Eoin Ó Broin (Dublin Mid West, Sinn Fein)
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212. To ask the Minister for Finance further to Parliamentary Question No. 275 of 22 February 2022, if the home renovation incentive will be reinstated and extended to cover works carried out after December 2018 to enable homeowners to reclaim 13.5% VAT. [13127/22]

Paschal Donohoe (Dublin Central, Fine Gael)
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I should clarify that, prior to its expiry, the Home Renovation Incentive (HRI) operated as a relief from Income Tax (albeit at a rate of 13.5%) rather than VAT.

The HRI provided tax relief by way of an income tax credit on repair, renovation or improvement works on principal private residences or rental properties carried out by tax compliant contractors. It was introduced in 2014 at a time when there was considerable loss of employment within the construction sector, with the aim of addressing this market failure by stimulating increased activity in the sector. 

I have no plans to reinstate the Home Renovation Incentive for the following reasons. 

The HRI expired on 31 December 2018 following a review of the scheme.  The review found that in the context of the 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 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 continuation of the scheme could give rise to displacement of labour from work on new builds to work on home renovations and would create a high opportunity cost of labour which was not present at the inception of the scheme.

Also, in 2019, in the context of Tax Strategy Group (TSG) deliberations, my Department examined the concept of a tax incentive along the lines of the HRI for domestic retrofit projects. The relevant TSG paper was published with the Budget 2020 documentation.  It indicated that there could be a duplication of supports with the direct Sustainable Energy Authority of Ireland (SEAI) grant system already in place and that a scheme such as this could conflict with the need to increase overall housing supply.  

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;

- 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); and

- 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.

It is my view that these observations still hold true. 

More generally, proposals for tax expenditure measures are 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. In particular, they provide that a tax-based incentive should only be considered where it would be more efficient than a direct expenditure intervention. 

In this regard, the Deputy will be aware that the Government has approved the National Retrofitting Scheme, which is a package of supports to undertake home energy upgrades, for warmer, healthier and more comfortable homes with lower energy bills.  The scheme will be administered by the Sustainable Energy Authority of Ireland (SEAI).