Written answers

Wednesday, 31 March 2021

Photo of Fergus O'DowdFergus O'Dowd (Louth, Fine Gael)
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65. To ask the Minister for Finance if engagement has been held on the use of the tax system to support householders with the cost of renovations and retrofit projects both to combat climate change and ensure that accommodation is suitable for persons at all life stages; and if he will make a statement on the matter. [1695/21]

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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Primary policy responsibility for climate change and housing lies with the Minister for Environment, Climate Change and Communications and the Minister for Housing, Local Government and Heritage. However, in relation to tax-based measures for retrofit projects, my officials considered such a measure in the context of a Tax Strategy Group paper in 2019. That paper was published with the Budget 2020 documentation. In brief, it was found that there could be a duplication of supports with the direct SEAI grant system already in place and that a scheme such as this could conflict with the overarching need to increase overall housing supply.

The paper also 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.

- 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 such as 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 deliver a supply of new housing units, similar issues may arise with regard to the introduction of this proposed tax based measure.

In the normal course of events, the introduction of any new tax expenditure measure would take place in the context of the annual Budget and Finance Bill process. It would also be usual that proposals for tax expenditure measures would be assessed in accordance with my Department's Tax Expenditure Guidelines. 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. 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 and a strong and convincing case for the benefits and outcomes need to be articulated in order for due consideration to be given for the commitment of scarce taxpayer resources for such reliefs.

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