now a person buying a house for the first time must have a 120% mortgage or a 35-year term. Alternatively, his or her parents must mortgage or remortgage their house to provide the extra finance to provide him or her with a home for the first time.
I am very disappointed with the amendment tabled by the Government. The Government obviously does not want to speak about stamp duty and has concentrated its efforts on taxation. In the past four years in particular, 41 stealth taxes have been imposed by this Government. VAT has risen by 8% in some cases and motor tax by 12%. Hospital charges are up by 26% and the drug refund scheme by 31%. VHI costs have risen by 18% and cigarettes and alcohol by 15%. Bank and credit card charges have risen by 108%. Bin charges have risen by 29% and ESB costs have soared by 13%. College fees have risen by 9%, parking fees by 25% and bus fares by 9%. The TV licence has risen by 40% and there has been a VHI hike of 8.5%. The drug refund scheme threshold has risen by €8 to €78 and accident and emergency charges have risen by €5, from €40 to €45. There has been a 15% increase in the cost of private beds in public hospitals and the Government has imposed a €5 increase on the cost of overnight hospital stays, bringing them up to €45 per night with a cap of ten nights per year. Third level students' registration fees have risen by €80 to €750, the fee for junior certificate examinations has increased by €10 to €82 and the leaving certificate by the same amount to €86.
Paddy Burke (Fine Gael)
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As well as taking away the first-time buyer's grant and raising VAT to 13.5%, and on top of the foregoing other increases, the Government has introduced development levies, which in some counties have risen from €6,000 to €30,000. Can the Minister of State imagine the cost that has added to building houses the length and breadth of the country?
Passport fees have increased significantly as well, particularly for the under-privileged and the vulnerable. The cost of a passport for an infant has increased, as has the cost of passports for three year olds to eight year olds.
Paddy Burke (Fine Gael)
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There has been a huge increase in fares on buses, trains and the DART in recent years.
These are only half the number of stealth taxes that have been increased in the past three or four years. The Government speaks about increasing wages and reducing tax but one would need the resources of the Bank of Ireland to live nowadays, as a result of the taxes that have been imposed.
This is a reasonable motion from Senator Phelan. I am disappointed the Government has put down an amendment. In fact, it is not an amendment because it has nothing to do with the motion. The proposal in the motion would do a great deal for hard pressed young first-time buyers. I hope the Minister will reconsider the position.
There appears to be a rift between the Government parties on the stamp duty issue, with the Fianna Fáil Party going in one direction and the Progressive Democrats in another. However, it is not unusual for the Tánaiste, Deputy Michael McDowell, to make wild statements. When he was an Opposition Member in the early 1990s he stated with regard to the former Minister for Justice, former Deputy Nora Owen, that if he were Minister for Justice he would get rid of the drugs from Mountjoy Prison within six weeks. After five years as Attorney General and almost five years as Minister for Justice, Equality and Law Reform, there are now as many drugs, if not more, in Mountjoy Prison as there were ten or 12 years ago. One must take the comments of the Minister, Deputy McDowell, with a pinch of salt. I am sure the Minister for Finance, Deputy Cowen, said as much when he rebuffed the Minister for Justice, Equality and Law Reform with regard to the €2 billion that is badly needed for the economy.
Terry Leyden (Fianna Fail)
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First-time buyers face difficulties in today's housing market and the Minister for Finance, Deputy Cowen, has been examining ways to ease those difficulties, particularly in Dublin. According to Colin Smith, branch manager of Sherry Fitzgerald, most first-time buyers are spending up to €500,000, a massive amount, on a house. Given that stamp duty exemption stops at €317,000, it is clear many buyers are unable to avail of this benefit. That is the rationale for exempting first-time buyers from the duty.
I am not convinced that simply increasing the threshold would have the desired effect. We must ensure any reforms put in place in the market are targeted to benefit first-time buyers directly, rather than simply giving an excuse to developers to hike up their prices. There is always a danger that if extra exemptions are given, prices will rise. Simply increasing the threshold for stamp duty exemption would be offset by developers increasing their prices to compensate for this concession.
Local authorities should play a more proactive role in the provision of subsidised sites for first-time buyers. The buyers would then be free to negotiate the best deal for construction rather than be held hostage by developers who just sell for the highest possible price. A survey by Halifax last September found that key public sector workers, such as nurses, teachers, fire fighters and gardaí, were being priced out of the market in virtually all the State's biggest cities. In Dublin, homes were found to cost more than 13 times average public sector annual salaries. This places a massive burden on first-time buyers. Mortgage repayments over 35 years on a modest house can be well over €2,000 per month in Dublin. We must examine ways to improve the situation.
The Government acknowledges that there is a difficulty. How to solve it is the issue. We have faced many dilemmas in the past and solved them. Outside Dublin land is difficult to acquire. The low cost housing scheme, being developed by Mr. Geraghty and others under the national agreement, will bring many houses on stream. I am not familiar with the greater Dublin area but county councils in areas such as Donegal and Roscommon should be more proactive in acquiring land for housing sites for individual applicants. This happened in Hawthorn Drive in Roscommon town. Sites were sold for €20,500. This brought the cost of a house to approximately €160,000, a manageable price. However, I cannot persuade the county managers to open their wallets and provide housing sites for individuals.
If I were a county manager in Roscommon, I would have bought tracts of land throughout the county to provide in the future for young couples looking for houses. I would not wait for Government initiatives; I certainly would not wait for the Opposition to put forward solutions. I have great sympathy for the Opposition at present because it is difficult to be in Opposition when there is a strong and active Government.
John Paul Phelan (Fine Gael)
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The Senator's sympathy is noted. When we come to our kingdom he will be rewarded.
Terry Leyden (Fianna Fail)
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The Cathaoirleach is aware of what is happening in Limerick. Roscommon is an ordinary county. It is providing local authority houses of the best quality. It is also providing local authority sites, where possible, and other subsidised sites and housing. That is the way forward.
The biggest difficulty arises in the large cities of Dublin, Galway, Waterford, Limerick and Cork. The Minister should ensure that sites and land are made available by the State. The State should release all lands available, whether they are owned by the Army, the local authorities or the Office of Public Works. In Dublin, the local authorities should examine the possibility of acquiring lands that are not being used by developers. There is a legal provision whereby they can acquire those estates and lands to provide sites.
There is no easy solution to this issue. Tax exemptions is one means to tackle it. When I built my first house in 1971, the grant available was roughly 10% of the cost of the house. It was a big boost at the time. I was not over-enthusiastic about the removal of the local grants. I considered them an incentive to first-time house builders. However, they were removed and we must live with the consequences. It is probably better to provide tax concessions. In the budget next week the Minister will unveil a package which I believe will be of benefit to first-time buyers.
This issue is a serious challenge for the State at present. There are many issues facing the Government, including transport problems and so forth, and providing low cost housing to as many people as possible is another. If the Government can arrive at a Solomon-like solution, it will be of great benefit. I do not know the situation in the constituency in Donegal of the Minister of State, Deputy Gallagher, but, generally, the local authorities have been proactive but not proactive enough. There is also the influx of immigrants to many areas and they must be also provided with housing. Simply changing the tax code is a problem. However, the threshold for stamp duty for new house buyers should be raised to at least €400,000. That would be a step in the right direction.
Joe McHugh (Fine Gael)
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I wish to share time with Senator Bradford.
Rory Kiely (Fianna Fail)
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Is that agreed? Agreed. The Senators have four minutes each.
Joe McHugh (Fine Gael)
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I welcome the opportunity to speak in this debate. I also welcome a fellow Donegal man, the Minister of State, Deputy Gallagher. He will be aware of the challenges in providing housing in our county. However, we must debate an issue such as this on a national basis. With regard to stamp duty, the issue has been avoided in the course of the debate and in the Government's amendment.
For the past decade, construction has been this country's lifeblood, with significant revenue and other benefits accruing from the sector. The 90,000 houses which were built last year produced average fees worth €80,000 for solicitors and architects, as well as 13% profits for builders. Last year, the construction sector contributed a total of €6.4 billion to the economy. However, nobody in Government appears willing to ask questions about long-term sustainability. The blind belief persists that the good times will not end and the construction will remain sustainable. Fianna Fáil and Progressive Democrat politicians privately agree the industry is not sustainable, yet they have not introduced any measures to address the problem. Other industries which were traditionally sustainable, such as fishing and farming, are being ignored. No strategy has been put in place to divert resources into alternative industries.
Three weeks ago, Mr. John Bruton shared with this House his perspective as European ambassador to the United States. We can become blinded as politicians by our work at constituency level but he was a former Taoiseach and is now able to evaluate the country from the outside, which allows him to recognise the risk that our financial capital will be exported. People are investing in countries such as Bulgaria, Romania and Poland, or taking their money to Germany or the US. We should be debating the reasons for this exportation of our financial capital. We have to find solutions that incentivise the people who made money from the booming Celtic tiger to keep their capital in this country. We can do that by offering rewards for innovation or investments into public goods such as primary schools and sewerage schemes.
The threshold on stamp duty for first-time buyers must be increased on a pro rata basis because the situation varies across the country. Fine Gael's policy is to seek ways of abolishing stamp duty for first-time buyers.
Paul Bradford (Fine Gael)
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I support the motion and concur with the points raised by Senator McHugh regarding the construction industry. Some 20 years ago, the then Taoiseach, Charles Haughey, stated the country was living beyond its means. A few months ago, the present Tánaiste claimed the Government was living beyond its needs and should return the money raised from stamp duty. Next Wednesday, we will learn the Government's opinion on the Tánaiste's philosophy. Will stamp duty be dramatically overhauled, as suggested by the Progressive Democrats, or will the Minister for Finance and the Fianna Fáil monopoly on Government power win the day? The Tánaiste has previously stated that the Progressive Democrats must be either radical or redundant but we will learn next Wednesday whether his party is relevant to this Government's economic policies. While I support some of the proposals on stamp duty made by the Progressive Democrats, I am unsure whether their suggestions will be enacted next week.
There is no point in that party's Members proclaiming they will deal with stamp duty if they are re-elected because they have been in Government for most of the past ten years and, if they are unable to introduce the necessary measures next Wednesday, they will never do so. Ample evidence is available to support radical reform of stamp duty, particularly in respect of first-time buyers, elderly people who may wish to trade down and disabled people with special housing needs. Reforms will require political will and courage from the Minister for Finance.
Rising house prices are creating almost impossible financial barriers to young people who want to get onto the property ladder. The construction industry may be booming but we have witnessed trends in the past few weeks which suggest a limited downward spiral. Much of the current uncertainty in the housing market arises from the controversy surrounding the Progressive Democrat Party's policies on stamp duty.
Fine Gael's motion seeks to help first-time buyers and those who wish to trade down to smaller properties. Surprisingly, the Government's amendment makes no reference to the motion but instead gives us a mini-lecture on tax reform. All parties in this House welcome the general reductions that have been made to taxation and we know from the experience of western Europe that low tax economies work best. However, while we can argue about how low our taxes should be, nobody can disagree that stamp duty is a heavy financial burden on first-time buyers or that reform is urgently needed. I urge the Minister for Finance to include a package of measures in next week's Budget Statement which will allow young people to get onto the property ladder and permit people to trade down without facing significant financial penalties. Stamp duty reform must form part of any such package. Next week's statement from the Minister will determine whether the Progressive Democrats are relevant or redundant.
7:00 pm
John Paul Phelan (Fine Gael)
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I thank Senators on all sides of the House for their contributions to tonight's debate. I am delighted we held a debate on stamp duty, despite the fact that the Government's amendment makes no mention of the issue. We have had a full and frank exchange of views which has allowed us to expose the differences that exist between Fianna Fáil and the Progressive Democrats on stamp duty.
Why did the Government consider it necessary to table an amendment which did not address stamp duty? The majority of the amendment was devoted to the issue of income tax and only in its last line was reference made to people who wanted to buy houses. The Minister of State took 30 minutes to deliver a four and a half page speech, four pages of which were concerned with income tax. He will have plenty of time during next week's Budget Statement to say what he wishes on the issue. The Minister for Finance, who knows a little more about income tax, spoke on it last week during our debate on the Estimates. However, why is it that, when we want a full and frank exchange of views on stamp duty, the Government ends up talking about income tax? I am unsure whether the Government, under the rules of the House, is allowed to change the subject of the motion we were supposed to be debating so completely. Perhaps that should be taken up by other authorities to change the rules under which the House operates.
In Senator Mansergh's remarks, he referred to our not being able to afford to meddle in the property market. The Government has done so consistently, each time digging us into a deeper hole regarding housing costs. Whether it was the abolition of the first-time buyer's grant or the changes made a few years ago regarding stamp duty, immediately afterwards the price of the average two-bedroom house in this city increased to the exemption limit. It happened virtually the day after the Minister announced the changes in the other House and we debated them in this.
In Senator Minihan's contribution, he stated that he supported the Fine Gael motion, although I suspect he will not do so when it comes to the division. He spoke of a need for stability in the property market, and if one talks to the proverbial dogs in the street, the auctioneers and those currently seeking to buy, they will tell one that the current instability in the market was caused by the Tánaiste's September remarks. The blame lies solely at his door, and the Government has a brass neck talking about a need for stability in the market. As soon as the Tánaiste gets a microphone in front of his face, he mouths off about his views on stamp duty.
Senator Kitt made a good contribution, but he also stated his belief that the first-time buyer's grant was of no benefit to the group in question. I would like him to explain that to people trying to buy a house in Galway, given current property prices in the city. Senator Leyden almost but not quite reiterated his explanation to the House that somehow, once the first-time buyer's grant had been removed, there was a knock-on benefit for that group. We did not see a fall in the price being charged to them because developers suddenly noticed that the Government had abolished the grant and realised they could no longer charge €4,500 extra. It had no positive effect whatsoever. It was quite negative, since the grant was often used by first-time buyers to fit out their houses, perhaps to get the kitchens done or buy furniture after the purchase.
I have already mentioned the Minister's contribution, but he stood before us and spoke of how well the property market was working. There are many categories of people in this city and throughout the country who can no longer afford to buy a house but who could have done so ten years ago. Regardless of some people's reservations regarding the use of average prices, the fact remains that in this city in 1996, when Fine Gael was last in Government, one could buy an average house for €80,000. Now the figure is €424,000, and that is the biggest indictment of this Government as we approach the general election.
Senator Leyden's contribution was the most measured I have heard him deliver in the four and a half years that I have sat in this House. He acknowledged a serious problem, which he claimed the Government was considering. However, it has spent ten years doing that. We had Bacon reports coming out of our ears for the first few years, but we are still told the Government is considering the problem. Surely that time is now long past.
The Fine Gael policy is clear. We are in favour of radical alterations to the system regarding first-time buyers. As Senator Bannon said, we are in favour of an SSIA-type scheme for those hoping to provide themselves with a first house. We are clearly in favour of a significant reduction in stamp duty for first-time buyers.
We are also quite clear that there must be an examination of older people in large properties who wish to trade down but are faced by the barrier of stamp duty, for which there is no longer any excuse. In this city in particular, there are settled older communities that have the local infrastructure of schools, post offices and corner shops. Often there is only one person in the house, and those schools, post offices and shops are being closed. In the meantime we are building concrete jungles in Meath, Kildare, Wicklow and Louth for people because houses in settled communities in Dublin do not come on the market regularly enough. It is clear we must focus afresh on that situation before the budget.
I ask Senators on all sides to consider the motion. The amendment clearly has nothing whatsoever to do with it, and I appeal in particular to members of the Progressive Democrats, who have a policy position on this, to support the motion. We do not ask that the Government publish State secrets or give notice of what next Wednesday's budget contains. However, we request that it conduct a serious and genuine examination of the significant problem that stamp duty poses, especially to those hoping to buy their first homes.
The Dail Divided:
For the motion: 28 (Cyprian Brady, Michael Brennan, Peter Callanan, Brendan Daly, Timmy Dooley, Geraldine Feeney, Liam Fitzgerald, Camillus Glynn, John Gerard Hanafin, Brendan Kenneally, Tony Kett, Michael Kitt, Terry Leyden, Don Lydon, Marc MacSharry, Martin Mansergh, John Minihan, Paschal Mooney, Pat Moylan, Francis O'Brien, Mary O'Rourke, Labhrás Ó Murchú, Ann Ormonde, Kieran Phelan, Eamon Scanlon, Jim Walsh, Mary White, Diarmuid Wilson)
Against the motion: 17 (James Bannon, Paul Bradford, Fergal Browne, Paddy Burke, Ulick Burke, Paul Coghlan, Maurice Cummins, Frank Feighan, Brian Hayes, Derek McDowell, Joe McHugh, David Norris, Kathleen O'Meara, John Paul Phelan, Shane Ross, Brendan Ryan, Sheila Terry)
Tellers: Tá, Senators Minihan and Moylan; Níl, Senators Cummins and J. Phelan.
Amendment declared carried.