Pádraig O'Sullivan (Cork North Central, Fianna Fail)
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204. To ask the Minister for Finance if consideration will be given to applying a tax credit (details supplied) to persons who retrofit homes for energy efficiency; and if he will make a statement on the matter. [1028/21]

Paschal Donohoe (Dublin Central, Fine Gael)
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As the Deputy will appreciate, the introduction of any new tax expenditure measures would arise in the context of the Budget and Finance Bill process. Furthermore, I must always be mindful of the public finances and the many demands on the Exchequer. Tax reliefs, no matter how worthwhile in themselves, lead to a narrowing of the tax base.

Proposals for tax expenditure measures should be assessed in accordance with my department's Tax Expenditure Guidelines. Drawing on economic evidence, these make clear that it is important that any policy proposal which involves tax expenditures should only occur in limited circumstances where there are demonstrable market failures and where a tax-based incentive is more efficient than a direct expenditure intervention.

The proposal for a domestic retrofit tax incentive was explored by my officials in a Tax Strategy Group paper on Climate Action and Tax, published in July 2019 (available at ).

The paper observed that:

- In terms of current direct expenditure measures in the energy efficiency sector, the Government continues to make grants available to householders who wish to improve the energy efficiency of their home through the SEAI's Better Energy Homes (BEH) and Deep retrofit Grant programme.

- Recent research undertaken by the ESRI into householder preferences regarding retrofit subsidy schemes found that households strongly prefer cash payment subsidies (i.e. up-front discounts or cash back post works) versus other indirect methods of financial support (e.g. tax credits).

- From an equity perspective, tax expenditure measures can be regressive by nature, given that only those who pay taxes qualify, and those with greatest income benefit the most. As such, a tax incentive measure as proposed may be of little benefit to certain groups who are most likely to suffer from energy poverty, for example the elderly or those on limited incomes.

- The Home Renovation Incentive (the tax measure on which the proposal was based) expired on 31 December 2018 following an ex-post analysis of the scheme. The review found that in the context of the current housing supply shortage, and the need at that time to deliver 25,000 additional housing units per annum over the period 2017-2021, there was a risk that the retrofit scheme could lead to increased competition for scarce resources within the construction sector, leading to upward pressure on construction costs and house prices. The review concluded that the potential for displacement of labour from work on new builds to work on home renovations would create a high opportunity cost of labour associated with HRI which was not present at the inception of the scheme. Given the continued constraints on the construction sector's ability to hire labour to deliver a supply of new housing units, similar issues may arise with regard to the introduction of this proposed tax based measure.

Having regard to these considerations, the case for introducing a tax measure along the lines mentioned by the Deputy is not a strong one from the perspective of my Department.